Indiana Alcohol and Tobacco Commission v. Lebamoff Enterprises, Inc.

Mar 19 2015, 9:42 am

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE

Gregory F. Zoeller Matthew Price

Attorney General of Indiana Karl L. Mulvaney

Margaret M. Christensen

Kristin Garn Bingham Greenebaum Doll, LLP

Deputy Attorney General Indianapolis, Indiana

Indianapolis, Indiana

ATTORNEYS FOR AMICUS CURIAE

BIG RED LIQUORS INC.

John B. Herriman

Michael P. Maxwell, Jr.

Clark Quinn Moses Scott & Grahn, LLP

Indianapolis, Indiana

IN THE

COURT OF APPEALS OF INDIANA

Indiana Alcohol and Tobacco March 19, 2015

Commission, Court of Appeals Case No.

49A02-1408-MI-529

Appellant-Respondent,

Appeal from the Marion Superior

v. Court

The Honorable Robert R. Altice, Jr.,

Judge

Lebamoff Enterprises, Inc.,

Trial Court Cause No. 49D11-1202-

Appellee-Petitioner MI-8272

Bradford, Judge.

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Case Summary

[1] Title 7.1 of the Indiana Code sets forth statutory restrictions relating to the sale

of alcoholic beverages within the State of Indiana. Title 7.1 differentiates

between the available permits for the sale of liquor, beer, and wine. With

respect to the sale of wine, Title 7.1 further differentiates between various types

of available permits. The General Assembly has crafted different rules and

regulations for each of the available permits. These rules and regulations allow

the permit holder to complete certain actions and restrict the permit holder from

completing certain actions. The General Assembly has stated that the

classifications and differentiations made in Title 7.1 are real and are

substantially related to the accomplishment of the purposes of this title. As

such, one can reasonably presume that the level of care undertaken by the

General Assembly in differentiating between the rules and regulations that

apply to the different types of permits indicates that the General Assembly

intended for the rules and regulations relating to each individual type of permit

to be read alone, and not for any differences between the rules and regulations

relating to the different types of permits to be harmonized with each other upon

review.

[2] In the instant matter, Appellant-Respondent the Indiana Alcohol and Tobacco

Commission (the “ATC”) determined that Appellee-Petitioner Lebamoff

Enterprises, Inc. (“Lebamoff”), which holds a liquor dealer’s permit, had

violated the applicable rules and regulations relating to the home delivery of

wine. Lebamoff sought judicial review of the ATC’s interpretation in the trial

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court which, upon review, held in favor of Lebamoff. The ATC appealed.

Concluding that the ATC’s interpretation of the applicable rules and regulations

was reasonable and did not amount to an improper exercise of the ATC’s

rulemaking function, we reinstate and affirm the ATC’s final order.

Facts and Procedural History

[3] Our decision in the parties’ prior appeal of the matter to this court provides the

following:

Lebamoff is an Indiana corporation that operates liquor stores in

northern Indiana and holds a liquor dealer[’s] permit, the scope of

which is detailed at Indiana Code section 7.1-3-10-7. Beginning in

2008, the [ATC] issued six citations to Lebamoff alleging violations of

its permit, stemming from Lebamoff’s use of common carriers to

transport product to customers for sales generated through fulfillment

companies.[1]

Lebamoff appealed the citations. Following a hearing in November

2011, [an Administrative Law Judge (“ALJ”)] issued findings of fact

and conclusions of law on January 18, 2012, concluding that Lebamoff

had violated the statute by using common carriers. The ALJ

recommended that Lebamoff be fined one thousand dollars for each

violation and that Lebamoff’s permit be suspended for sixty days, with

the suspension to be deferred for one year on the condition that all

fines were paid and Lebamoff did not accrue any further violations

during the deferral period. The ATC approved the recommendations

and issued its final order on February 7, 2012.

1

On at least one occasion, the wine at issue was signed for and taken into possession by the

nineteen-year-old daughter of the intended recipient. Neither the intended recipient nor his nineteen-

year-old daughter were ever asked to provide identification or to show proof that they were of legal

age before purchasing or accepting possession of the wine in question.

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Lebamoff Enterprises, Inc. v. Ind. Alcohol & Tobacco Comm’n, 987 N.E.2d 525, 526-

27 (Ind. Ct. App. 2013).

[4] On February 29, 2012, Lebamoff filed a petition for judicial review of the

ATC’s final order. In its petition for judicial review, Lebamoff argued that the

ATC’s interpretation of Indiana Code section 7.1-3-10-7 was unreasonable. On

March 28, 2012, the ATC filed a response to Lebamoff’s petition in which the

ATC argued that the issues raised by Lebamoff were barred by the doctrines of

res judicata, collateral estoppel, and judicial estoppel.

[5] On April 10, 2012, the ATC filed a request for the trial court to dismiss the case

for failure to file the administrative record. The trial court granted the ATC’s

motion on September 20, 2012. Lebamoff appealed, and, on April 26, 2013, we

concluded that although Lebamoff did not meet the requirements for filing an

agency record that are set forth in the Administrative Orders and Procedures

Act (“AOPA”), the materials submitted with the petition were sufficient for

judicial review of the legal question at issue. Id. at 531. We then remanded the

matter to the trial court for further proceedings. Id.

