We are asked to decide whether a flavored malt beverage is a beer or spirit under the Nebraska Liquor Control Act.
The Commission argues two issues: First, it contends that the district court erred in concluding that the appellees had standing to challenge its regulation. Second, it contends that the court erred in ruling that flavored malt beverages are spirits under the Nebraska Liquor Control Act.
We conclude that appellee Mary Doghman had taxpayer standing. The court correctly determined that the Commission exceeded its statutory authority by classifying and taxing flavored malt beverages as beer. The Nebraska Liquor Control Act plainly defines spirits as beverages that contain alcohol obtained by distillation. Up to 49 percent of the alcohol in flavored malt beverages is distilled alcohol. Therefore, a flavored malt beverage is a spirit. We affirm.
Of the four appellees in this case, three are Nebraska non-profit organizations: Project Extra Mile, the Public Health Association of Nebraska, and Pride-Omaha, Inc. (collectively the nonprofits). The other appellee, Doghman, is a resident taxpayer.
The appellees alleged that Doghman had taxpayer standing because the Commission had spent public funds and would spend public time and money to implement and enforce an unlawful classification. They also alleged that the classification would result in reduced tax revenues for the State; thus, it would increase the tax burden for Doghman and other taxpayers.
The appellees further alleged that the nonprofits had standing because of their status as Nebraska nonprofit corporations. The appellees' only factual allegations of injury from the regulation referred to Project Extra Mile's organizational purpose. They alleged that Project Extra Mile's primary mission and purpose was to address the issue of underage drinking. And they alleged that the Commission's actions would harm Project Extra Mile's mission.
The appellees sought a declaration that the Commission's regulations were illegal and void because the Commission had exceeded its authority under the Nebraska Liquor Control Act by classifying flavored malt beverages as beer. The appellees also sought a writ of mandamus compelling the Commission to classify and tax flavored malt beverages as spirits instead of beer.
The Commission moved to dismiss the action. It argued that (1) the appellees lacked standing, (2) sovereign immunity barred their action, and (3) a writ of mandamus was not an appropriate remedy.
The court ruled that Doghman had standing as a resident taxpayer to challenge
In ruling that the nonprofits had representative standing, the court relied on the U.S. Supreme Court's decision in Hunt v. Washington Apple Advertising Comm'n.
In their amended complaint, the appellees sought only a declaration that the regulation was invalid under the Nebraska Liquor Control Act. In its answer, the Commission affirmatively alleged that the appellees lacked standing and had failed to state a cause of action. It also alleged that the court lacked subject matter jurisdiction over any claim against its director. Finally, it alleged that the Commission's regulations were within the Commission's statutory authority.
The court found that the nonprofits were all seeking to prevent underage alcohol consumption. It again ruled that all the appellees had standing.
The court also ruled that the Commission's disputed regulation, 237 Neb. Admin. Code, ch. 1, § 009.01 (2009), violated the plain language of § 53-103(2) (Cum. Supp.2008) of the Nebraska Liquor Control Act, which defines "spirits." The disputed regulation adopted federal regulations issued by the Alcohol and Tobacco Tax and Trade Bureau (the TTB) of the U.S. Treasury Department. The federal regulations permitted products that contained both fermented alcohol and distilled alcohol to be classified as malt beverages. The court rejected the Commission's argument that the Nebraska Liquor Control Act's definition of beer could include the federal regulatory definition of flavored malt beverages. It concluded that these beverages were clearly "spirits" under the Nebraska Liquor Control Act because they were a beverage that contained alcohol obtained by distillation, mixed with water and other substances.
The Commission assigns that the court erred in overruling its motion to dismiss the appellees' complaint because Doghman and the nonprofits lack standing to challenge the Commission's regulation. The Commission also assigns that the court erred in declaring that flavored malt beverages are spirits under the Nebraska Liquor Control Act and that the Commission had exceeded its authority in promulgating the regulation.
In an appeal under the Administrative Procedure Act, an appellate court may reverse, vacate, or modify the judgment of the district court for errors appearing on the record.
