NCSLA 2018, Pasadena, Part III: What’s in the regulator’s mind?

This is the 3rd and final post on the NCSLA Conference. A great conference full of amazing panels. We are back in frigid Chicago and miss L.A.. Enjoy this great love song to L.A.. See all of you NCSLA members in Louisville, until then, enjoy life to its fullest!
Revealing the Great OZ: Behind the curtain of the all powerful regulator

Moderator:

Terri Quimby, Commissioner, Michigan Liquor Control Commission

Panelists:

Stephen Jamieson, Partner, Solomon, Saltsman & Jamieson

James Canepa, Superintendent, Ohio Division of Liquor Control

Dan Noble, Director, Wyoming Department of Revenue

 

General but important questions

How do regulators act when we have old laws and their are new ideas and developments on the near horizon?

How does the regulator think about issues, what drives them?

As private counsel what can you rely on, is it written authority or verbal authority? How can we obtain certainty for our clients?

Interesting points to think about

Terri brought up some interesting points, she first states that all was simple, it was beer, wine, and liquor and then we came up with new classifications such as craft.

Then she posed some interesting questions, what is good regulation? Is it the regulator that makes a good regulation?

This panel addressed some serious issues of how a regulator reaches their decisions and what a private attorney looks for in serving their clients.

They panel looked at different issues of controversy that may answer these questions.

 

What is a private attorney seeking?

Jamieson: Clients are looking for some level of certainty. What can the lawyer look at to find certainty, when there are no statutes and regulations? Is there a precedential decision or director’s determination? And is it reliable? If it is a director’s decision, it could change with new administration?

If there is no authority, he works with the state by specifying how he comes to his conclusion. This will lead him and the state down the road of an informed decision.

 

Controversial issues: How do they shape a regulator’s way of thinking?

Many issues are controversial and the regulator must make a decisions often times without legal authority, and the resulting decision can change the whole legal landscape.

Controversial issues: Axe throwing, curbside pickup, customer rides home and does it violate “of value” principles.

Axe throwing:

Should a purveyor get a license for alcohol if they allow dangerous activities such as ax throwing?

Dan Noble indicated that in states like Wyoming, the decisions are made at a local level. Yet they may call in other state agencies that could be effected. Also, they would ask the legislature to make a decision on whether they want this allowed.

They would get the local public safety officials involved. In the end, if the local community really wants this activity, then it is their decision.

Jim Canepa stated that in Ohio the locals also influence the decision.  Jim will discuss with the local government and allow them to make an informed decision. In Dublin, Ohio they first objected to issuing a license to an ax throwing bar, but the business went back to the city and answered their objection and the city granted the license.

Jim really desires an accurate description of the process for approving the license and that the local government addressed the safety issue.

Because Ohio does not provide statutory authority on these issues, he can not completely stop the process.

Jamieson asked what happens after the government officials tenure ends?  We listened to Jim and Dan and got their viewpoints, about what happens when they leave and  they allow a practice without a written opinion, could the state change their mind and now disallow it?

Terri made a great point:  As a regulator, the lawyer that provides the facts and ask if they are permitted to doing something , is taking advantage of the regulator.  In my personal experience with Illinois, often times does not convey all the facts and issues.

Whereas the lawyer that provides the facts, the legal justification but is still stuck in an ambiguous gray area is working with you to obtain the most legally sound answer.

Curbside pickup:

Michigan has nothing in statutory authority. Michigan did promulgate rules, the rules are you have it order ahead of time, there is no ambiguity and the regulator can make a clear decision.

Ohio has statutory authority and rules that allow curbside pickup for beer and wine but not for spirits, if the spirit is 42 proof and up.

Big box wants to do curbside for wine and spirits, so they test the limits and ask for Jim‘s treatment. Jim will ask his staff, what did his predecessor provide to the industry?

In this circumstance, the predecessor provided a letter which is nonbinding that contradicts the statute and states that curbside pickup for 42 proof and up is okay, if the product was ordered before pickup and paid for.

