Ass'n of Wash. Spirits & Wine Distribs. v. Liquor Control Bd. ( 2015 )

IN THE SUPREME COURT OF THE STATE OF WASHINGTON
ASSOCIATION OF WASHINGTON )
SPIRITS AND WINE DISTRIBUTORS, )
) No. 90561-4
Appellant, )
v. ) En Bane
)
WASHINGTON STATE LIQUOR CONTROL )
BOARD, ) Filed JAN 0 8 2015
)
Respondent, )
)
and )
)
WASHINGTON RESTAURANT ASSOCIATION, )
NORTHWEST GROCERY ASSOCIATION, and )
COSTCO WHOLESALE CORPORATION, )
)
Intervenor-Respondents. )
)
)
WIGGINS, J.-We granted direct review of this challenge to the Washington
State Liquor Control Board's (Board) spirits distribution licensing fee structure brought
by Association of Washington Spirits and Wine Distributors (Association). The
Association, a trade group composed of distributors licensed under RCW 66.24.055,
challenges the Board's decision to exempt distillers who distribute their own
manufactured spirits and others acting as distributors pursuant to certificates of
approval from contributing to a shortfall of $104.7 million in licensing fees imposed on
Ass'n of Wash. Spirits & Wine Distribs. v. Liquor Control Bd., No. 90561-4
persons holding spirits distributor licenses. The Association asks us to hold that the
distillers must contribute proportionately to eliminating the shortfall.
We reject the Association's arguments. The plain language of Initiative Measure
No. 1183 (Initiative), supported by the context in which the language appears and the
overall scheme for licensing participants in the spirits industry, enables the Board to
impose the entire shortfall on the spirits distributors without contribution from the
distillers. We therefore hold that the Board acted within its authority and did not act
arbitrarily or capriciously. Additionally, the Board did not violate the privileges and
immunities clause of article I, section 12 of the Washington State Constitution. The
decision of the Thurston County Superior Court is affirmed.
FACTS
I. History and Overview of Washington's Liquor Control Laws
Washington adopted the Washington State Liquor Act (Liquor Act) to regulate
intoxicating liquors following the repeal of federal law prohibiting the manufacture,
sale, or transportation of alcoholic beverages. LAWS OF 1933, Ex. SEss., ch. 62; Title
66 RCW. The Liquor Act created the Washington State Liquor Control Board, RCW
66.08.012, and established distinct regulatory systems to control the distribution and
sale of different types of liquor. Wash. Ass'n for Substance Abuse & Violence
Prevention v. State, 174 Wash. 2d 642, 647, 278 P.3d 632 (2012). The legislature
enacted a three-tier system to govern the distribution and sale of beer and wine, which
provided different regulations and licensing requirements for manufacturers,
distributors, and retailers. /d. This three-tier system allowed the State to control the
prices at which manufacturers and distributors sold beer and wine. /d. at 648.
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However, unlike the system that applied to beer and wine, only the State could
distribute and sell spirits. 1 /d. (citing former RCW 66.16.010 (2005); Wash. State
Liquor Control Bd., FY 2010 Annual Report 9·-1 0, available at
http://www.liq. wa. gov/publications/20 10-annual-report-fi nal-web. pdf).
In 2011, Washington voters passed the Initiative, which dramatically changed
the State's approach to regulating the distribution and sale of liquor in Washington. /d.
at 649. The Initiative ended the State's exclusive rights to distribution and retail sales,
allowing private distributors to become licensed to distribute spirits and permitting a
limited number of retail stores to sell spirits. The Initiative imposes licensing fees in
exchange for the ability to sell and distribute spirits. There are currently four different
licenses in Washington that allow the distribution of spirits.
Petitioner Association is a trade group of distributors operating pursuant to
"[s]pirits distributor license[s]." RCW 66.24.055(1) (boldface omitted). A "spirits
distributor license" is the broadest grant of authority to distribute under the Initiative,
authorizing the licensee to purchase spirits from manufacturers, distillers, or other
suppliers and resell the spirits to a variety of establishments. /d. This license places
very few limits on the sources from which a licensee may purchase or distribute spirits.