[6] On January 23, 2014, the ATC filed a brief in opposition to Lebamoff’s petition

for judicial review. Lebamoff responded to the ATC’s brief in opposition on

February 7, 2014. On July 8, 2014, the trial court issued an order in which it

found that the ATC’s interpretation of Indiana Code 7.1-3-10-7(c) was incorrect

and that the ATC’s final order amounted to an improper attempt to exercise the

ATC’s rulemaking function. This appeal follows.

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Discussion and Decision

[7] On appeal, the ATC contends that, in reversing its decision, the trial court

erroneously determined that its interpretation of the relevant statutory language

was unreasonable. In support, the ATC argues that the relevant statutory

language—which it claims does not allow for wine sold by Lebamoff to be

delivered to a customer’s residence by a common carrier—is unambiguous and

allows for only one reasonable interpretation. The ATC also contends that the

trial court erroneously determined that its order reflected an improper attempt

to create an agency rule rather than an administrative adjudication.

[8] For its part, Lebamoff contends that the trial court properly determined that the

ATC’s interpretation of the relevant statutory language was unreasonable. In

support, Lebamoff argues that the rules of statutory construction indicate that

Title 7.1 should be read together in a harmonious fashion. Lebamoff further

argues that when Title 7.1 is read together in a harmonious fashion, the only

reasonable interpretation would allow Lebamoff to ship wine to customers via

common carrier. In making this argument, Lebamoff points to certain portions

of Title 7.1 which allow for the shipment of wine via common carrier if certain

requirements are met, and argues for a broad interpretation of the meaning of

the term “permit holder.” Lebamoff also contends that the trial court’s

determination that the ATC’s order reflected an improper attempt to create an

agency rule was proper because the ATC failed to follow the necessary

procedures for completing its rulemaking function.

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I. Standard of Review

[9] While the legislature has granted courts the power to review the action

of state government agencies taken pursuant to the [AOPA], this

power of judicial review is limited. See State Bd. of Registration for Prof’l

Eng’rs v. Eberenz, 723 N.E.2d 422, 430 (Ind. 2000); Indiana Dep’t of

Envtl. Management v. Conard, 614 N.E.2d 916, 919 (Ind. 1993); Indiana

Dep’t of Natural Resources v. United Refuse Co., 615 N.E.2d 100, 103 (Ind.

1993). A court may only set aside agency action that is:

(1) arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law;

(2) contrary to constitutional right, power, privilege, or immunity;

(3) in excess of statutory jurisdiction, authority, or limitations, or short

of statutory right;

(4) without observance of procedure required by law; or

(5) unsupported by substantial evidence.

See Ind. Code § 4-21.5-5-14(d).

LTV Steel Co. v. Griffin, 730 N.E.2d 1251, 1257 (Ind. 2000). “The party seeking

judicial review bears the burden to demonstrate that the agency’s action is

invalid.” Pendleton v. McCarty, 747 N.E.2d 56, 61 (Ind. Ct. App. 2001) (citing

Ind. Code § 4-21-5-5-14(a)).

[10] A review of an administrative agency’s decision at the trial court level “is not

intended to be a trial de novo, but rather the court simply analyzes the record as

a whole to determine whether the administrative findings are supported by

substantial evidence.” Whirlpool Corp. v. Vanderburgh Cnty.-City of Evansville

Human Relations Comm’n, 875 N.E.2d 751, 759 (Ind. Ct. App. 2007) (citing

Amoco Oil Co. v. Comm’r of Labor, 726 N.E.2d 869, 872 (Ind. Ct. App. 2000)). A

party may appeal a trial court’s determination of the propriety of the

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administrative agency’s decision pursuant to the rules governing civil appeals.

See Ind. Code § 4-21.5-5-16. “When reviewing an administrative agency’s

decision, appellate courts stand in the same position as the trial court.”

Pendleton, 747 N.E.2d at 61 (citing Amoco, 726 N.E.2d at 872).

[11] An appellate court “may not substitute [its] judgment on factual matters for that

of the agency and are bound by the agency’s findings of fact if [the findings] are

supported by substantial evidence.” Whirlpool, 875 N.E.2d at 759 (citing Ind.

Dep’t of Natural Res., Law Enforcement Div. v. Cobb, 832 N.E.2d 585, 590 (Ind. Ct.

App. 2005)).

Furthermore, courts that review administrative determinations, at both

the trial and appellate level, review the record in the light most

favorable to the administrative proceedings and are prohibited from

reweighing the evidence or judging the credibility of witnesses.

[Amoco, 726 N.E.2d at 873.] While reviewing courts must accept the

agency’s findings of fact if supported by substantial evidence, no such

deference need be accorded an agency’s conclusions of law, as the law

is the province of the judiciary. Id.

Id. However, “[a]n interpretation of a statute by an administrative agency

charged with the duty of enforcing the statute is entitled to great weight, unless

this interpretation would be inconsistent with the statute itself.” LTV Steel, 730

N.E.2d at 1257; State Emps. Appeals Comm’n v. Barclay, 695 N.E.2d 957, 959-60

(Ind. Ct. App. 1998).

