In Part 1, we examined how our legal system developed to the point where a statutory framework that blatantly favors one class of businesses over another is constitutionally permissible. Using the historical example of Nebbia v. New York, we saw that the Court altered its jurisprudence to become more deferrent to the legislature and less protective of constitutional rights. Here, we take a look at what North Carolina’s system of microbrewery regulations looks like, and why it looks that way. By doing so, we will set the stage for an analysis of whether microbrewery operators have any possible avenues through which to challenge the current regulatory system as unconstitutional.
N.C. Gen. Stat. § 18B-1104 authorizes the issuance of brewery permits in North Carolina. Holders of brewery permits must meet several conditions, the most controversial of which is found in subdivision (8), which provides:
“The holder of a brewery permit may … obtain a malt beverage wholesaler permit to sell, deliver, and ship at wholesale only malt beverages manufactured by the brewery. The authorization of this subdivision applies to a brewery that sells … fewer than 25,000 barrels … of malt beverages produced by it per year.”
Layman’s translation: Microbreweries may ship and sell their own beer only if they produce fewer than 25,000 barrels annually. At 25,000 barrels, microbreweries must sign a portion of their business away to licensed distributors.
Why might the state enact such a law? The General Assembly has spelled out its ostensible reasoning in N.C. Gen. Stat. § 18B-1300:
“Pursuant to the authority of the State under the Twenty-First Amendment to the United States Constitution, the General Assembly finds that regulation of the business relations between malt beverage manufacturers and importers and the wholesalers of such products is necessary to:
- Maintain stability and healthy competition in the malt beverage industry in this State.
- Promote and maintain a sound, stable and viable three-tier system of distributions of malt beverages to the public.
- Promote the compelling interest of the public in fair business relations between malt beverage suppliers and wholesalers, and in the continuation of beer franchise agreements on a fair basis.
- Maintain a uniform system of control over the sale, purchase and distribution of malt beverages in the State.”
Microbrew proponents who are familiar with how distributors benefit at the expense of small-scale breweries might call foul, alleging that the law’s true effect is not to accomplish any of the above-stated goals but rather to line the pockets of large-scale breweries and distributors. But remember – in the post-Nebbia world, it does not matter whether the reasons or intentions of the legislature in any way reflect reality. It only matters that the legislature has spelled out ostensibly rational and legitimate reasons for requiring microbreweries to sign their profits away to distributors.
Never mind that some businesses, i.e. incumbent distributors and large-scale breweries, are explicitly benefitting from a law that is damaging the ability of another group, i.e. up and coming microbreweries, to grow their profits. Never mind that a statutory scheme shielding mass producers like Anheuser-Busch and MillerCoors from new market entrants does anything but “maintain … healthy competition.” Never mind that when several legislators sought to raise the barrel limit for microbreweries to 100,000 barrels, it was the N.C. Beer and Wine Wholesalers Association — not Mothers Against Drunk Driving — that mobilized its lobbying arm to ensure that such deregulation never even received discussion in committee, thus protecting their state-supported business model.
All that matters, in a world of Progressive Era economic regulation, is that the legislature has proclaimed ostensibly legitimate policy ends. Business interests are free to advocate for laws that line their pockets at the expense of others, so long as some legitimate policy goal can be imagined. In other words, lobbying and economic protectionism are features, not kinks, of the progressive constitutional system in which the legislature reigns supreme. In the 21st Century world of watered-down judicial review, North Carolina’s microbreweries are left with no recourse from the courts. Or are they?
In Part 3, we will examine whether, and how, this system could be attacked via a constitutional challenge.