The Commission argues that the court erred in concluding that Doghman and the nonprofits had standing to challenge its regulation. But because we conclude that Doghman has taxpayer standing to assert this claim, it is unnecessary for us to consider whether the nonprofits also have standing.
Under Neb.Rev.Stat. § 84-911(1) (Reissue 2008), "[t]he validity of any rule or regulation may be determined upon a petition for a declaratory judgment ... if it appears that the rule or regulation or its threatened application interferes with or impairs or threatens to interfere with or impair the legal rights or privileges of the petitioner."
Generally, § 84-911 requires a plaintiff to have common-law standing to challenge an agency's regulation or its threatened application.
First, the Commission argues that we have recognized taxpayer standing only when the taxpayer seeks to enjoin an illegal expenditure of public funds. Second, it argues that in challenges to an agency's regulations, § 84-911 authorizes a plaintiff to seek only declaratory relief, not injunctive relief. Thus, it argues that Doghman cannot have taxpayer standing under § 84-911 because our case law precludes her from seeking anything but injunctive relief, which is not permitted under § 84-911.
Section 84-911 does not limit a plaintiff to seeking only declaratory relief. It provides that a plaintiff may challenge the validity of a rule or regulation in a declaratory judgment action. We have held that § 84-911 provides a limited waiver of sovereign immunity that permits a court to determine the validity of administrative
So when § 84-911 is read consistently with the declaratory judgment statutes, the only limitations placed on the relief that a plaintiff can obtain in a declaratory judgment action authorized under § 84-911 are the limitations imposed by sovereign immunity principles. But state sovereign immunity does not bar actions to restrain state officials or to compel them to perform an act they are legally required to do unless the prospective relief would require them to expend public funds.
Contrary to the Commission's contention, we have permitted a taxpayer to seek declaratory relief in an action against state officials when the taxpayer alleged an unauthorized expenditure of public funds.
It is true that the action in Chambers was not brought under § 84-911. But recognizing the taxpayer exception to standing requirements under § 84-911 is consistent with the reason for recognizing taxpayer standing in Chambers and in other actions brought against state officials. If state agencies could unlawfully promulgate rules that waste public funds with impunity, following the law would be "irrelevant to those entrusted to uphold it."
The only remaining issue is whether a taxpayer has standing to assert
In Chambers, the plaintiff sought injunctive relief and a declaration that the Douglas County election commissioner had exceeded his statutory authority in redrawing the legislative districts for Omaha's city council elections. The trial court determined that the commissioner had acted lawfully. On appeal, we concluded that the plaintiff had standing because he had alleged an illegal expenditure of public funds. We pointed to the following allegations:
The county election commissioner's alleged misapplication of state statutes in Chambers is the same as the appellees' claim that the Commission promulgated a rule in contravention of its governing statutes. In both cases, the allegation is that a statutorily created official or government entity took an unlawful action under its governing statutes. So, under Chambers, preventing the use of public time and money to implement and enforce allegedly invalid rules is a sufficient interest to confer taxpayer standing to challenge the rules. In other cases, however, we have held that a claim of unauthorized government action is insufficient to confer taxpayer standing when the plaintiff has not shown an individualized injury in fact.
This conflict occurs because of the competing considerations frequently presented by taxpayer actions. Primarily, government officials must perform their duties without fear of being sued whenever a taxpayer disagrees with their exercise of authority.
These competing concerns explain the tension between Chambers and our cases holding that an allegation of unlawful government action is insufficient to show an illegal expenditure of public funds. Arguably, Chambers would have been more correctly presented as raising a matter of great public concern: If true, the county election commissioner's alleged statutory violation would have unlawfully altered the way that the city's residents elected their city council representatives. But we need not resolve here the tension between Chambers and our cases requiring a plaintiff to show an illegal expenditure of public funds. Instead, our conclusion that Doghman has standing rests on her allegation that under the disputed regulation, the Commission has failed to assess state taxes required under its governing statutes.