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II. Overview of Relevant Statutory Authority

A. General Information Relating to Title 7.1

[12] As is stated above, Title 7.1 of the Indiana Code sets forth statutory restrictions

relating to the sale of alcohol within the State of Indiana. Title 7.1 applies to

the commercial manufacturing, bottling, selling, bartering, importing,

transporting, delivering, furnishing, or possessing of alcohol and alcoholic

beverages. Ind. Code § 7.1-1-2-2. The following are the general purposes of

Title 7.1:

(1) To protect the economic welfare, health, peace, and morals of the

people of this state.

(2) To regulate and limit the manufacture, sale, possession, and use of

alcohol and alcoholic beverages.

(3) To regulate the sale, possession, and distribution of tobacco

products.

(4) To provide for the raising of revenue.

Ind. Code § 7.1-1-1-1.

[13] Title 7.1 differentiates between the available permits for the sale of liquor, beer,

and wine. As is stated above, with respect to the sale of wine, 2 Title 7.1 further

2

Wine is defined as “an alcoholic beverage obtained by the fermentation of the natural

sugar content of fruit, fruit juice, or other agricultural products containing sugar, including

necessary additions to correct defects due to climatic, saccharine, and seasonal conditions, and

also the alcoholic fortification of the beverage.” Ind. Code § 7.1-1-3-49. “The term includes

hard cider, except for alcoholic beverage tax purposes.” Id. “The term does not mean an

alcoholic beverage that contains twenty-one percent (21%), or more, of absolute alcohol

reckoned by volume.” Id.

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differentiates between various types of available permits. Title 7.1 creates

different farm winery permits, wine wholesalers’ permits, wine retailers’

permits, wine dealers’ permits, and direct wine sellers’ permits. Each of these

types of permits have different rules and regulations that apply to the specific

type of permit. Indiana Code section 7.1-1-2-1 specifically provides that Title

7.1:

is an exercise of the police powers of the state. The classifications and

differentiations made in this title are real and are actually and

substantially related to the accomplishment of the purposes of this title.

The provisions of this title shall be liberally construed so as to

effectuate the purposes of this title.

B. Statutory Language Relating to Permit Held by Lebamoff

[14] The ATC may issue a liquor dealer’s permit to a person,3 including a package

liquor store,4 who desires to sell liquor to customers for consumption off the

licensed premises. Ind. Code §§ 7.1-3-10-1, -4.

3

Indiana Code section 7.1-1-3-31 indicates that the term “person” includes: (1) a natural

individual; (2) a firm; (3) a corporation; (4) a partnership; (5) a limited partnership; (6) a limited

liability company; (7) an incorporated or unincorporated association; or (8) an other legal entity.

4

A package liquor store is “a place or establishment that meets the requirements

provided in [Indiana Code chapter] 7.1-3-10 [(concerning liquor permits)], and whose exclusive

business is the retail sale of alcoholic beverages and commodities that are permissible under this

title for use or consumption only off the licensed premises.” Ind. Code § 7.1-1-3-28. Indiana

Code section 7.1-3-10-5 provides that a package liquor store’s exclusive business shall be the

selling of the following commodities only:

(1) Liquor in its original package.

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A liquor dealer may deliver liquor only in permissible containers to a

customer’s residence or office in a quantity that does not exceed twelve

(12) quarts at any one (1) time. However, a liquor dealer who is

licensed under [Indiana Code section] 7.1-3-10-4 may deliver liquor in

permissible containers to a customer’s residence, office, or designated

location. This delivery may only be performed by the permit holder or an

employee who holds an employee permit. The permit holder shall maintain

a written record of each delivery for at least one (1) year that shows the

customer’s name, location of delivery, and quantity sold.

Ind. Code § 7.1-3-10-7(c) (emphasis added).

C. Relevant Types of Permits Relating to the Sale of Wine

1. Wine Dealer’s Permit

[15] The ATC may issue a wine dealer’s permit to a person who desires to sell wine

or flavored malt beverages for consumption off the licensed premises. Ind.

Code § 7.1-3-15-1. However, “[t]he commission may issue a wine dealer’s

(2) Beer in permissible containers, if the permittee has the proper permit.

(3) Wine in its original package.

(4) Bar supplies used in the preparation for consumption of alcoholic beverages

and in their consumption.

(5) Tobacco products.

(6) Uncooled and uniced charged water, carbonated soda, ginger ale, mineral

water, grenadine, and flavoring extracts.

(7) Printed materials.

(8) Lottery tickets as provided in [Indiana Code chapter] 4-30-9.

(9) Cooled or uncooled nonalcoholic malt beverages.

(10) Flavored malt beverage in its original package.

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permit only to the following: (a) A person who is the holder of a beer dealer’s

permit; or, (b) A person who is the holder of a liquor dealer’s permit.” Ind.

Code § 7.1-3-15-2. The holder of a wine dealer’s permit “shall be entitled to sell

wine for consumption off the licensed premises only and not by the drink.”

Ind. Code § 7.1-3-15-3(a).

[16] “A wine dealer shall be entitled to sell wine in permissible containers in a

quantity of not more than three (3) standard cases, as determined under the

rules of the commission, in a single transaction.” Ind. Code § 7.1-3-15-3(b).