In addition to the distribution rights granted to licensees through a "spirits
distributor license," RCW 66.24.055, licensed in-state distillers may distribute their
own products directly to retailers. RCW 66.24.640. Distillers who choose to distribute
1 "Spirits" means "any beverage which contains alcohol obtained by distillation, except
flavored malt beverages, but including wines exceeding twenty-four percent of alcohol by
volume." RCW 66.04.01 0(41 ).
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their own spirits enjoy limited distribution rights. See RCW 66.24.140, .640; WAC 314-
28-030(1 ). Importers and out-of-state spirits distillers may also act as distributors by
obtaining one of three "certificates of approval." RCW 66.24.640; WAC 314-23-030(2).
These certificates provide specific, limited distribution authority to manufacturers,
importers, or bottlers. RCW 66.24.640; WAC 314-23-030(2). We refer to the
certificate holders and the distiller distributors collectively as "distillers" because they
are treated similarly as to the fees at issue here.
In addition to the basic licensing fees imposed on spirits distributors, distillers
distributing their own products, and other certificate holders, RCW 66.24.055(3)
created two fees designed to replace the revenue that the State lost when spirits
distribution was privatized. See. generally Wash. Ass'n for Substance Abuse &
Violence Prevention, 174 Wash. 2d at 671 (Wiggins, J., dissenting) (citing LAWS OF 2012,
ch. 2 § 101 (2)(k) (codified at RCW 66.24.055(3))). Subsection (3)(a)(i) imposes a 10
percent2 fee of all spirits sales by "spirits distributor licensee[s]" (subsection (3)(a)
percentage fee). Subsection (3)(c) provides that if the subsection (3)(a) percentage
fee did not generate $150 million in the first year under the new statute, the shortfall
between the collected fees and $150 million was to be equitably assessed against "all
persons holding spirits distributor licenses," according to rules to be promulgated by
the Board (subsection (3)(c) shortfall fee).
2 This fee drops to five percent of total revenue 28 months after licensure. RCW
66.24.055(3)( a)(ii).
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The entire dispute in this case comes down to who must contribute to payment
of the subsection (3)(c) shortfall fee. The Association argues the distillers must
contribute, and the Board argues the opposite.
Acting under its rule-making authority under the Washington Administrative
Procedure Act, chapter 34.05 RCW, the Board determined that distillers distributing
their own spirits are subject to the subsection (3)(a) percentage fee. WAC 314-23-
030. The Board later adopted WAC 314-23-025 to enforce the subsection (3)(c)
shortfall fee. Although the Board had imposed the subsection (3)(a) percentage fee
on distillers, the Board did not require the distillers to contribute to subsection (3)(c)
shortfall fee. Rather, the Board determined that the shortfall fee would be imposed
only on "persons holding a spirits distribution license." WAC 314-23-025. Thus, while
the Board requires that both distributors and distillers pay the subsection (3)(a)
percentage fee, only distributors paid the subsection (3)(c) shortfall fee.
In 2012, businesses holding spirits distributor licenses generated nearly $450
million in sales. The distillers generated approximately $15 million in sales arising from
their distribution rights; the $1.5 million fees collected from these sales did not
contribute to the $150 million statutory requirement. The combined fees assessed on
persons holding a spirits distributor license totaled just over $45.3 million, leaving a
$104.7 million shortfall. Pursuant to WAC 314-23-025, spirits distributor license
holders paid this entire amount. The overwhelming majority of sales in Washington
were from spirits distributors; had the distillers been required to pay the subsection
(3)(c) shortfall fee, the distillers would have been responsible for only $3 million of
what would have been a $103.2 million shortfall.
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II. Procedural History
The Association sought a declaratory judgment pursuant to the Washington
Administrative Procedure Act, RCW 34.05.570(2)(c), that WAC 314-23-025 is invalid.
After hearing oral argument, the superior court acknowledged that the Board had
taken arguably inconsistent positions with respect to the distillers. Nonetheless, the
court denied the petition, rejecting the Association's assertions that the Board
exceeded its statutory authority or violated the privileges and immunities clause. The
Association appealed, and we granted direct review.
ANALYSIS
I. Standard of Review
The Washington Administrative Procedure Act governs the standard of review
of a challenge to an agency rule. Under RCW 34.05.570(2)(c), an agency rule may be
invalidated only if it (1) violates constitutional provisions, (2) exceeds the agency's
statutory rule-making authority, (3) is arbitrary and capricious in that it could not have
been the product of a rational decision-maker, or (4) was adopted without complying
with statutory rule-making procedures. Determining the extent of rule-making authority
is a question of law. Wash. Pub. Ports Ass'n v. Dep't of Revenue, 148 Wash. 2d 637,
645, 62 P.3d 462 (2003).
