Opinion ID: 1843113
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Heading: The ABD's Interpretation of Iowa Code Section 123.45.

Text: Having determined the legislature clearly vested the interpretation of section 123.45 with the ABD, we must decide whether the agency's interpretation is based upon an irrational, illogical, or wholly unjustifiable interpretation of section 123.45. Iowa Code § 17A.19(10)( l ). The goal of statutory construction is to determine legislative intent. State v. McCoy, 618 N.W.2d 324, 325 (Iowa 2000). We determine legislative intent from the words chosen by the legislature, not what it should or might have said. Painters & Allied Trades Local Union v. City of Des Moines, 451 N.W.2d 825, 826 (Iowa 1990). Absent a statutory definition or an established meaning in the law, words in the statute are given their ordinary and common meaning by considering the context within which they are used. Midwest Auto. III, L.L.C. v. Iowa Dep't of Transp., 646 N.W.2d 417, 426 (Iowa 2002). Under the guise of construction, an interpreting body may not extend, enlarge or otherwise change the meaning of a statute. See State v. Wedelstedt, 213 N.W.2d 652, 656 (Iowa 1973). The parties agree the legislative intent for the enactment of section 123.45 was to maintain the independence of the various levels of the liquor industry and to prevent tied-house arrangements. Norman Williams Co. v. Rice, 108 Cal.App.3d 348, 166 Cal.Rptr. 563, 572, n. 3 (1980). A tied-house is a retail outlet that is owned or controlled by a manufacturer, wholesaler, or other entity in the chain of alcohol beverage distribution. The parties disagree whether section 123.45 leaves room for the ABD to interpret the statute to exclude remote connections between industry members and their subsidiaries or affiliates from directly or indirectly being interested in the ownership of a retailer of these beverages. Amended rule 18516.2(2) acknowledges that an industry member has an ownership interest in its subsidiary or affiliate. Iowa Admin.Code r. 18516.2(2). By rule, however, the ABD attempts to declare that an interest of a subsidiary or affiliate in a retailer, coupled with a lack of actual control by an industry member over its subsidiary or affiliate, is not an interest in the ownership prohibited by section 123.45. We believe this interpretation is contrary to the language chosen and used by the legislature in section 123.45. This court has had the occasion to construe statutes that contained language similar to the language used by the legislature in section 123.45. James v. City of Hamburg, 174 Iowa 301, 308-16, 156 N.W. 394, 396-99 (1916). In James, the statutes in question provided: No member of any council shall ... be interested, directly or indirectly, in any contract or job for work, or the profits thereof, or services to be performed for the corporation. and No officer or employee elected or appointed in any such city shall be interested, directly or indirectly, in any contract or job for work or materials, or the profits thereof, or services to be furnished or performed for the city. 174 Iowa at 310, 156 N.W. at 397 (quoting Iowa Code § 668.14 (1897) and Iowa Code § 1056-a31 (1907)). In construing the phrase interested, directly or indirectly, the court determined [t]he fact that the interest of the offending officer in the invalid contract is indirect and is very small, is immaterial. James, 174 Iowa at 312-13, 156 N.W. at 397 (citation omitted). At the time the ban on tied-house arrangements was enacted, the legislature drew a bright-line rule defining the allowable relationship between a manufacturer, wholesaler or other entity in the chain of alcohol beverage distribution and the retailer of these beverages. By choosing the language directly or indirectly be interested in the ownership, the legislature meant to prohibit any ownership interest, no matter how remote or de minimis, by a manufacturer, wholesaler, or other entity in the chain of alcohol beverage distribution and the retailer of these beverages. Since its enactment, the statute prohibiting tied-house arrangements has been amended at least six times. The original statute prohibiting tied-house arrangements was enacted at the end of prohibition and prohibited tied-house arrangements between beer manufacturers, bottlers, wholesalers, their jobbers, or agents with retailers. Iowa Code § 1921-f115 (1935). In 1963, the legislature further restricted tied-house arrangements by adding manufacturers, wholesalers, their jobbers, or agents of alcoholic beverages to the ban on tied-house arrangements. Iowa Code § 123.40 (1966). In 1981, the legislature made an exception to tied-house arrangements for manufacturers of beer to obtain one class B permit to sell beer at retail off of their premises. Iowa Code § 123.45 (1983). In 1985, the legislature further restricted tied-house arrangements by adding manufacturers, wholesalers, their jobbers, or agents of wine to the ban on tied-house arrangements. Iowa Code § 123.45 (1987). Finally, in 1988 the legislature further restricted tied-house arrangements by adding a representative, broker or employee of a manufacturer or wholesaler of alcoholic beverages, wine, or beer to the ban against tied-house arrangements. Iowa Code § 123.45 (1989). The legislature also amended this section in 1982 and 1991, but neither amendment concerned tied-house arrangements. See Iowa Code § 123.45 (1983) (amending provision dealing with prohibited act of certain state officials and employees); Iowa Code § 123.45 (1993) (permitting disposable glassware to be provided to retailers by a manufacturer or wholesaler of alcoholic beverages, wine, or beer under certain conditions). In 1981, the legislature enacted a limited exception to the ban against tied-house arrangements as it applied to manufacturers of beer. If the legislature wanted to exclude remote connections between industry members, their subsidiaries or affiliates, and retailers of these beverages, it would have done so by amendment. See RIHGA Int'l U.S.A., Inc. v. New York State Liquor Auth., 84 N.Y.2d 876, 620 N.Y.S.2d 784, 644 N.E.2d 1340, 1341-42 (1994) (holding state liquor authority did not have discretion, under statute prohibiting liquor manufacturer or wholesaler from holding interest, directly or indirectly, in premises where any alcoholic beverage is sold at retail, to issue license to owner of hotel in which three unrelated manufacturers of alcohol products indirectly held ownership interests totaling less than ten percent, notwithstanding contention that manufacturers' interests were de minimis). The interpretation given to Iowa Code section 123.45 by the ABD in amended rule 18516.2 is based upon an illogical interpretation of section 123.45. A remote or de minimis ownership interest is an indirect ownership interest, which is prohibited by the statute. In essence, the ABD ignored the phrase indirectly be interested in ownership as used by the legislature in section 123.45. For these reasons, we agree with the Wholesalers that Iowa Code section 123.45 does not permit the ABD to promulgate a rule allowing a tied-house arrangement between industry members, their subsidiaries or affiliates, and retailers, when the relationship is remote or de minimis. In its notice of intended action, the ABD noted that numerous jurisdictions have examined this issue under similar statutory provisions and concluded a rigid application of the laws preventing tied-house arrangements when the corporate connections were remote was unreasonable. In the jurisdictions cited by the ABD where the interpretation was made by an attorney general opinion, declaratory statement of the agency, or an informal letter from the agency, the interpretation by the attorney general or the agency was not challenged in a subsequent court proceeding. We are sympathetic to the ABD's position that modern corporate relationships not anticipated by the legislature when these statutes were enacted may unnecessarily exclude desirable operators of retail establishments from locating their businesses in Iowa. Nevertheless, it is best left up to the legislature to determine if this policy is out-dated, not the ABD.