“However, a wine dealer who is licensed under [Indiana Code section] 7.1-3-

10-4 may possess wine and sell it at retail in its original package to a customer

only for consumption off the licensed premises.” Id. Furthermore, “a wine

dealer who is licensed under [Indiana Code section] 7.1-3-10-4 may deliver

wine only in permissible containers to a customer’s residence, office, or

designated location.” Ind. Code § 7.1-3-15-3(c). “This delivery may only be

performed by the permit holder or an employee who holds an employee permit.” Id.

(emphasis added). “The permit holder shall maintain a written record of each

delivery for at least one (1) year that shows the customer’s name, location of

delivery, and quantity sold.” Id.

2. Direct Wine Seller’s Permits

[17] “A person located within Indiana or outside Indiana that wants to sell and ship

wine directly to a consumer must be the holder of a direct wine seller’s permit

and comply with this chapter.” Ind. Code § 7.1-3-26-5.

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(a) The commission may issue a direct wine seller’s permit to an

applicant who meets all of the following requirements:

(1) The applicant is domiciled and has its principal place

of business in the United States.

(2) The applicant is engaged in the manufacture of wine.

(3) The applicant holds and acts within the scope of

authority of an alcoholic beverage license or permit to

manufacture wine that is required:

(A) in Indiana or the state where the

applicant is domiciled; and

(B) by the Tax and Trade Bureau of the

United States Department of the Treasury.

(4) The applicant qualifies with the secretary of state to do

business in Indiana and consents to the personal

jurisdiction of the commission and the courts of Indiana.

(5) The applicant files a surety bond with the commission

in accordance with [Indiana Code chapter] 7.1-3-1, or

deposits cash in an escrow account with the commission,

in the amount required of an applicant for a vintner’s

permit under [Indiana Code section] 7.1-3-1-7.

(6) The applicant:

(A) has not distributed wine through a wine

wholesaler in Indiana within the one

hundred twenty (120) days immediately

preceding the applicant’s application for a

direct wine seller’s permit and does not

distribute wine through a wine wholesaler

in Indiana during the term of the direct

wine seller’s permit; or

(B) has operated as a farm winery under

[Indiana Code chapter] 7.1-3-12.

(7) The applicant completes documentation regarding the

applicant’s application required by the commission.

(b) The commission may issue a direct wine seller’s permit to an

applicant who:

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(1) meets the requirements under subsection (a); and

(2) holds a permit issued under this title that allows the

sale of an alcoholic beverage at retail.

Ind. Code § 7.1-3-26-7.

[18] A seller may sell and ship wine directly only to a consumer who meets all of the

following requirements:

(1) The consumer is at least twenty-one (21) years of age.

(2) The consumer has an Indiana address.

(3) The consumer intends to use wine purchased under this chapter for

personal use only and not for resale or other commercial purposes.

(4) Except as provided in subdivision (5), the consumer has provided

to the seller in one (1) initial face-to-face transaction at the seller’s

place of business … all the following:

(A) Name, telephone number, Indiana address, or

consumer’s Indiana business address.

(B) Proof of age by a state issued driver’s license or state

issued identification card showing the consumer to be at

least twenty-one (21) years of age.

(C) A verified statement, made under penalties for

perjury, that the consumer satisfies the requirements of

subdivisions (1) through (3).

(5) If:

(A) before April 1, 2006, the consumer has engaged in a

transaction with a seller in which the seller sold wine to

the consumer and, after April 1, 2006, but before

December 31, 2006, the consumer provides the seller with

a verified statement, made under penalties for perjury,

that the consumer is at least twenty-one (21) years of age;

and

(B) the seller provides the name and Indiana address of

the consumer to the commission before January 15, 2007;

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the seller may sell directly to the consumer in accordance with this

chapter.

Ind. Code § 7.1-3-26-6(a).

[19] Accordingly, a direct wine seller’s permit allows a seller to sell and ship wine to

a consumer by receiving and filling orders that the consumer transmits by

electronic or other means if all of the following conditions are satisfied before

the sale or by the times set forth as follows:

(1) The consumer provides the direct wine seller with the following:

(A) The verification required by section 6(4) of this

chapter in an initial face-to-face transaction.

(B) Notwithstanding clause (A), if the consumer provided

the information specified in section 6(5)(A) of this chapter

after April 1, 2006, but before December 31, 2006, and

the seller provides the name and Indiana address of the

consumer under section 6(5)(B) of this chapter to the

commission before January 15, 2007, the consumer is not

required to comply with section 6(4) of this chapter.

(2) The direct wine seller meets the following requirements:

(A) Maintains for two (2) years all records of wine sales

made under this chapter. If the records are requested by

the commission, a direct wine seller shall:

(i) make the records available to the

commission during the direct wine seller’s

regular business hours; or

(ii) at the direction of the commission,

deliver copies to the commission.

(B) Stamps, prints, or labels on the outside of the shipping

container the following: “CONTAINS WINE.

SIGNATURE OF PERSON AGE 21 OR OLDER

REQUIRED FOR DELIVERY.”.

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(C) Causes the wine to be delivered by the holder of a

valid carrier’s alcoholic beverage permit under [Indiana

code chapter] 7.1-3-18.