'"We review questions of statutory interpretation de novo."' State v. Veliz, 176
Wash. 2d 849, 853-54, 298 P.3d 75 (2013) (quoting State v. Morales, 173 Wash. 2d 560,
567 n.3, 269 P.3d 263 (2012)). The court discerns legislative intent from the plain
language enacted by the legislature, considering the text of the provision in question,
the context of the statute in which the provision is found, related provisions,
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amendments to the provision, and the statutory scheme as a whole. Dep't of Ecology
v. Campbell & Gwinn, LLC, 146 Wash. 2d 1, 9-10, 43 P.3d 4 (2002).
Constitutional issues are questions of law that we also review de novo. State v.
Gresham, 173 Wash. 2d 405, 419, 269 P.3d 207 (2012). We presume that statutes are
constitutional and place "'the burden to show unconstitutionality . . . on the
challenger."' In re Estate of Hambleton, _ Wn.2d _, 335 P.3d 398, 406 (2014)
(alteration in original) (quoting Amunrud v. Bd. of Appeals, 158 Wash. 2d 208, 215, 143
P.3d 571 (2006)).
II. The Board Acted within Its Statutory Rule-Making Authority
We hold that WAC 314-23-025 was properly promulgated pursuant to the
explicit directions of RCW 66.24.055(3)(c). The rule closely tracks the statutory
language and is consistent with the purpose and intent of the statute that it
implements. We therefore affirm the superior court.
A. WAC 314-23-025 follows the plain language of the subsection (3)(c) shortfall
fee
RCW 66.24.055 establishes a "spirits distributor license" that grants spirits
distributors broad authority to purchase and distribute spirits. As the superior court
recognized, and the parties do not dispute, the statute is unambiguous. The statute
precisely defines the scope of the license that it creates, and it precisely defines the
fees attendant to obtaining that license. See W Telepage, Inc. v. City of Tacoma Dep't
of Fin., 140 Wash. 2d 599, 609, 998 P.2d 884 (2000) (statute is not ambiguous if it defines
precisely the range of activity that falls within its purview). Courts are not obligated to
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discern an ambiguity by imagining a variety of alternative interpretations. /d. at 608
(citing State v. Tili, 139 Wash. 2d 107, 115, 985 P.2d 365 (1999)).
To begin with, the language of RCW 66.24.055(3)(c) is clear: "[A]II persons
holding spirits distributor licenses on or before March 31, 2013, must have paid
collectively one hundred fifty million dollars or more in spirits distributor license fees."
When a statute is clear on its face, we look only to the wording of the statute. W
Telepage, Inc., 140 Wash. 2d at 609. Because the terms are defined within the statute,
1
we need not look outside the statute to determine their meaning. State v. Smith, 117
Wash. 2d 263, 271, 814 P.2d 652 (1991) ('"Words are given the meaning provided by the
statute or, in the absence of specific definition, their ordinary meaning."' (quoting State
v. Standifer, 110 Wash. 2d 90, 92, 750 P.2d 258 (1988))).
In addition to this clear and unambiguous language, the context of the statute
also supports this interpretation. When we interpret a statute, we look to its placement
within the entire statutory scheme. Campbell & Gwinn, 146 Wash. 2d at 9-10. Applying
this principle, it is clear that the provisions of RCW 66.24.055 are geared specifically
toward distributors.
When we consider context, the Initiative clearly created several different
licenses; each licensee operates under a unique classification with unique rights and
attendant responsibilities. For example, distiller licenses allow entities to "blend[],
rectify[,] and bottl[e]" spirits. RCW 66.24.140. Likewise, "spirits importer licenses,"
RCW 66.24.160, and "spirits ... certificate of approval" licenses, RCW 66.24.640,
have their own specific legal definitions. The "spirits distributor license" is created and
defined by RCW 66.24.055(1 ), and subsection (3)(c) requires "all persons holding
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spirits distributor licenses" to pay "collectively one hundred fifty million dollars or more
in spirits distributor license fees." Thus, the plain language of the subsection (3)(c)
shortfall fee applies only to persons holding the specifically defined "spirits distributor
license" created in subsection (1 ).
