Virginia ABC: A Follow-Up on Regulatory Dysfunction

When an agency appeals its own administrative law judge's decision twice, the system has broken down.

When I wrote my original piece on Virginia ABC's problematic dual role as both regulator and the state's largest alcohol retailer, I knew we would have more to document about their hearing process. What unfolded next demonstrates how regulatory capture can corrupt even the most basic principles of due process.

After Virginia ABC's own administrative law judge ruled against the agency in our case, they exercised their right to appeal. This presented an unusual situation: an agency appealing the legal findings of their own employee to their own administrative board.

The hearing process breakdown

The sequence of events that followed illustrates the dysfunction in Virginia ABC's regulatory process:

• The hearing was initially scheduled with appropriate notice to all parties.

• A few days before the proceeding, Virginia weather forecast predicted a significant snowstorm, and the hearing was properly postponed.

• With a new hearing date established, all parties prepared accordingly - attorneys and witnesses arranged travel, including flights.

• Two hours before the hearing was scheduled to begin, Virginia ABC announced they would be introducing new evidence, including testimony from an out-of-state expert witness.

This created several problems. Appeals are typically decided on the original record of proceedings, and the introduction of new evidence fundamentally changes the nature of the hearing. The timing of this disclosure - when the agency would have known days in advance of their intention to present additional evidence - suggests either poor planning or a deliberate, deceitful strategy to everyone’s time and money, or both. In traditional court proceedings, such late disclosure would likely result in the evidence being excluded. However, when an agency controls its own hearing process, different standards apply, apparently.

Once everyone arrived at the Virginia Alcoholic Beverage Control Authority HQ, the Virginia ABC Board demonstrated a fundamental misunderstanding of the appeal process. They expected our legal team - the prevailing party from the original decision - to present arguments supporting the administrative law judge's ruling. This revealed a concerning gap in understanding: in any appeal, the burden falls on the appellant (in this case, Virginia ABC) to demonstrate why the original decision was incorrect. The prevailing party only needs to defend against the appellant's arguments.

The hearing was ultimately rescheduled to allow proper notice regarding the new evidence Virginia ABC sought to introduce.

Following the rescheduled hearing, where Virginia ABC presented their additional evidence and expert testimony, the same administrative law judge issued his second ruling. His conclusion remained unchanged: Virginia ABC's interpretation of the regulations was legally incorrect.

The agency then had 30 days to file another appeal. On the 29th day, they did exactly that.

It took 29 days to write a three-sentence appeal, with one of their grounds for appeal being the administrative law judge exceeded his authority in issuing his decision. This argument is particularly troubling given the Virginia ABC had requested the remand for the judge to hear more evidence. Realizing this didn't serve in their best interest, they are arguing the judge lacked authority to rule on the very evidence they insisted on presenting.

Virginia ABC is now arguing to their own board that their administrative law judge has been wrong in his interpretation of the law not once, but twice. It will be interesting to see how the Board now rules. They have two choices.

1. They confirm that their independent law judge was wrong twice, or

2. The Board, as non-lawyers, decide that they know the law better than their own judge and side with the VA ABC.

Broader implications

This case illustrates several concerning aspects of Virginia ABC's operations:

• Resource allocation: The agency is spending considerable taxpayer resources - including hundreds of thousands of dollars in legal fees, hearing costs, and administrative time - to overturn decisions made by their own employees.

• Regulatory consistency: When an agency consistently appeals its own legal determinations, it raises questions about the coherence of their regulatory framework and the independence of their legal analysis.

• Market impact: During this extended legal process, Virginia consumers continue to face restricted access to products that Virginia ABC cannot provide, while the state loses potential tax revenue from sales that could otherwise occur.

• Competitive fairness: The ability to repeatedly appeal internal decisions creates an uneven playing field where Virginia ABC can use procedural delays to maintain restrictions on competitors while facing no similar oversight of their own operations.

As a side note, I would like to include that data reveals that Virginia ABC's own retail operations have lower compliance rates than licensed direct shippers. You would expect them to embrace and not fight against new and improved systems.

The bigger picture

Virginia's Governor frequently promotes the state as business-friendly, but the alcoholic beverage industry faces a different reality. Virginia ABC's regulatory capture by wholesale interests creates deliberate barriers for producers seeking direct consumer access, protecting influential wholesalers at the expense of an industry that generates substantial tourism revenue, jobs, and tax income for the state.

This dysfunction extends beyond Virginia to other states as well, where agencies have financial stakes in the industries they regulate.

The solution requires structural reforms separating regulatory functions from commercial operations to ensure that businesses and consumers no longer bear the costs (higher prices) of a system that serves agency interests over public benefit.

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