(D) Directs the carrier to verify that the individual

personally receiving the wine shipment is at least twenty-

one (21) years of age.

(E) Does not ship to any consumer more than two

hundred sixteen (216) liters of wine in any calendar year.

(F) Remits to the department of state revenue monthly all

Indiana excise, sales, and use taxes on the shipments

made into Indiana by the direct wine seller during the

previous month.

(G) Ships to a consumer in Indiana only wine

manufactured, produced, or bottled by the applicant.

Ind. Code § 7.1-3-26-9.

[20] A wine shipment purchased under this chapter must be delivered to:

(1) the consumer, who shall take personal delivery of the shipment at

the:

(A) consumer’s residence;

(B) consumer’s business address;

(C) carrier’s business address; or

(D) address displayed on the shipping container; or

(2) an individual who is at least twenty-one (21) years of age, who shall

take personal delivery of the shipment at the:

(A) consumer’s residence;

(B) consumer’s business address;

(C) carrier’s business address; or

(D) address designated by the consumer and displayed on

the shipping container.

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Ind. Code § 7.1-3-26-13.

C. Carrier’s and Employee’s Permits

1. Carrier’s Permits

[21] “The commission may issue a carrier’s alcoholic permit to a person who is a

carrier upon a showing of the reliability and responsibility of the carrier and the

propriety of issuing the permit.” Ind. Code § 7.1-3-18-1. Indiana Code section

7.1-1-3-8 defines a “carrier” as

(a) A common carrier, whether licensed under the laws of this state or

not;

(b) A person as a proprietor who operates a transportation facility

when regularly or casually operating intrastate state or from another

state into this state; or,

(c) A person who carries alcoholic beverages for hire or as a free

accommodation for a consignor or consignee and who has no permit

under this title authorizing him to sell, furnish, give away,

manufacture, or rectify alcoholic beverages.

(Footnote omitted).

[22] “A carrier’s alcoholic permit shall be required only for, and be applicable to, the

movement, conveyance, importation and transportation of alcohol and

alcoholic beverages on a public highway in this state.” Ind. Code § 7.1-3-18-2.

“A carrier’s alcoholic permit shall not be required when the conveyance,

movement, importation, or transportation is conducted by means of cars or

trains operated by a railroad of any type over fixed rails.” Id. “A carrier shall

be required to apply for and obtain a carrier’s alcoholic permit before he may

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haul, convey, transport, or import alcoholic beverages on a public highway of

this state or crossing a boundary of it.” Ind. Code § 7.1-3-18-3.

2. Employee’s Permits

[23] “The commission may issue an employee’s permit to a person who desires to

act as: (1) a clerk in a package liquor store; (2) an employee who serves wine at

a farm winery; or (3) a bartender, waiter, waitress, or manager in a retail

establishment, excepting dining car and boat employees.” Ind. Code § 7.1-3-18-

9(a). “A permit authorized by this section is conditioned upon the compliance

by the holder with reasonable rules relating to the permit which the commission

may prescribe from time to time.” Ind. Code § 7.1-3-18-9(b).

A person who, for a package liquor store or retail establishment, is:

(1) the sole proprietor;

(2) a partner, a general partner, or a limited partner in a

partnership or limited partnership that owns the business

establishment;

(3) a member of a limited liability company that owns the

business establishment; or

(4) a stockholder in a corporation that owns the business

establishment;

is not required to obtain an employee’s permit in order to perform any

of the acts listed in subsection (a).

Ind. Code § 7.1-3-18-9(d).

D. Provisions Relating to the Transportation of Wine

[24] Indiana Code section 7.1-3-1-17 provides that the “traffic and transportation of

alcohol and alcoholic beverages for sale within this state shall be subject to the

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rules and regulations of the commission.” “Alcohol and alcoholic beverages

shall be transported and delivered only in containers that are lawful under this

title and permissible under the rules and regulations of the commission.” Id.

[25] It is unlawful for an officer, agent, or employee of a common carrier to

recklessly deliver: “(1) an alcoholic beverage to a person other than the person

to whom it is consigned; (2) it without a written order by the consignee; or (3) it

to a person when the alcoholic beverage has been consigned to a fictitious

person or a person under a fictitious name.” Ind. Code § 7.1-5-11-4(a).

Further, it is unlawful for a person to present or tender for transportation to a

carrier or a person acting or assuming to act for a carrier an alcoholic beverage:

(1) for delivery to a person other than the consignee designated by the

person offering the alcoholic beverage for shipment; or

(2) for the purpose of effecting a delivery of the alcoholic beverage to a

person not permitted to receive it as consignee:

(A) under the provisions of this title;

(B) under the provisions of a rule of the commission; or

(C) because the person is not the bona fide consignee of

the shipment.

Ind. Code § 7.1-5-11-8(a).

III. Analysis

A. The ATC’s Interpretation of

Indiana Code Section 7.1-3-10-7(c)

[26] The ATC contends that the trial court erred in determining that its

interpretation of Indiana Code section 7.1-3-10-7(c) was unreasonable. In

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raising this contention, the ATC argues that the relevant statutory language—

which it claims does not allow for wine sold by Lebamoff to be delivered to a

customer’s residence by a common carrier—is unambiguous and allows for

only one reasonable interpretation. For its part, Lebamoff contends that the

trial court properly determined that the ATC’s interpretation of the relevant

statutory language was unreasonable. In raising this contention, Lebamoff

argues for a broad interpretation of the meaning of the term “permit holder.”