The organization of RCW 66.24.055 provides further support. Subsection (1)
defines the spirits distributor license as authorizing the sale of spirits purchased from
a variety of sources to retailers and a number of other entities. The subsection also
authorizes export of any of the spirits purchased by the distributor.
Subsections (3) and (4) of RCW 66.24.055 describe the fee structure for the
spirits distributor license. Subsection (3)(a) imposes a fee of 10 percent (eventually
dropping to 5 percent) on the sale of spirits, and subsection (3)(b) clarifies that the fee
is imposed only if the distributor is the first distributor in the State to have received the
spirits for sale. Additionally, subsection (3)(d) clarifies that a retailer must pay the fee
on sales if no spirits distributor has paid the fee on the spirits sold. Subsection (4)
provides that a spirits distributor must pay an annual license fee of $1,320 for each
licensed location. Analyzing the subsection (3)(c) shortfall fee in this context, it is clear
that the subsection specifically applies to persons holding spirits distributor licenses
and that persons with that license must pay the shortfall fee.
This interpretation of the subsection (3)(c) shortfall fee is also supported by the
Initiative when read as a whole. The Initiative specifically refers to "spirits distributor
licensees" when it imposes requirements on that class and uses the term "other
licensee[s] acting as a [spirits] distributor pursuant to [Title 66 RCW]" when it places
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specific requirements on other licensees. 3 Different statutory language should not be
read to mean the same thing: "[w]hen the legislature uses different words in the same
statute, we presume the legislature intends those words to have different meanings."
In re Pers. Restraint of Dalluge, 162 Wash. 2d 814, 820, 177 P.3d 675 (2008) (Sanders,
J., dissenting).
B. The Board's interpretation of the subsection (3)(a) percentage fee does not
change the clear meaning of the subsection (3)(c) shortfall fee
The Association responds to the plain language arguments by asserting that
RCW 66.24.055(3)(a) directs that "each spirits distributor licensee" pay a fee of 10
percent of sales. Subsection (3)(c) then provides that "persons holding spirits
distributor licenses" must contribute proportionately to any shortfall between the 10
percent fee and $150 million. The Association reasons that distillers who distribute
their spirits to retailers are acting as "spirits distributor licensee[s]" under subsection
(3)(a) and are therefore "persons holding spirits distributor licenses" under subsection
(3)(c). Thus, the Association reasons that distillers must contribute to the $150 million
shortfall proportionately based on their total distribution of their products. In making
this argument, the Association also points out that RCW 66.24.640 and RCW
66.28.330(4) requires that distillers who distribute their own spirits must comply with
the applicable statutes and regulations relating to distributors. Hence, the Association
3 For example RCW 66.28.330(1) reads, "No price for spirits sold in the state by a distributor
or other licensee acting as a distributor pursuant to this title may be below acquisition
cost .... " (emphasis added). For additional examples of statutory language placing specific
requirements on other licensees acting as distributors, see LAWS OF 2012, ch. 2 § 106,
codified at RCW 82.08.150(2), (3), (5), (6)(c).
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argues, the shortfall provision of subsection (3)(c) is one of those "applicable laws and
rules relating to distributors" under RCW 66.24.640.
These arguments would have little appeal were it not for the fact that the Board
adopted a rule pursuant to RCW 66.24.055(3)(a) and WAC 314-23-030, imposing the
subsection (3)(a) percentage fee on distillers and raising the question as to why the
Board didn't also apply the subsection (3)(c) shortfall fee to the distillers. The
Association's reading of the subsection (3)(c) shortfall fee might be consistent with the
Board's representations regarding the subsection (3)(a) percentage fee to the
Superior Court in Costco Wholesale Corp. v. Liquor Control Board, No. 12-2-01312-5
(Thurston County Superior Court June 14, 2013). In Costco, Costco challenged WAC
314-23-030, promulgated pursuant to RCW 66.24.055(3)(a). The Board asserted that
"distillers or certificate of approval holders acting as distributors must comply with all
laws applicable to distributors" as justification for its successful argument that
"distillers and certificate of approval holders who choose to distribute their products
are subject to the 10% distributor fee." Wash. Restaurant Ass'n v. Liquor Contr. Bd.,
No. 12-2-01312-5, Br. of Resp't at 20-21. The Board makes no serious attempts4 to
distinguish its conflicting positions interpreting the language of the subsection (3)(a)
percentage fee and the subsection (3)(c) shortfall fee, instead acknowledging that the
4 The Board now argues, contrary to its assertions in Costco, that its broad regulatory
authority to impose licensing fees justifies imposing a 10 percent fee on certificate of approval
holders. Br. of Resp't at 16. Whether or not this argument has merit, the propriety of WAC
314-23-030 is not at issue in this case. Furthermore, the point is irrelevant in addressing WAC
314-23-025: RCW 66.24.055(3)(c) unambiguously authorizes the Board to collect the shortfall
fee from "persons holding spirits distributor licenses."
