Will The Internet End The 3-Tier System?
June 1, 2000
The Internet is
changing the manner in which America does business. For most elements of the
United States economy, e-commerce has increased efficiencies, streamlined
business communications, and transformed relationships between suppliers and
end-use consumers.
However, the alcohol
beverage industry is among the most heavily regulated in the United States. The
unique nature of alcohol, and the extraordinary history of its sale and
consumption within the United States, have produced an industry guided more by
regulations than market efficiencies.
Not surprisingly, state
alcohol regulators are reacting to the challenges raised by the Internet. In
Florida v. Sam’s Wines & Liquors, Case Nos. 97-3828, 3937, and 4060
(Consolidated) (Fla. 1st Dist. Ct. of App. 1999), a Florida appellate court
affirmed a lower court’s decision dismissing the regulators’ case because the
state court lacked personal jurisdiction over the out-of-state
defendants.
In contrast, however, a
Utah appellate court reached an opposite conclusion, deciding that Utah
regulators could prosecute an Illinois supplier and its corporate president for
violations of Utah’s beverage laws. The appellate court’s decision in Utah v.
Amoroso and Beer Across America, 975 P. 2d 505 (Utah Ct. App. 1999) reversed a
lower court ruling that had dismissed the prosecution’s case against the
defendants for lack of jurisdiction.
That split of authority
is continuing among courts facing this issue.
In Butler v. Beer
Across America, 83 F. Supp. 2d 1261 (N.D. Ala. 2000), parents brought suit
against Beer Across America under Alabama’s Civil Damages Act, for selling beer
to their minor son via the Internet. The parents brought the suit in state
court; based on diversity jurisdiction, the defendant removed the case to the
federal court in the Northern District of Alabama.
The presiding federal
judge declined to exercise personal jurisdiction based on the Illinois
defendant’s lack of minimum contacts with Alabama, and because considerations of
fairness and substantial justice did not favor the court asserting personal
jurisdiction. In rendering its decision, the federal trial judge adopted an
approach which allows a court to exercise personal jurisdiction over a defendant
if the defendant clearly does business over the Internet by entering into
contracts with residents of other states that involve the knowing and repeated
transmission of computer files.
Personal jurisdiction,
according to the federal court in Butler, is not proper if the non-resident
defendant has established a “passive” Internet site, which acts as little more
than an electronic billboard for posting information. According to the federal
court, a Web site that allows users to exchange information with a host computer
is in a grey area, and the judicial analysis will turn on the nature of the
information transmitted and the degree of interaction. In the Butler case, the
court found that Beer Across America’s Web site did not anticipate the regular
exchange of information across the Internet or provide for such interaction.
The court analogized the defendant’s Web site to a postal reply card in its
limited interaction with customers, and found that this was insufficient to
satisfy the minimum contacts requirement for personal
jurisdiction.
In contrast to the
success of Beer Across America before a federal court in Alabama, a similar
Internet entrepreneur received an opposite result from the Missouri Court of
Appeals. In the case of State ex rel. Nixon v. Beer Nuts Ltd., 2000 WL 270671
(Mo. Ct. App.) a North Carolina corporation, licensed in North Carolina to sell
alcohol, nationally advertised its microbrewery beer delivery services to
consumers through various media, including the Internet. The corporation’s
Internet Web site allowed Missouri consumers to access the company’s
services.
In the Beer Nuts case,
the corporation initially allowed consumers to subscribe to its services
directly from its Web site, without verifying that consumers were at least 21
years of age. After the Missouri Attorney General conducted an investigation,
Beer Nuts Ltd. changed its Web site so that potential customers were informed
that the actual purchase and contact for delivery of its microbrewed beers would
be consummated in North Carolina, rather than in the jurisdiction where the
consumer resided. Based on this predicate, the corporation continued its
interstate sale of beer to end-use consumers, including Missouri
residents.
The Missouri Attorney
General subsequently filed a law suit, alleging that the corporation had
violated Missouri’s liquor laws. A Missouri state trial court permanently
enjoined Beer Nuts Ltd. from the unlicensed sale of beer to Missouri consumers
and imposed a civil penalty of $1,000.00. The corporate defendant appealed,
arguing that Missouri courts did not have jurisdiction over the
corporation.
The Missouri Court of
Appeals upheld the trial court’s finding that Beer Nuts Ltd. was subject to the
jurisdiction of Missouri courts, as well as the provisions of Missouri’s Liquor
Control Law. The appellate court found that selling alcohol beverages without
statutory safeguards presented a risk of substantial injury to Missouri’s
consumers.
Armed with that
finding, the state appellate court affirmed the lower court’s finding that
Missouri’s long-arm statute gave it personal jurisdiction over the corporation.
The corporate defendant’s regular solicitation of customers from Missouri
constituted sufficient contact with Missouri for the court to have jurisdiction
over the corporation. The Missouri appellate court expressly found that its
determination complied with “traditional notions of fair play and substantial
justice.” In doing so, the Beer Nuts court concluded that the interest of the
state of Missouri in regulating the sale and delivery of alcohol beverages
within its borders outweighed any potential burden on the North Carolina
corporation to appear as a defendant in Missouri.
How will this split of
authority among jurisdictions be resolved? The answer may be legislative,
rather than judicial.
On a national level,
the U.S. Congress is completing its work on federal legislation that will permit
the Attorney General of any state to access the federal court system for
purposes of prosecuting an out-of-state violator of state alcohol laws who
otherwise might operate beyond the personal jurisdiction of the state’s judicial
system. Both the House and Senate have passed versions of the legislation,
which are being reconciled via conference committee before being finalized and
forwarded to President Clinton for signature. Knowledgeable sources expect the
reconciled bill to become law this year.
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