Lebamoff also argues that the rules of statutory construction indicate that when

Title 7.1 is read together in a harmonious fashion, the only reasonable

interpretation would allow Lebamoff to ship wine to a customer’s residence via

common carrier.

[27] Again, review of Title 7.1 of the Indiana Code clearly demonstrates that the

General Assembly has taken great care to differentiate the types of permits

available for individuals, partnerships, or corporations that produce and sell

alcoholic beverages in Indiana. Each specific type of permit has its own rules

and regulations. The fact that some rules and regulations are not commonly

applied to all types of permits is evidence that the General Assembly intended

to craft specific rules and regulations for each type of permit. Moreover, the

language of Title 7.1 makes it clear that the General Assembly knew how to,

and in fact did, specifically provide for delivery of wine via common carrier in

situations where it intended to allow such delivery. See e.g., Ind. Code § 7.1-3-

26-9 (providing that a direct wine seller may ship wine to customers via

common carrier if certain requirements are met).

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[28] With respect to the delivery of wine by the holder of a liquor dealer’s permit,

Indiana Code section 7.1-3-10-7(c) specifically provides that a liquor dealer

licensed under Indiana Code section 7.1-3-10-4 (the statute dealing with

package liquor stores) may deliver liquor in permissible containers to a

customer’s residence, office, or designated location. However, this delivery

“may only be performed by the permit holder or an employee who holds an employee

permit.” Id. (emphasis added). Similarly, Indiana Code section 7.1-3-15-3(c)

provides that a wine dealer who is licensed under Indiana Code section 7.1-3-

10-4 may deliver wine in permissible containers to a customer’s residence,

office, or designated location. Like Indiana Code section 7.1-3-10-7(c), Indiana

Code section 7.1-3-15-3(c) further provides that “[t]his delivery may only be

performed by the permit holder or an employee who holds an employee permit.”

(emphasis added).

[29] In Lebamoff Enterprises, Inc. et al. v. Huskey, 666 F.3d 455, 457 (7th Cir. 2012), the

United States Court of Appeals for the Seventh Circuit interpreted Indiana

Code section 7.1-3-15-3(c) to “forbid liquor stores to use motor carriers [such as

UPS or FedEx] to deliver wine (also beer and liquor, Ind. Code §§ 7.1-3-5-3(d),

7.1-3-10-7(c) … )[.]” In discussing Indiana Code section 7.1-3-15-3(c), the

Seventh Circuit stated the following:

Indiana requires drivers employed by liquor retailers to be trained in

and tested on Indiana’s alcohol laws and also trained in the

recognition of phony IDs. See Ind. Code §§ 7.1-3-1.5-1, -6, -13, 7.1-3-

18-9. It is because the state doesn’t require similar training of motor

carriers’ drivers that those carriers aren’t permitted to deliver alcoholic

beverages to a consumer unless, prior to shipping, the consumer’s age

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is personally verified by an employee of the winery from which the

consumer is buying. Ind. Code § 7.1-3-26-9(1)(A); Baude v. Heath, [538

F.3d 608, 612 (7th Cir. 2008)]. Motor carriers are required to obtain

“carriers’ alcoholic permits” in order to be allowed to transport alcohol

on public highways in Indiana, but their drivers are not required to

obtain permits and there is no training requirement either. See Ind.

Code §§ 7.1-3-18-1 et seq. Allowing motor carriers to deliver wine

could therefore undermine the state’s efforts to prevent underage

drinking, the state having decided not unreasonably that requiring

face-to-face age verification by someone who has passed a state-

certified training course should reduce the prevalence of that drinking.

The fact that Indiana allows direct deliveries by carriers to wine

consumers, where the seller has previously verified the consumer’s age

in person, but not other such deliveries, might seem to undermine the

state’s rationale, since there is no training requirement for employees

of wineries. But the statute imposes other requirements on the

wineries designed to assure accurate age verification, see Ind. Code §

7.1-3-26-9, and it would hardly be feasible for Indiana (and would

indeed be severely discriminatory) to require that employees of out-of-

state wineries undergo training in Indiana before being permitted to

ship to an Indiana consumer.

We might have a different case if a motor carrier were asking the state

to allow it to opt into the same training requirement imposed on

drivers employed by retailers of wine. That would both weaken the

attempt to justify the challenged law on the basis of the Twenty-First

Amendment (which so far as relates to this case merely allows a state

to take reasonable measures for preventing underage drinking), and

discriminate without apparent justification against motor carriers. But

as far as appears, no motor carrier has sought such equal treatment

with the retailers or been denied it and sued. No motor carrier is a

party to this case.

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Lebamoff, 666 F.3d at 458-59. We find the Seventh Circuit’s analysis to be

persuasive and applicable to the instant matter.5

[30] In addition, we are unpersuaded by Lebamoff’s argument that the General

Assembly intended for the language of Indiana Code section 7.1-3-10-7(c) to be

read in a broad enough fashion to include delivery by a common carrier, even if

we assume that the common carrier is acting as an agent of the permit holder.