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purpose behind the broad reading of the subsection (3)(a) percentage fee was to
maximize the State's revenue.
The Association argues that the Board must adhere to its position in Costco and
apply the subsection (3)(c) shortfall fee to distillers just as it applied the subsection
(3)(a) percentage fee to distillers. Essentially, the Association argues that the Board
correctly interpreted subsection (3)(a) in promulgating WAC 314-23-030, and
incorrectly interpreted subsection (3)(c) when promulgating WAC 314-23-025. It then
presumes that we should give deference to the Board's interpretation of subsection
(3)(a) and that the Board's analysis should control our interpretation of subsection
(3)(c).
This argument misses the mark: the propriety of WAC 314-23-025 does not
depend on the propriety of a separate regulation. We do not require agency expertise
in construing an unambiguous statute, and we do not defer to an agency
determination that conflicts with the statute. Waste Mgmt. of Seattle, Inc. v. Utils. &
Transp. Comm'n, 123 Wash. 2d 621, 628, 869 P.2d 1034 (1994 ). RCW 66.24.055(3)(c)
requires "all persons holding spirits distributor licenses on or before March 31, 2013,
[to pay] collectively one hundred fifty million dollars or more in spirits distributor license
fees," and WAC 314-23-025 explicitly assigns liability for the shortfall to "persons
holding a spirits distributor license." We hold that subsection (3)(c) is unambiguous,
and furthermore, we are not bound by the Board's interpretation of subsection (3)(a)
in promulgating WAC 314-23-030.
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For these reasons, we decline to address the subsection (3)(a) percentage fee
and instead apply well-established rules to construe the issue before us-the
language of the subsection (3)(c) shortfall fee.
C. The specific language of the subsection (3)(c) shortfall fee controls
Having concluded that the Board's interpretation of RCW 66.24.055(3)(a) does
not control this case, we next address the Association's substantive argument that
that the subsection (3)(c) shortfall fee is one of the "applicable laws and rules relating
to distributors" under RCW 66.24.640. The Association is correct that RCW 66.24.640
and RCW 66.28.330(4) authorize distillers to act as distributors provided that they
comply with the applicable statutes and regulations relating to distributors. However,
this argument fails because the general statutory provisions of RCW 66.24.640 and
RCW 66.28.330(4) do not supersede the specific provisions of subsection (3)(c).
A general statutory provision must yield to a more specific statutory provision.
Waste Mgmt. of Seattle, 123 Wash. 2d at 629-30; see also Kustura v. Dep't of Labor &
Indus., 169 Wash. 2d 81, 88, 233 P.3d 853 (201 0) (general statutory provisions
inapplicable in light of statutory provision that "specifically addresse[d] and definitively
establish[ed]" the question before the court). The parties agree with this legal principle;
their disagreement concerns whether the fees assessed pursuant to RCW
66.24.055(3)(c) are "applicable laws" "relating to distributors" or whether they are
specific provisions that should be considered separately. We hold that they are
specific fee provisions that relate only to "persons holding spirits distributor licenses."
RCW 66.24.640 and RCW 66.28.330(4) are general statutory provisions. RCW
66.24.640 provides in relevant part:
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Any distiller licensed under this title may act as a retailer and/or
distributor to retailers .... An industry member operating as a distributor
and/or retailer under this section must comply with the applicable laws
and rules relating to distributors and/or retailers ....
Similarly, RCW 66.28.330(4) provides:
A distiller holding a license or certificate of compliance as a distiller under
this title may act as distributor .... The distiller must, to the extent
consistent with the purposes of chapter 2, Laws of 2012, comply with all
provisions of and regulations under this title applicable to wholesale
distributors selling spirits to retailers.
