BILL ANALYSIS
Bill No: AB
1798
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 1798 Author: Evans
As Amended: April 5, 2010
Hearing Date: June 22, 2010
Consultant: Art Terzakis
SUBJECT
Alcoholic Beverages
DESCRIPTION
AB 1798 increases, from 60 to 75 days, the length of time
that the Alcoholic Beverage Control Appeals Board has to
enter an order after an appeal is filed. AB 1798 also
makes a minor clarifying change, as well as code
maintenance changes, to existing provisions of the
Alcoholic Beverage Control (ABC) Act in order to reduce
paperwork requirements of the Department of ABC.
EXISTING LAW
Existing law establishes the Department of Alcoholic
Beverage Control (ABC) and grants it exclusive authority to
administer the provisions of the ABC Act in accordance with
laws enacted by the Legislature. This involves licensing
individuals and businesses associated with the manufacture,
importation and sale of alcoholic beverages in this state
and the collection of license fees or occupation taxes for
this purpose.
Existing law, known as the "tied-house" law, separates the
alcoholic beverage industry into three component parts, or
tiers, of manufacturer (including breweries, wineries and
distilleries), wholesaler, and retailer (both on-sale and
off-sale).
AB 1798 (Evans) continued
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Tied house refers to a practice in this country prior to
Prohibition and still occurring in England today where a
bar or public house, from whence comes the "house" of tied
house, is tied to the products of a particular
manufacturer, either because the manufacturer owns the
house, or the house is contractually obligated to carry
only a particular manufacturer's products.
Existing law establishes in state government an Alcoholic
Beverage Control Appeals Board, of which the members are
appointed and serve as provided in the Constitution, and
receive an annual salary.
Existing law provides that an appeal must be filed at the
Appeals Board office within 40 days from the date of the
ABC decision. However, if ABC's decision states it is to
be "effective immediately," an appeal must be filed within
10 days after the date of ABC's decision. Documents not
filed within the time limits are untimely and cannot be
accepted by the Appeals Board.
Existing law specifies that no decision of the ABC shall
become effective during the period in which an appeal may
be filed and the filing of an appeal shall stay the effect
of the decision until such time as a final order is made by
the Appeals Board.
Existing law provides that the review by the Appeals Board
of a decision by ABC shall be limited to specified
questions. The Appeals Board is also required to enter its
order within 60 days after the filing of an appeal.
BACKGROUND
Alcoholic Beverage Control Appeals Board: The Appeals
Board provides quasi-judicial administrative review of
decisions of the ABC. The questions that may be considered
by the Appeals Board are limited by the California
Constitution and by statute.
The Appeals Board is made up of three members appointed by
the Governor. Funding for the Appeals Board comes entirely
from a surcharge on all ABC license renewals. All Appeals
Board activities, staff functions, and budget expenditures
are directed toward the review and finalization of appeals.
The Appeals Board conducts 10 hearings throughout the year
AB 1798 (Evans) continued
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in both Northern and Southern California.
The Appeals Board determines appeals solely on the record
of ABC and any briefs filed by the parties. No additional
evidence may be received by the Appeals Board. However,
the parties to an appeal may present oral argument during
the Board's monthly hearings. The Appeals Board issues
written decisions with orders affirming, reversing, and/or
remanding ABC decisions. Judicial review of the Board's
order may be obtained
by filing a petition for writ of review with the California
Supreme Court or the Court of Appeal.
The timely issuance of orders by the Appeals Board is a
critical part of the state's regulation of the alcoholic
beverage industry and enforcement of the ABC Act. When an
appeal is filed, any action by the ABC on its decision is
stayed until the appeal is concluded by a final order of
the Appeals Board. During the appeal period, a license
that is subject to the appeal may not be suspended or
revoked; in the case of an application for a license, the
ABC may not issue or transfer the license while the process
is in effect.
The number of new appeals filed with the Appeals Board on
average is around 200 cases per year. A majority of the
cases reviewed by the Appeals Board relate to alcohol sales
to minors. According to the Appeals Board, approximately 3
% of the sales to minor cases or approximately 17% of the
overall cases are reversed or partially reversed.