The parties discuss the meaning of the term “permit holder” at length, with

Lebamoff arguing that the term is equivalent to the term “permittee” and the

ATC arguing for a more narrow construction. Indiana Code chapter 7.1-1-3

provides definitions that shall be applied throughout Title 7.1 unless the context

clearly requires otherwise. Indiana Code section 7.1-1-3-29 defines the term

“permit” as “a written authorization issued by the [ATC] entitling its holder to

manufacture, rectify, distribute, transport, sell, or otherwise deal in alcoholic

beverages, all as provided in this title.” Indiana Code section 7.1-1-3-30 defines

the term “permittee” as:

(a) A person who is the holder of a valid permit under this title; and

(b) Also includes an agent, servant, or employee of, or other person

acting on behalf of, a permittee, whenever a permittee is prohibited

5

While we are not bound by the Seventh Circuit’s interpretation of the statute at issue,

we acknowledge that such interpretation may be considered to be persuasive and careful

consideration should be given to such decisions. See Graves Trucking, Inc. v. Publ. Serv. Comm’n

of Ind., 490 N.E.2d 365, 370 (Ind. Ct. App. 1986).

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from doing a certain act under this title.

Upon reading the above-quoted language, one can reasonably infer that the

General Assembly intended for the term “permittee” to be read in a broader

fashion than the term “permit holder” because the definition for the term

“permittee” explicitly includes not only a permit holder, but also an agent,

servant, employee, or other person acting on behalf of the permit holder.

[31] The express language of Indiana Code section 7.1-3-10-7(c) indicates that the

General Assembly intended that a home delivery of wine under this section was

limited to delivery by the permit holder, i.e., the owner, partner, or manager of

the package liquor store, or an employee of the permit holder, so long as the

employee holds an employee permit. This language does not appear to allow

for delivery of the wine by any other individual who might be acting as an agent

for the permit holder. If the General Assembly had intended for Indiana Code

section 7.1-3-10-7(c) to allow for home delivery by a common carrier, it could

have crafted the language of this section to specifically allow for such delivery

as it did in Indiana Code section 7.1-3-26-9. See Ind. Code § 7.1-3-26-9

(allowing for home delivery of wine by the holder of a direct wine seller’s

permit via common carrier). We therefore conclude that the ATC’s

interpretation of Indiana Code section 7.1-3-10-7(c) was reasonable.6

6

Lebamoff also argues that its use of a common carrier to deliver wine was permitted under

Indiana Code section 7.1-3-10-7(c) because, under the Uniform Commercial Code (“UCC”), sales contracts

are presumed to be “shipment contracts” meaning that delivery is complete when the seller places the

product with the shipper. However, we conclude that the general UCC provisions relating to “shipment

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B. Agency Adjudication or

Improper Attempt at Rulemaking

[32] It is undisputed that “[a]n administrative agency must follow the procedures

outlined for it and the law which establishes the agency; an administrative

agency can have no more or less power than the statute creating it grants.” Ind.

Air Pollution Control Bd. v. City of Richmond, 457 N.E.2d 204, 206 (Ind. 1983)

(citing Gordon v. Review Bd. of Ind. Emp’t Sec., 426 N.E.2d 1364 (Ind. Ct. App.

1981)). On appeal, the ATC also contends that the trial court erroneously

determined that its order reflected an improper attempt to create an agency rule

rather than an administrative adjudication. Conversely, Lebamoff contends

that the trial court’s determination that the ATC’s order reflected an improper

attempt to create an agency rule was proper because the ATC failed to follow

the necessary procedures for completing its rulemaking function.

[33] Indiana Code section 4-22-2-3(b) defines a “rule” as “the whole or any part of

an agency statement of general applicability that: (1) has or is designed to have

the effect of law; and (2) implements, interprets, or prescribes: (A) law or policy;

or (B) the organization, procedure, or practice requirements of an agency.”

Indiana Code section 4-22-2-3(c) defines a “rulemaking action” as “the process

of formulating or adopting a rule.” “The term does not include an agency

action.” Ind. Code § 4-22-2-3(c). An agency must follow certain procedures

contracts” do not apply in the instant matter because application of said provisions would not be harmonious

to the general purposes of Title 7.1 or the specific language adopted by the General Assembly relating to the

sale, shipment, and delivery of alcohol in Indiana.

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when engaging in a rulemaking action.7 Villegas v. Silverman, 832 N.E.2d 598,

608 (Ind. Ct. App. 2005). On the other hand, an administrative adjudication is

“the administrative investigation, hearing, and determination of any agency of

issues or cases applicable to particular parties.” Blinzinger v. Americana

Healthcare Corp., 466 N.E.2d 1371, 1374 (Ind. Ct. App. 1984) (internal

quotation omitted).

The rulemaking function is distinguished from the adjudicatory

function in that the former embraces an element of generality,

operating upon a class of individuals or situations whereas an

adjudication operates upon a particular individual or circumstance. In

addition, the exercise of administrative rulemaking power looks to the

future, whereas an adjudication operates retrospectively upon events

which occurred in the past. Beacon National Life Insurance Co. v. Texas

State Board of Insurance (1979) Tex. Civ. App., 582 S.W.2d 616;

Strumsky v. San Diego Employees Retirement Association (1974) 11 Cal. 3d

28, 112 Cal. Rptr. 805, 520 P.2d 29.

