Arkansas Supreme Court Rules Costco’s Kirkland Signature Liquor Must Go Through One Wholesaler

Costco’s Kirkland Signature wine and liquor must move through a single Arkansas wholesaler no matter who makes it, the Arkansas Supreme Court ruled Thursday in a 4-2 decision that two dissenting justices said hands state regulators power the law never gave them.

The majority opinion by Justice Rhonda Wood upheld a decision by the Arkansas Alcoholic Beverage Control Board that stripped Little Rock-based Arkansas Wine and Spirits Wholesale LLC of two Kirkland Signature product lines and sent them to a competitor, Moon Distributors Inc.

Arkansas sells alcohol through a three-tier system: manufacturers ship to licensed wholesalers, who sell to retailers. State law requires a manufacturer to name one wholesaler as the “exclusive distributor of such brand or label within the state” when it registers a product with the ABC Division.

Kirkland Signature is Costco’s private label, and the retailer owns the trademark. Four different manufacturers registered Kirkland Signature products in Arkansas in early 2021, according to the opinion, months before Costco opened its first Arkansas store on Chenal Parkway in Little Rock that July.

Ethica Wines registered a Kirkland Signature Chianti and Misa Imports a Kirkland Signature Pinot Grigio, both with Moon. Mach Flynt Inc. registered a Kirkland Signature Sauvignon Blanc and Levecke Corp. a Kirkland Signature strawberry margarita, both with Arkansas Wine and Spirits. The ABC Division approved all four.

The division later “realized that Kirkland Signature alcoholic beverages were registered to more than one wholesaler,” the opinion says. Its director sent Mach Flynt and Levecke a memo saying only one wholesaler can carry a brand and, because “the Kirkland Brand Label was first registered and assigned to Moon Distributors,” every Kirkland Signature product had to go through Moon.

Both manufacturers filed the change requests the memo demanded but told the division they preferred to stay with Arkansas Wine and Spirits. The wholesaler objected. The director granted the changes after a hearing, the ABC Board upheld him, and Pulaski County Circuit Judge Herbert Wright affirmed the board. The Arkansas Court of Appeals passed the case up to the Supreme Court.

The fight turned on what “brand” means in a statute the majority itself called a mess. “Rarely have we seen such confusing and internally inconsistent legislative language,” Wood wrote.

Arkansas Wine and Spirits argued that each product is its own brand, pointing to a separate section of the alcohol code that defines a brand as “the same product or substantially the same product as evidenced by the product label.” Under that reading, a Chianti and a strawberry margarita are different brands that happen to share a logo, and each manufacturer could pick its own wholesaler.

The majority instead used the dictionary meaning of brand as “a trademark or distinctive name identifying a product,” read alongside ABC regulations that treat a registered product as covering “all derivatives or subcategories.” Reading the statute any other way, Wood wrote, “would require this court to change the disjunctive ‘brand or label’ to the conjunctive ‘brand and label.'”

“Once a manufacturer of a brand selects a wholesaler, other manufacturers of that brand must also designate that wholesaler,” the opinion says.

Wood acknowledged the wholesaler’s warning that one distributor controlling a whole brand could favor some manufacturers over others. “But we are not the policy-making branch,” she wrote. “Whether this is sound policy is not for us to determine.” Mach Flynt and Levecke remain free to petition the division for a different wholesaler, she added.

Special Justice Cory Cox, appointed by Gov. Sarah Huckabee Sanders in August to sit while Justice Barbara Webb is away, joined the majority. Webb did not participate.

Justice Nicholas Bronni dissented, calling the wholesaler statutes “awkward, ungrammatical, and a textbook example of how not to write a statute” and the key provision “basically one big run-on sentence.” But a badly written law is not an ambiguous one, he wrote, and the court should have applied the legislature’s own product-based definition of brand rather than reaching for a dictionary.

Bronni said the majority’s reliance on the agency’s regulations was “a nifty trick” that amounted to deferring to the agency’s reading of its own authority. “It’s hard to understand the majority’s entire analysis as anything other than an attempt to make this case more complex than it is and thereby hand the administrative state more power than our constitution does,” he wrote.

He also took aim at the majority’s point that the legislature wanted to protect wholesalers from “undue control” by manufacturers. The same statute, Bronni noted, calls for “healthy competition,” and “nothing kills healthy competition like an even broader monopoly.”

Justice Shawn Womack dissented separately on different grounds. He wrote that the state cannot be sued in its own courts without a constitutional exception, so the circuit court never had jurisdiction and the Supreme Court should have thrown the case out without reaching the merits.

Casey Castleberry, Baker Kurrus and Patrick Spivey represented Arkansas Wine and Spirits. Attorney General Tim Griffin’s office represented the Department of Finance and Administration and the ABC Division and board. Cara Butler of Mitchell Williams represented Moon Distributors, and Michael Shannon of Quattlebaum, Grooms & Tull represented Mach Flynt.

The case is Arkansas Wine and Spirits Wholesale LLC v. Arkansas Department of Finance and Administration, CV-23-544.