Issue #1: According to the author, this measure is
intended to address a growing concern by the alcohol
industry, law enforcement, and citizens of California
relating to the time frame upon which an appeal is rendered
by the Appeals Board. The Appeals Board has been faced
with a substantial increase in caseload, which has resulted
in a backlog of appeals. ABC's enforcement activities have
increased in response to legislative mandates to curtail
underage drinking, which has lead to more rulings and, in
turn, the number of appeals to the Appeals Board has
increased. The author is concerned with the length of time
it is taking to process the appeals. In many cases, it has
been reported that it is taking up to 12 to 18 months
before the Appeals Board renders a final order. The author
is concerned with the current appeals time frame because
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while the case is being reviewed the "bad apples" continue
to operate which troubles law enforcement and residents
within the community. The author believes that it is
essential that the Appeals Board be held to better
accountability relating to meeting specific timelines
specified in current law.
The author further adds that with the increase in industry
license fees (Wesson and Oropeza, Chapter 488, Statues of
2001) there should be sufficient funds within the Appeals
Board budget to maintain the staffing levels necessary to
expedite appeals in a more diligent manner. This measure
is necessary to ensure that the principles of the appeals
process within the ABC Act are preserved and upheld as they
relate to a licensee's right of due process.
Tied-House Restrictions: Existing law, known as the
"tied-house" law, separates the alcoholic beverage industry
into three component parts, or tiers, of manufacturer,
wholesaler, and retailer. The original policy rationale
for this body of law was to: (a) promote the state's
interest in an orderly market; (b) prohibit the vertical
integration and dominance by a single producer in the
marketplace; (c) prohibit commercial bribery and protect
the public from predatory marketing practices; and, (d)
discourage and/or prevent the intemperate use of alcoholic
beverages. Generally, other than exceptions granted by the
Legislature, the holder of one type of license is not
permitted to do business as another type of licensee within
the "three-tier" system.
Issue #2: Current law (Business & Professions Code Section
25503.15) provides as an exception to tied-house
restrictions that a winegrower who deals in wine only may
hold an ownership interest in any on-sale license, provided
that the winegrower has entered into an "undertaking"
approved by the Department of ABC not to sell or furnish
his or her wine to the holder of the license for as long as
the winegrower's ownership interest in the license
continues, or to enter into any collusive scheme to
unfairly sell or promote the wine of another winegrower in
his or her retail businesses in return for the same
treatment in the retail businesses of the other winegrower.
Current law also provides that a licensed winegrower may
hold an ownership interest in an on-sale license, if
AB 1798 (Evans) continued
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certain conditions are met, including that the licensed
on-sale premises are operated as a bona fide eating place
or a bona fide bed and breakfast inn; any alcoholic
beverage sold and served at the on-sale licensed premises
is purchased only from a California wholesale licensee,
except as specified; the winegrower and any officer,
director, or agent of that person, whether individually or
in the aggregate, do not sell and serve wine products
produced or bottled under any brand or trade name owned by
that winegrower through more than 2 on-sale licensed
premises in which any of them holds an ownership interest;
and, in the case of a bona fide public eating place, wine
produced by the winegrower does not exceed a specified
percentage of the wine items offered for sale in the
on-sale premises.
This proposal would retain the requirement that the
winegrower meet the specified conditions regarding the sale
or furnishing of wine under the circumstances described
above, but would eliminate the requirement that statements
describing these conditions be made pursuant to an
"undertaking approved by the Department of ABC."
Additionally, this proposal would make other minor
technical changes to this section of law. In summary,
these changes are intended to streamline, simplify and
provide for a more conforming tied-house exception without
materially impacting its effect.
PRIOR/RELATED LEGISLATION
SB 1480 (Governmental Organization) 2009-10 Session. Would
make numerous clarifying, technical and code maintenance
changes to various provisions of the ABC Act. (Pending in
Assembly policy committee)
SB 359 (Rainey) Chapter 529, Statutes of 1997. Modified
an existing tied-house exception that permits a licensed
winegrower to hold an ownership interest in an on-sale
license, if certain conditions are met, to include a
winegrower who has a wholesale license to sell wine only.
SB 1376 (Thompson) Chapter 318, Statutes of 1994. Among
other things, created a tied-house exception applicable to
winegrowers owning restaurants or bed and breakfast inns,
provided certain conditions are met.
SUPPORT: None on file as of June 18, 2010.
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OPPOSE: None on file as of June 18, 2010.
FISCAL COMMITTEE: Senate Appropriations Committee
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