Id. at 1375.

7

These procedures include, among others:

(1) publishing notice of intent to adopt rule (Ind. Code § 4-22-2-23); (2) publishing

notice of hearing (Ind. Code § 4-22-2-24); (3) conducting public hearing and

allowing comments (Ind. Code § 4-22-2-26); (4) formally adopting the rule (Ind.

Code § 4-22-2-29); (5) obtaining approval from the Attorney General (Ind. Code §§

4-22-2-31, -32); (6) obtaining approval from the Governor (Ind. Code §§ 4-22-2-

33, -34); and (7) submitting the rule to the Secretary of State for filing (Ind. Code

§ 4-22-2-35).

Villegas, 832 N.E.2d at 608 n.13.

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[34] Upon review, we conclude that the ATC’s final order aims to retrospectively

determine whether six specific acts that were alleged to have been committed by

Lebamoff amounted to violations of the applicable statutory authority. The

record demonstrates that the ATC conducted an investigation, collected

evidence, and made related findings based off of the information learned during

the investigation. In order to make these findings, the ATC was forced to

interpret the meaning of Indiana Code section 7.1-3-10-7(c), which it did.

[35] Lebamoff relies on this court’s opinion in Miller Brewing Company v. Bartholemew

County Beverage Company, Inc., 674 N.E.2d 193 (Ind. Ct. App. 1996), trans.

denied, in support of its claim that the trial court properly determined that the

ATC’s final order reflected an improper attempt to create an agency rule

without following the applicable rule making procedures. In Miller Brewing

Company, we were faced with the broad question of whether a change in the

price promotion and volume discount allowance reimbursement programs—

which provided significantly higher rates of reimbursement for sales completed

within a distributor’s area of primary responsibility (“APR”)—violated Indiana

law. Specifically, the parties argued as to whether the changes constituted an

unlawful restriction of the sale of beer in violation of 905 IAC 1-28-1 (“Rule

28”). 674 N.E.2d at 197-99. In making their arguments, the parties discussed a

prior decision of the IABC, the predecessor to the ATC, which prescribed a

twelve percent limit on the inter- and intra-APR price discount differentials. Id.

at 202. On appeal, we concluded as follows:

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While the IABC labeled its decision in the [prior IABC decision] an

“order”, the decision exhibited all of the significant characteristics of a

“rule”. The IABC’s decision interprets Rule 28 to prescribe a twelve

percent limit on inter- and intra-APR price discount differentials, and

is a statement of general and prospective applicability since, as Miller’s

claim of applicability to this case demonstrates, it potentially operates

on all individuals coming within the ambit of Rule 28. As an

administrative rule in all but name, its validity depended upon

conformance with required rulemaking procedures. The IABC’s

attempt in [the prior decision] to impose by interpretation a general

and prospective rule flies in the face of the requirement that

administrative rules be promulgated in conformance with the statutory

rulemaking procedures set forth at [Indiana Code section] 4-22-2-3[.]

Id.

[36] Unlike the prior decision of the IABC that was discussed in Miller Brewing

Company, the ATC’s interpretation of Indiana Code section 7.1-3-10-7(c) did

not operate as a new broad rule going forward, but rather was an interpretation

of what we believe to be unambiguous existing statutory language. As we

stated above, the interpretation was necessary to retrospectively determine

whether the specific alleged violations that were at issue were in fact violations

under the law. For this reason, we find our prior decision in Miller Brewing

Company to be distinguishable from the instant matter.

[37] Further, although Lebamoff argues that the ATC has changed its enforcement

of Indiana Code section 7.1-3-10-7(c) and is attempting to promulgate a rule

that implements a new interpretation of Indiana Code section 7.1-3-10-7(c), the

record is devoid of any evidence that the ATC has actually changed its

enforcement of this section. Lebamoff attempts to support this argument by its

claim that it has been shipping wine to customer’s residence via common

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carrier for approximately thirty years. In issuing its final order, however, the

ATC indicated that while Lebamoff may have been using this method to ship

wine to customer’s residences, the ATC was not aware of Lebamoff’s practice

in this regard until it became aware of the six violations of Indiana Code section

7.1-3-10-7(c) that are at issue in the instant appeal. Because Lebamoff has

failed to provide evidence that the interpretation of Indiana Code section 7.1-3-

10-7(c) represents a change in policy, we conclude that the ATC’s act of

interpreting this statute did not amount to an improper attempt to promulgate

an agency rule.

Conclusion

[38] Applying only the provisions relating to a liquor dealer’s permit, we conclude

that the ATC’s interpretation of the relevant statutory authority was reasonable.

We further conclude that the ATC’s order did not reflect an improper attempt

to create an agency rule, but rather was a proper exercise of the ATC’s

adjudicatory function. As such, we reinstate and affirm the ATC’s final order.

[39] The judgment of the trial court is reversed and the matter remanded to the trial

court with instructions.

Najam, J., and Mathias, J., concur.

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