ANALYSIS OF THORMAC, LLC v. DEP’T OF ABC

 

(Posted November 28, 2017) If you listen carefully, you can hear the sound of the phones ringing this afternoon in legislators’ offices across the Commonwealth. Some well-heeled constituents are likely giving their elected representatives an earful after today’s ruling in Thormac, LLC v. Dep’t of ABC in the Court of Appeals of Virginia.

Here’s the legal framework: In order to prevent the proliferation of pure bars – today’s opinion refers to them as “gin mills” – Virginia law requires ABC licensees to maintain a 45% ratio between food sales and gross sales. There are some exceptions, such as for beer and wine; but in general terms, if a given establishment hypothetically has gross sales of $500,000 in a year, at least $225,000 of that has to be from sales of food and nonalcoholic beverages. If a licensee fails to reach that threshold, it’s subject to a fine and/or suspension. The ratio is mandated by statute; it’s not an administrative regulation.

Thormac operates a restaurant in the Museum District in Richmond. (For those of you who will, after reading this analysis, decide it’s worth a visit, it’s McCormack’s Whisky Grill and Smokehouse. This is as close as I’ll ever come to “product placement” on this website.) It sells food – plenty of it, in fact – and entrees cost $22 to $24 on average. Indeed, if its whiskey prices were below stratospheric levels, we probably wouldn’t have a dispute here.

But McCormack’s sells high-end stuff. Behold, from page 20 of the slip opinion: “The price of a shot of liquor there ranges from $7.25 to approximately $2,000.” If you wish, you may reread that sentence and keep in mind my promise that I didn’t fiddle with the placement of the decimal. Two thousand bucks a shot.

Now I’ve never heard of any whiskey or other fluid that costs that much, and I have no intention of ever paying that much for it, unless it will save my life somehow. But some customers do. While those customers presumably do not get sloshed – who could afford to, at those prices? – the disparity between the price of a normal meal and the price of a normal amount of alcohol is immense. Over the course of its 2014-15 fiscal year, that disparity tilted the balance on McCormack’s books so that food sales were only 39% of gross. On paper, that’s a violation.

It’s a violation in the ABC Board, too. A hearing officer considered essentially uncontroverted evidence and, perhaps shrugging, ruled that the restaurant was noncompliant with the statutory ratio. She suspended McCormack’s ABC license for 30 days, but by law, the restaurant could cut that period in half by paying a $1,000 civil penalty.

Instead, it appealed to the full ABC Board. After a hearing, the Board ruled 2-1 that it was still a violation, but cut the suspension to seven days, and even that would go away if the restaurant paid a $500 fine. One member of the Board voted to use the Board’s discretion not to impose any penalty, given the unique circumstances of this case.

It would be easy for the restaurant to pay the $500 and get back to business, but there’s a principle involved here, not to mention next year’s food-to-gross ratio. It appealed to circuit court, and lost, and appealed again to the Court of Appeals.

This one ends in a loss, too, as a unanimous panel of the court rules that this case, quirky as it may be, falls squarely within the prohibition of the statute. The analysis is straightforward and doesn’t break what I would consider any new ground; I agree with the panel’s assessment and with its conclusion that “Appellant’s true grievance lies with the food-beverage ratio itself. Only the General Assembly can change a statute – not the courts.”

Hence those ringing phones. I suspect that if the next year’s ratio is comparable, and if the Board sticks with the $500 fine, there won’t be a recurrence of this litigation; the restaurant will just pay it. But this decision illustrates that Virginia’s effort to regulate liquor sales in restaurants, while perhaps well-intentioned, might benefit from a reworking in light of modern trends in the restaurant industry.

I cannot resist one last note. Here is a link to the restaurant’s drink menu. Sure enough, there it is: Macallan M for $2,100 a shot. You may wish to click on the link to download the full drink menu, so you can see more than just Scotches. I’m a bourbon man, and I found the prices for Kentucky’s Greatest Gift to the World to be perfectly in line with what I’ve seen elsewhere. (Pappy Van Winkle is fixed at “$market.”)