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Lansing – A long-running battle over Michigan’s prohibition against liquor stores operating within a half-mile of each other is back in court as existing small business owners try to stop the state from eliminating the distance requirement.

Michigan Court of Claims Judge Stephen Borrello in January temporarily blocked plans to rescind the liquor store rule after the Associated Food and Petroleum Dealers sued the state for a second time. Borrello is set to hear arguments in the case on March 19.

Eliminating the rule would cause “irreparable harm” to thousands of liquor store owners who “have invested substantial sums, time and sweat” to obtain state licenses with the expectation a competitor could not open next door, according to the lawsuit.

The complaint seeks to keep the four-decade-old rule in place while the Michigan House considers a Senate-approved bill that would write the 2,640-foot distance requirement into state law.

But the Liquor Control Commission says the rule squashes competition and is seeking to dismiss the case. Attorney General Bill Schuette’s Office argues the state followed proper protocols for rescinding the rule.

“Plaintiff wishes to maintain its competitive advantage, but the public interest would also be harmed by allowing this advantage to continue,” Assistant Attorney General Rosendo Asevedo wrote in a Feb. 20 filing.

The store owner association first sued the state in early 2017 to force public hearings on the attempt to eliminate the rule. Half-mile supporters note the state also regulates competition by controlling prices and operating a three-tiered licensing system for suppliers, wholesalers and retailers.

The commission is complying with Borrello’s “stay” that temporarily kept the rule in place, said a spokesman, who declined further comment on the litigation. Chairman Andy Deloney previously said the rule “significantly limits the ability for smaller businesses to grow, or even get into the business in the first place.”

While representatives from Kroger, CVS and 7-Eleven have publicly backed plans to scrap the rule, an open hearing and public comment period were dominated by opposition from existing owners and associations that represent them.

Angry owners also flooded a December hearing before the Joint Committee on Administrative Rules, which quietly allowed the rule to be eliminated when they declined to object within 15 days.

“For me, I see it as an anti-competitive rule,” said Rep. Steven Johnson, R-Wayland, who chaired the joint committee hearing. Eliminating the rule makes “free market sense,” he said Friday.

The Michigan Senate in December approved a plan to keep the half-mile rule in place by writing it into state law. The proposal by Sen. Rick Jones, R-Grand Ledge, would allow exemptions for grocery stores that are at least 20,000 square feet and derive 20 percent of their sales from food.

The House has yet to take up the bill amid ongoing negotiations.

“The big elephant in the room, and the only group really trying to make some noise, is Meijer, and they’re being really disingenuous about it,” said Auday Arabo, president and chief executive of the Associated Food and Petroleum Dealers. “What they’d like is to get liquor into every one of their gas stations.”

Jones confirmed Grand Rapids-based Meijer superstore chain has raised concerns about the legislation and said negotiations are “still up in the air.”

Spokesman Frank Guglielmi confirmed Meijer supports efforts to eliminate the half-mile rule, but he said doing so would not allow the company to sell liquor in gas stations. Instead, he noted Meijer recently announced plans to open six small-format stores in urban areas by 2021.

“While we have no plans to put liquor in our gas stations, we are continuing to invest in different store formats throughout the state, and the half-mile rule would limit our ability in some cases to offer liquor to our customers,” Guglielmi said in an email.

Liquor Control Commission spokesman David Harns said gas stations are governed by specific liquor licenses that would not be affected by rescinding the half-mile rule, calling the matter “completely unrelated.”

Jones said he sympathizes with small business owners who “invested their entire life savings” in a liquor store only to see the state try to change a distance rule that has existed since the late 1970s.

Local governments are also concerned “about the possibility of having (liquor) stores all in one area,” Jones said. “It’s possible you could have stores congregate on one corner, and that’s not what cities want.”

Eliminating the half-mile rule would not increase the number of available licenses, but critics warn it would allow multiple liquor stores to operate next door to each other, creating potential magnets for crime.

The Liquor Control Commission, however, has said measuring distances between existing stores and proposed locations is a significant burden on staff resources.

The rule is “a never-ending source of absurdly inventive lawyering and litigation and will continue to be unless rescinded,” Deloney told legislators in December.

joosting@detroitnews.com

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