These statutes provide distilleries with the option of distributing some or all of
their products directly and require the distilleries to generally comply with the
requirements of distributors when they do so. However, neither statute requires the
distillery to receive a "spirits distributor license"-RCW 66.24.640 expressly
contemplates distillers' distributing either pursuant to a distiller's license, RCW
66.24.140, or pursuant to a more limited certificate of approval. Importantly, neither
statute addresses the licensing fee structure or imposes additional licensing fees on
distillers.
In contrast, RCW 66.24.055(3) and (4) relate specifically to licensing fees for
"spirits distributor licenses." Each "spirits distributor licensee" must pay $1,320
annually for each licensed distribution location. RCW 66.24.055(4). Distilleries
generally pay $2,000 per annum, and other entities distributing pursuant to certificates
of approval pay $200 for each authorization. RCW 66.24.140; WAC 314-23-030(2). It
would make no sense to conclude that the distillers must pay the same annual license
fee as a distributor simply because the distiller distributes its own product. For this
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reason, we conclude that the fees charged to each class of license are specific and
that the provisions of RCW 66.24.640 and RCW 66.28.330(4) are general.
Because we hold that RCW 66.24.055(3)(c) specifically describes licensing
fees for the spirits distributor license, the specific language assigning liability for the
shortfall provision to "persons holding spirits distributor licenses" trumps the general
requirement that other licensees acting as distributors comply with "applicable laws"
"relating to distributors." 5 RCW 66.24.640. We hold that subsection (3)(c) is
specifically applicable to "persons holding spirits distributor licenses" and that the
general provisions of RCW 66.24.640 and RCW 66.28.330(4) do not render the
subsection (3)(c) shortfall fee applicable to distillers distributing their own spirits.
Furthermore, as discussed in part I(A) of this opinion, supra, other sections in
the Initiative explicitly distinguish requirements placed upon "persons holding a spirits
distributor license" and "other licensees acting as a spirits distributor pursuant to Title
66 RCW." Contrary to the Association's arguments, providing different meanings
based on these distinctions in the statutory language does not necessarily render the
term "applicable" in RCW 66.24.640 redundant or superfluous. Courts do not
woodenly apply limiting principles merely because the legislature includes both
general clauses and specific clauses. Ali v. Fed. Bureau of Prisons, 552 U.S. 214,
227, 128 S. Ct. 831, 169 L. Ed. 2d 680 (2008) (citing Harrison v. PPG Indus., Inc., 446
U.S. 578, 589 n.6, 100 S. Ct. 1889, 64 L. Ed. 2d 525 (1980). The Board's rule properly
5 In reaching this conclusion, we do not opine on the Board's interpretation of the subsection
(3)(a) percentage fee, as it is not properly before this court. The subsection (3)(a) percentage
fee uses different language than the subsection (3)(c) shortfall fee and is related to the
requirements of subsection (3)(b).
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harmonizes the general statutory provisions applicable to distillers with the specific
language of the subsection (3)(c) shortfall fee.
Ill. The Board's Actions Were Neither Arbitrary Nor Capricious
The Association asks the court to invalidate WAC 314-23-025 because the rule
is arbitrary and capricious. RCW 34.05.570(2)(c). A rule is arbitrary or capricious only
if it is willful, unreasoning, and taken without regard to the attending facts or
circumstances. Wash. lndep. Tel. Ass'n v. Wash. Utils. & Transp. Comm'n, 148 Wash. 2d
887, 905, 64 P.3d 606 (2003); D. W Close Co. v. Dep't of Labor & Indus., 143 Wn.
App. 118, 130, 117 P.3d 143 (2008). '"[W]here there is room for two opinions, an action
taken after due consideration is not arbitrary and capricious even though a reviewing
court may believe it to be erroneous."' Rios v. Dep't of Labor & Indus., 145 Wash. 2d 483,
501, 39 P.3d 961 (2002) (alteration in original) (quoting Hillis v. Dep't of Ecology, 131
Wash. 2d 373, 383, 932 P.2d 139 (1997)). The scope of review under an arbitrary and
capricious standard is very narrow, and the party asserting it carries a '"heavy
burden."' King County Pub. Hasp. Dist. No. 2 v. Dep't of Health, 167 Wash. App. 740,
749,275 P.3d 1141 (2012) (internal quotation marks omitted) (quoting Alpha Kappa
Lambda Fraternity v. Wash. State Univ., 152 Wash. App. 401, 422, 216 P.3d 451 (2009)).