We reaffirm our previous holding that a taxpayer's interest in challenging an unlawful state action must exceed the common interest of all taxpayers in securing obedience to the law.
We have held that taxpayers have an equitable interest in public funds, including state public funds.
We hold that a taxpayer has standing to challenge a state official's failure to comply with a clear statutory duty to assess or collect taxes—as distinguished from legitimate discretion to decide whether to tax.
Doghman has met this burden. She alleged that the Commission's regulation is contrary to the statutory taxation requirements for flavored malt beverages. And because the parties most directly affected by the regulation are beneficially affected, they have no incentive to challenge it. No better suited party exists to assert the public's interests in challenging the Commission's alleged failure to assess statutorily required taxes. The court did not err in ruling that Doghman had taxpayer standing to challenge the regulation.
We come at last to the merits of the case. The Commission's disputed regulation states the following: "For the purpose of the classification of flavored malt beverages, the ... Commission shall utilize the same classification as adopted by the [TTB] found at 27 CFR Parts 7 and 25 ... which went into effect January 3, 2006."
At the heart of our inquiry is whether the Commission's adoption of federal regulations that classify flavored malt beverages as beer is permitted under the Act's definition of beer or whether under the Act, the beverages must be classified as spirits. In short, the Act defines beer as a "beverage obtained by alcoholic fermentation"
The TTB amended two parts of its regulations, parts 7 and 25, to permit beverages containing ingredients with distilled alcohol to be produced in breweries and marketed as beer products. Part 7 deals with the labeling and advertising of malt beverages.
The Commission contends that the court incorrectly ruled that its regulation violated the plain language of the Act. The Commission stipulated that under its adoption of the TTB's regulations, up to 49 percent of the alcohol content in flavored malt beverages may be flavorings with distilled alcohol. But it contends that it could properly classify the TTB's definition of a "malt beverage" as beer under the Act. It argues that the beer classification is permitted because the distilled alcohol in these beverages comes from flavorings and other nonbeverage ingredients, not from the direct addition of distilled spirits. It cites the TTB regulations that specifically prohibit the products from being labeled or advertised in a manner that gives the impression that they contain distilled spirits.
Additionally, the Commission argues that even if flavored malt beverages could be classified as spirits under the Act, they could also be classified as beer because they are a hybrid; i.e., they contain both fermented alcohol and distilled alcohol. The Commission argues that the court conceded in its order that these beverages could be classified as either beer or spirits. So the Commission argues that its regulation cannot be invalid. It cites a case in which we deferred to an agency's interpretation of a statute that the agency was charged with enforcing.
The appellees contend that it is irrelevant that the beverages satisfy the TTB's regulations because the beverages are clearly distilled spirits under the Act. We agree.
We reject the Commission's argument that we should defer to its interpretation of the Act. It is true that we have
In 2005, the General Affairs Committee of the Legislature voted to amend the definition of beer to conform to the TTB's approved regulations by adding "flavored malt beverages" to the definition of beer. Additionally, that bill would have specifically provided that a "[f]lavored malt beverage means a beer that derives not more than forty-nine percent of its total alcohol content from flavors or flavorings containing alcohol obtained by distillation."
This history does not show the Legislature's acquiescence in an agency's interpretation of its governing statutes. On the contrary, it shows an agency's attempt to achieve through regulations what the Legislature declined to enact through proposed statutory amendments. We are not inclined to give any deference to the Commission's interpretation of its governing statutes.
More important, a rule of deferring to agency interpretations does not apply when the agency's regulation contravenes the plain language of its governing statutes. We make independent conclusions on the meaning and interpretation of statutes.
So any deference that we afford an agency's interpretation of its governing statutes does not apply when we can clearly discern the Legislature's intent and whether an agency's regulations are contrary to that intent. Contrary to the Commission's arguments,
In determining whether an agency's governing statute is ambiguous, we are guided by our own principles of statutory construction.
Absent a statutory indication to the contrary, we give words in a statute their ordinary meaning.