Jim posed an interesting question, there is a letter permitting this but is it the right interpretation of the law? He felt that the letter contradicted the statute and was wrong. Even though the industry relied on the letter, it was nonbinding.

So how did Jim conclude on this dilemma?

He threw out the old letter and researched the issue anew.  As a control state, Ohio owns the product until it is sold, once it is sold, it is property of the person who bought it and is not in the hands of the state anymore. At this point, it is up to the retailer to perfect the transaction by ensuring the law for age verification is complied with and other security measures are met. It is no longer in liquor control’s jurisdiction but the police’s jurisdiction.

So the takeaway is that the predecessor’s letter did not make a difference, but sound legal reasoning can lead you to the same result and lead to a result with sounder legal grounds.

Jamieson:  Having more information such as a letter allows his clients to have a discussion with regulators and come to a decision with the best information.

Terri posed the question: what is proper reliance?

Dan: Sometimes the statute hems you in as a regulator and based on a bad experience you need to work with the legislature to fix the situation. Dan provided an example of a distillery that was in a chicken coop and the still was not hooked up or operating. Nevertheless, they had to issue the license, because all the law required was the presence of the still. He went to the legislature, explained the facts and obtained a law change.

Another solution is to bring in other agencies and make sure they are meeting heath and safety requirements.

Of value issue

Is it “of value” when it involves public safety? Someone pays for the ride, is it the retailer, manufacturer, or wholesaler?  Do you need to buy alcohol to get it? Is it a discount or considered a coupon?

Most states don’t have a statute, how do we make the standards clear without inhibiting public safety? Jim: In Ohio a law was passed encouraging the industry to provide rides to consumers, it just can’t be contingent on a purchase.

Dan: Wyoming used a grant program to subsidize a taxi program and the bars started offering rides. There is nothing in Wyoming statute that prohibits or spells out the parameters of the program.

Jamieson: California passed a statute that deals with this issue, it is not illegal for a manufacturer to provide vouchers for rides but it is for a wholeslaer. What do we do if we represent a licensee,what is the process of issuing vouchers? Can it be tied to a purchase and if there is no regulation and statute, it could be abused.

 

A final question

The panel was posed with a question, how do they deal with ambiguity via poor or noninclusive drafting?

Terri: The standard is whether a judge will uphold this law, if it is unreasonable then she won’t defend it. If the state has a reasonable position, they will defend it.

Dan: There is no legislative history in Wyoming so they can’t look to legislative intent. They look at the clear meaning of the statute.

Jim: If it is not prohibited in writing then Ohio wil allow the practice.

Jim was challenged by Tuck Duncan who stated that most state statutes won’t allow Jim to act like this, because most state statutes say the regulator can’t doing anything unless specifically authorized to do it.

Jim indicated that there exist an Ohio statutory section that lays out the duties and powers of the regulators and the statute provides wide discretion to the regulators.

 

Conclusion

As a former state regulator,  I found the panel very interesting and found myself in agreement with their line of thinking. Most state regulators want to say yes but do so very carefully in difficult areas. If you are not methodical and make decisions with imperfect information, you can open a Pandora’s box.

The decisions of previous administrations are also an interesting issue. There are some government officials, I believe these are very few,  that will make a decision not based on sound legal policy but to please others or they think it will help them make money down the line. This could leave future administrations in an ethical dilemma of permitting or enforcing ethically questionable decisions or taking away privileges that were granted and that the industry relied on.

Nevertheless, sound legal reasoning will help an argument advance even in the most difficult of areas.

Finally, Terri Quimby makes an excellent point about people calling you and asking you if they can do something. Open ended questions are disrespectful to the regulator and sometimes even unethical. If you did not read the code or take time to think about it, don’t call them.

Most regulators will work through difficult answers with you, but in difficult areas, they need your legal judgement and the legal authority in which you base your decision.

It is not often that I editorialize on this blog, but this is not meant to be an opinion, but more like a principle that will make the relationship between the attorney and the regulator work to the maximum level.

Take care and good day. Amazing panel, thanks to its great members.

 

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