The Association's arguments fail to carry this heavy burden. The language of
WAC 314-23-025 closely tracks the language of the statute it implements, and the
Association merely repeats its statutory interpretation arguments that WAC 314-23-
030 and WAC 314-23-025 are "logically inconsistent." We therefore hold that the
Association has not demonstrated that the Board's actions were arbitrary and
capricious.
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IV. The Board did not violate the privileges and immunities clause
Article I, section 12 of the Washington Constitution provides that "[n]o law shall
be passed granting to any citizen, class of citizens, or corporation other than
municipal, privileges or immunities which upon the same terms shall not equally
belong to all citizens or corporations." We interpret our privileges and immunities
clause independently of the federal clause. Grant County Fire Prot. Dist. No. 5 v. City
of Moses Lake, 150 Wash. 2d 791, 811, 83 P.3d 419 (2004 ). We apply a two-step analysis
to article I, section 12. Ockletree v. Franciscan Health Sys., 179 Wash. 2d 769, 776, 317
P.3d 1009 (2014 ). The first step is to determine whether the law in question involves
a privilege or immunity; if not, then article I, section 12 is not implicated. /d. (citing
Grant County, 150 Wash. 2d at 812). lfthere is a privilege or immunity, the second step
is to determine whether the legislature had a "reasonable ground" for granting the
privilege or immunity. /d. (citing Grant County Fire Prot. Dist. No. 5 v. City of Moses
Lake, 145 Wash. 2d 702, 731, 42 P.3d 394 (2002)).
The Association cannot establish that the law involves a privilege or immunity.
The Association alleges that WAC 314-23-025 infringes on their '"right to ... carry on
business therein,"' a long-recognized privilege under our constitution. Grant County,
150 Wash. 2d at 812-13 (quoting State v. Vance, 29 Wash. 435, 458, 70 P. 34 (1902)).
We instead interpret the Association's argument to be that WAC 314-23-025 impacts
its members' ability to sell and distribute spirits and dismiss their privileges and
immunities claim.
A "privilege" is an exception from a regulatory law that benefits certain
businesses at the expense of others. Am. Legion Post No. 149 v. Dep't of Health, 164
17
Ass'n of Wash. Spirits & Wine Distribs. v. Liquor Control Bd., No. 90561-4
Wn.2d 570, 607, 192 P.3d 306 (2008) (citing Jonathan Thompson, The Washington
Constitution's Prohibition on Special Privileges and Immunities: Real Bite for "Equal
Protection" Review of Regulatory Legislation?, 69 TEMP. L. REV. 1247, 1268 (1996)).
We have held that the "right to carry on business therein" is implicated by a municipal
ordinance that attempted to insulate resident photographers from out-of-state
competition by imposing prohibitive licensing fees and solicitation restrictions on
itinerant photographers. See Ralph v. City of Wenatchee, 34 Wash. 2d 638, 641, 209
P.2d 270 (1949). We have also rejected attempts to assert the right to carry on
business when a narrower, nonfundamental right is truly at issue. See, e.g., Am.
Legion Post No. 149, 164 Wash. 2d at 607-08 (rejecting an attempt to characterize
"[s]moking inside a place of employment" as the fundamental right to "carry on
business therein").
Ralph involved an action to enjoin the enforcement of a municipal ordinance
that purposefully distinguished between resident and itinerant photographers. 34
Wash. 2d at 638-39, 643. The first challenged provision placed substantial licensing fees
on itinerant photographers; resident photographers were not required to have a
license. /d. at 639. The second challenged provision, which prevented all
photographers from soliciting business in public places, private homes, and private
businesses, was admittedly designed to prohibit the otherwise lawful business
activities of itinerant photographers. /d. at 639-40, 643. We held that the ordinance
unreasonably discriminated against itinerant photographers by requiring licensing
fees when resident photographers were not subject to licensing fees. /d. at 641. We
further held that the second provision unfairly discriminated against a class of
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Ass'n of Wash. Spirits & Wine Distribs. v. Liquor Control Bd., No. 90561-4
businesses to the benefit of another class of the same business, depriving affected
class members of the '"common right to engage in trade."' /d. at 642-44 (quoting N.J.