The Commission's argument that these beverages can be classified as beer conflicts with both the plain language of the Act's definition of beer and the Legislature's intent to exclude beverages containing a significant amount of distilled alcohol from the definition of beer. This intent is clear when the Act's provisions are read consistently.
First, we reject the Commission's argument that these beverages can be classified as beer because they also contain fermented alcohol. Even if distilled spirits are only indirectly added to the beverages through "flavorings" during production, the Act does not define beer to include beverages that contain distilled alcohol. Instead, the Act defines beer to mean a "beverage obtained by alcoholic fermentation of an infusion or concoction of barley or other grain, malt, and hops in water and includes, but is not limited to, beer, ale, stout, lager beer, porter, and near beer."
In contrast, the Act defines spirits to mean "any beverage which contains alcohol obtained by distillation, mixed with water or other substance in solution, and includes brandy, rum, whiskey, gin, or other spirituous liquors and such liquors when rectified, blended, or otherwise mixed with alcohol or other substances."
Despite the Act's exception for flavoring extracts and food products unfit for beverages, the same section specifically provides that the Act applies to alcohol used to make confections and candy if the alcohol content exceeds one-half percent of the product's ingredients.
So if the court had ruled that an insignificant amount of distilled alcohol used for flavoring in a beer product did not render the beverage a spirit, we would agree that this was a reasonable interpretation of the Act. But the court was not asked to decide that question. And the Act cannot be reasonably interpreted as permitting the alcohol in a beer product to have up to 49 percent distilled alcohol.
In sum, in reading the Act's provisions consistently, it is obvious that the Legislature did not intend for a beer product to include beverages containing distilled alcohol in an amount constituting up to 49 percent of the total alcohol content. Because the TTB regulations describe flavored malt beverages as a solution containing fermented alcohol and the distilled alcohol in these beverages is not an insignificant amount used for flavoring, the beverages clearly fall within the Act's definition of spirits. Moreover, contrary to the Commission's argument, the court did not concede that flavored malt beverages could be classified as either beer or wine. That argument takes the court's statement out of context. Its order simply reflects its decisionmaking process. It reached the same decision that we reach here. The statutes are not ambiguous when read consistently.
An administrative agency is limited in its rulemaking authority to powers granted to the agency by the statutes which it is to administer. It may not employ its rulemaking power to modify, alter, or enlarge portions of its enabling statute.
Section 53-117(2) gives the Commission the following power:
(Emphasis supplied.) While the Legislature has given the Commission broad discretion to promulgate regulations, it clearly intended the Commission to exercise that discretion to strictly enforce the Act for the public's benefit.
We note that the comments to the TTB regulations show that the federal agency did not intend to preempt state law.
We conclude that the court correctly ruled that Doghman had taxpayer standing to challenge the Commission's regulation. We hold that the taxpayer standing rules apply to a declaratory judgment action authorized by § 84-911. We expand the rule that a taxpayer may seek to enjoin state officials from unlawfully expending public funds to permit a taxpayer in an action brought under § 84-911 to challenge an agency's failure to comply with a clear statutory duty to assess or collect taxes. But the taxpayer must show that no other potential party is better suited to challenge the rule. Here, the only persons or entities directly affected by the Commission's regulation were beneficially affected by it and had no incentive to challenge it. So no better suited party existed to assert the public's interests in having the Commission comply with its duty to assess statutorily required taxes.
The court correctly determined that the Commission had exceeded its statutory authority in classifying flavored malt beverages as beer. We give no deference to the Commission's interpretation of these statutes because they are unambiguous. The statutory definition of beer is limited to beverages that contain alcohol obtained by fermentation. In contrast, the statutory definition of spirits includes any beverage that contains distilled alcohol. When these sections of the Act are read consistently with an exception for alcohol used in flavorings, the Act unambiguously required the Commission to define any beverage containing more than an insignificant amount of distilled alcohol used for flavoring as a "spirit" and to tax it accordingly.
AFFIRMED.
GERRARD, J., not participating in the decision.
WRIGHT, J., not participating.
