The Pa. Liquor Control Board is liable for damages and legal fees in wine shipping fight, an appeals court ruled

The Pennsylvania Liquor Control Board has taken another loss in a long-running legal fight over the direct shipment to restaurants of wines that the state monopoly declines to carry in its stores.

Commonwealth Court found the agency liable for damages, interest, and lawyers’ fees in a case brought by two wine merchants over the agency’s failure to allow direct shipment of such “special order” wines to restaurants — instead of to a state store — as a 2016 law required.

Exact amounts have yet to be determined, but attorneys’ fees could be more than $300,000, and damages could be more than $100,000, according to the opinion published Friday.

The 2016 law also required the agency to stop charging a handling fee of up to $1.75 after taxes for every 750 milliliter special-order bottle sold through the state system by June 2017. But it kept charging the fee, leading an exasperated Commonwealth Court judge to ask a PLCB attorney during oral arguments in November: “How do we get the government to stop violating the law?”

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In a second, related opinion also published Friday, Commonwealth Court ruled that a Lancaster County restaurant could pursue a class-action lawsuit seeking the return of millions in illegal special-order handling fees that the PLCB has been collecting from businesses and consumers for five years.

The PLCB had claimed it was not liable because it enjoys sovereign immunity, meaning the government cannot be sued without its consent. But the court, in its 3-2 ruling Friday in the case involving wine dealers, found that sovereign immunity didn’t apply here because the agency’s failure to implement direct shipping and stop collecting the fees was “dilatory and obdurate.”

“Sovereign immunity was never intended to allow a state agency to harm its citizens and deprive them of a remedy,” said John G. Papianou, a partner at Montgomery McCracken Walker & Rhoads LLP in Philadelphia, the lead attorney in both cases, in an email Tuesday. “Here, the PLCB is unlawfully collecting handling fees from businesses and consumers throughout the Commonwealth and then turning around and claiming they don’t have to give it back.”

A PLCB spokesperson said: “We are reviewing the decision and considering our next steps.”

Under the old special-order system, wines and liquors that the state system doesn’t stock are available to licensees, but they must still go to a state store and pick them up. The 2016 law abolished this system but the PLCB claimed the change was optional. This became an acute problem early in the coronavirus pandemic when all state stores closed, preventing licensees form picking their orders. That’s when two wine merchants, MFW Wine Co. LLC and A6 Wine Co., sued the PLCB for violating the 2016 law.

Special orders accounted for $67.2 million of the PLCB’s $2.7 billion in sales in the year ended June 30, 2021.

Commonwealth Court Anne E. Covey wrote both majority opinions. Michael H. Wojcik wrote in a dissent, joined by President Judge Renée Cohn Jubelirer, that the PLCB has sovereign immunity and is not liable for damages.

The PLCB could appeal to the state Supreme Court, which it did after Commonwealth Court first ruled against the agency in 2020, finding that its failure to implement direct delivery was a clear violation of state law. The Supreme Court backed that lower-court decision without even hearing arguments.

Meanwhile, the PLCB on May 20 announced that in early June it would finally allow merchants to ship wine directly to licensees, five years late.