Good Humorv. Bd. ofComm'rs, 124 N.J.L. 162, 168, 11 A.2d 113 (1940)).
However, we have rejected arguments that the right to carry on business is
infringed by regulations that infringe only on narrower privileges. 6 In American Legion
Post No. 149, we considered a challenge to the smoking in public places act (Act).
164 Wash. 2d 570. The Act limited smoking in both public places and '"in any place of
employment'" but specifically exempted "'private facilities"' and '"private enclosed
workplace[s], within a public place"' from the smoking ban. !d. at 581-82 (alteration in
original) (quoting former RCW 70.160.020(2) (1985)). The petitioner argued that
because the Act permitted smoking in some facilities but prohibited it in their facility,
that the Act violated its fundamental "'right to ... carry on business therein."' !d. at 607
(quoting Grant County, 150 Wash. 2d at 812-13). We rejected this characterization
because the Act did not "prevent any entity from engaging in business." /d. at 608.
Instead, we held that the Act "merely prohibits smoking within a place of employment."
/d. (citing RCW 70.160.030). We therefore characterized the right at issue as
"[s]moking inside a place of employment" and found that there was no constitutional
privilege involved. !d.
The Association's argument that the assignment of different licensing fees for
different abilities to sell and distribute spirits burdens its fundamental right to carry on
6 Much of our article I, section 12 jurisprudence has narrowed the classification of the rights
asserted. See, e.g., Grant County, 150 Wash. 2d at 815 ("right" to petition for annexation, which
is not a privilege, does not invoke the right to vote or the right to petition the government for
a redress of grievances).
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Ass'n of Wash. Spirits & Wine Distribs. v. Liquor Control Bd., No. 90561-4
business is overbroad. Unlike the statute at issue in Ralph, 34 Wash. 2d 638, WAC 314-
23-025 does not unfairly discriminate against a class of businesses to the benefit of
another class of the same businesses; it merely assigns a uniform fee to the class of
individuals in Washington who sell spirits with all the rights and responsibilities
assigned to a "spirits distribution licensee." The rule also impliedly excludes from the
fee persons who sell spirits pursuant to some other, more limited, license. Thus, the
Association is more accurately asserting that WAC 314-23-025 impacts their ability to
sell and distribute spirits.
The ability to sell and distribute spirits does not implicate a "privilege" under
article I, section 12. This court has explicitly recognized the distinction between
privileges and rights granted only at the discretion of the legislature when considering
claims of disparate treatment of businesses. See Randles v. Wash. State Liquor
Control Bd., 33 Wash. 2d 688, 694, 206 P.2d 1209 (1949) ("the distinction between a
lawful business which a citizen has the right to engage in and one in which he may
engage only as a matter of grace of the state" must be considered). Here, the only
right asserted is the right to sell liquor under the authority of a license issued pursuant
to the State's police power. See RCW 66.08.010 (Title 66 RCW is an exercise of the
police power of the state). Liquor is different; we have never held that the right to sell
liquor is a fundamental right or privilege. Randles, 33 Wash. 2d at 694 ("there is no
natural or constitutional right to engage in the business of selling or dispensing
intoxicating liquor"). The Association does not distinguish the Randles holding, and it
does not argue that it is inapposite to this case. We therefore hold that there is no
constitutional privilege involved and thus no violation of article I, section 12. Because
20
Ass'n of Wash. Spirits & Wine Distribs. v. Liquor Control Bd., No. 90561-4
this case does not involve a constitutional privilege, we need not analyze the second
prong of our article I, section 12 test-whether the legislature had a reasonable
ground for distinguishing between two classifications.
CONCLUSION
We affirm the superior court and hold that the Board acted within its authority
and did not act arbitrarily or capriciously in promulgating WAC 314-23-025. Nor did
the Board violate the privileges and immunities clause of article I, section 12 of the
Washington State Constitution. The $104.7 million shortfall was properly assessed
against, and paid by, distributors holding spirits distributor licenses.
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Ass'n of Wash. Spirits & Wine Distrib. v. Liquor Control Bd., No. 90561-4
WE CONCUR.
22