In another equally important (for different reasons) challenge to state liquor authorities, Costco filed suit against the
Washington State Liquor Control Board in 2004 (Costco Wholesale Corporation v. Hoen, et al.). The case, decided by the federal court in Costco’s favor in December of 2005 on Summary Judgment (on the self-distribution issues) and in March
2006 after a trial on the anti-trust issues, focused primarily on regulations forbidding the central warehousing of alcoholic beverages by a retailer with multiple outlets. The Court found that there was no legitimate state interest in state laws prohibiting large volume discounts or the central warehousing of inventory. Moreover, there was no legitimate state interest in state laws requiring mandatory distributor mark-ups, requiring that distributors be paid in cash or in fixing prices via price-postings. All of these practices violated the anti-trust laws. These were not new findings because various
Supreme Court cases over the prior three decades had found these practices unlawful in a variety of contexts. However, this case was the first time they were all decided together in one case that effectively invalidated an entire state regulatory system. Additionally the judge observed that the Granholm case meant that if Washington wineries could sell direct to retailers, so could out-of-state wineries. This is the self-distribution issue, and now 35 states permit winery selfdistribution.
This ruling is favorable to BevMo!’s strategy not only because it permits expansion into key markets in a variety of ways but because it presages fundamental changes in state laws around the country.