A Tied House Notice from the LCB: When the Board Says Your Ownership Is the Violation

Why does a notice about ownership read differently from an ordinary violation?

Because a different section produces it. RCW 66.28.300 lets any industry member, retailer, or other person ask the Board whether a financial interest has resulted or is more likely than not to result in undue influence, or in an adverse impact on public health and safety. If the Board's investigation finds either, it may issue an administrative violation notice or a notice of intent to deny.

So the letter often began as somebody's complaint, and not necessarily yours. A competitor, a distributor you dropped, a landlord in a dispute: the statute does not limit who may ask.

One sentence there deserves attention. Where the interest came from a transaction that had already closed, the Board may require that it be rescinded or otherwise undone. RCW 66.28.300. The exposure is not only the license. It can be the deal.

What do the ownership sections actually make unlawful?

Start with the legislature's own finding, because it is unusually direct. RCW 66.28.280 says the legislature "recognizes that the historical total prohibition on ownership of an interest in one tier by a person with an ownership interest in another tier, as well as the historical restriction on financial incentives and business relationships between tiers, is unduly restrictive." That language arrived with 2009 c 506, and Initiative 1183 carried it forward in 2012.

Then the operative rule. RCW 66.28.290(1) provides that "notwithstanding any prohibitions and restrictions contained in this title, it shall be lawful for an industry member or affiliate to have a direct or indirect financial interest in another industry member or a retailer ... unless such interest has resulted or is more likely than not to result in undue influence over the retailer or the industry member or has resulted or is more likely than not to result in an adverse impact on public health and safety." Lawful comes first, and the exception is written as an exception.

Read the exception closely, though, because it is wider than a licensee hopes. The Board can act on an interest that "is more likely than not to result in" undue influence. It needs no consummated harm, and an argument built on the premise that nothing bad has happened yet answers a standard the statute does not use.

Two structural limits sit alongside all of this. RCW 66.28.290(2) governs when a licensee may hold an interest in a separate entity holding a given license, and RCW 66.28.295 lists sixteen arrangements RCW 66.28.290 does not prohibit at all, including a brewery licensed as a retailer on its own premises. These sections are about cross-tier ownership, and about the business practices of owners holding a stake in more than one tier.

What does "undue influence" mean, and is bare ownership the violation?

The legislature defined it, which is the single most useful fact here. RCW 66.28.285(6) says undue influence means one retailer or industry member "directly or indirectly influencing the purchasing, marketing, or sales decisions of another retailer or industry member by any agreement written or unwritten or any other business practices or arrangements such as but not limited to the following," and then gives ten illustrations.

Those last five words govern everything after them. The ten are expressly not a closed list, so an arrangement is not lawful merely because it is absent from them, and anybody who tells you the statute holds an exhaustive catalog of violations is reading past "but not limited to."

What does the work is the phrase before the list. The defined conduct is influence over another member's purchasing, marketing, or sales decisions, and every one of the ten illustrations is of that kind: coercion by threats of physical or economic harm, a retailer involuntarily buying less of a competitor's product, tie-in purchases, minimum quantity commitments, forced quotas, continuing obligations to purchase, display or sell, a commitment not to terminate, day-to-day operational involvement, discriminatory pricing. Interference with commercial decisions, not a list of ownership percentages.

So the question to put to a notice is not whether it matches an item on the list. It is which purchasing, marketing or sales decisions the Board says were influenced, and by what. A notice that recites a cap table and a lease and stops has not answered that. It is a question a licensee is entitled to press, not a conclusion about who wins.

Can a rule reach further than the statute it borrows its words from?

On this one there is a published Washington decision, it is about alcohol, and it is about this Board. In Washington Restaurant Association v. Washington State Liquor and Cannabis Board, No. 79644-5-I, 448 P.3d 140 (Wash. Ct. App. 2019), Division One reviewed rules the Board adopted on wine and spirits pricing after Initiative 1183. The Board defended one of them by explaining that it had copied the language out of the undue influence definition at RCW 66.28.285(6)(j).

That did not save it. The court held that "RCW 66.28.170 precludes extending the application of RCW 66.28.285(6)(j) to any context beyond cross-tier ownership. Thus, WAC 314-23-065 conflicts with RCW 66.28.170, exceeds the authority of the Board, and is invalid." The reasoning turned on the scope clause at the top of the definitions section: those definitions "apply throughout RCW 66.28.280 through 66.28.315 unless the context clearly requires otherwise," and because RCW 66.28.170 is not codified in that range, "the subsection (j) definition plainly does not apply." When the Board argued that the context required otherwise, the court said it "offers no support for this contention."

Understand what that gives and what it does not. It is a worked example, in alcohol, of this Board taking a defined statutory term, applying it past the setting the legislature put it in, and having the rule invalidated for exceeding its authority. It is not an authorization for a broader reading of anything, and it is not an adjudication of how WAC 314-12-140(1) applies to any particular arrangement.

That scope clause cuts in an awkward direction too. WAC 314-12-140 is a rule, not a section codified between RCW 66.28.280 and RCW 66.28.315, so the Board may argue the legislature's definition does not govern its rule at all. The argument costs the Board something, because a rule using "undue influence" while disclaiming the statutory definition is a rule whose central term is undefined, and an undefined term is what sank the Board's position in the cannabis case below.

Two things about challenging a rule run against the licensee. An agency rule carries a presumption of validity, the burden of overcoming it rests on the challenger, and review asks whether the rule is reasonably consistent with the statute being implemented. And breadth alone is not enough: in the same case the court held that "the mere breadth of a rule is insufficient to demonstrate invalidity," rejecting a challenge where the objection was only that a rule might apply broadly.

Is a letter from the Board the law?

This is where the cannabis case belongs, and what it is matters. Yaron v. Conley, 488 P.3d 855 (Wash. Ct. App. 2021), construed WAC 314-55-018, the cannabis tied-house rule, not the alcohol sections above.

It held three things. The Board's preenforcement letter earned no deference, because the party relying on it had not shown the Board had adopted and applied that interpretation as a matter of agency policy, a requirement from Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 815, 828 P.2d 549 (1992). The cannabis rule was ambiguous, because "LCB's regulations do not define 'undue influence.'" And the interest there was too tenuous to result in undue influence.

How that first point was lost is worth knowing. Asked whether the Board would so find in that case, the enforcement captain answered that it would, which is evidence of what one officer thought rather than that responsible policymakers had adopted an interpretation.

What the case did not do matters as much. It did not hold the tied-house rules void, invalid or unenforceable. On public policy the court went the Board's way, holding that the rule does supply public policy and does promote the public good.

Two things carry over to alcohol. The usable half: an interpretation appearing for the first time in a letter addressed to you is not automatically the governing rule, and the Board has to be shown to have adopted it as policy. The other half runs against the licensee, because that court found ambiguity where the Board had never defined its term, and the alcohol statute does define it. Here the fight is about what the definition covers, not whether one exists.

How much of this is actually settled?

More than usual, and less than a licensee would like. The statutory text is not in doubt. A published decision has invalidated a rule of this Board for extending RCW 66.28.285(6)(j) past cross-tier ownership. And no alcohol specific interpretive statement, policy statement, declaratory order, enforcement bulletin or adjudicative decision construing the disputed edge of undue influence was located in the accessible published materials.

That is a search result and not a proof. It means the Board has not been shown to have adopted such an interpretation. It does not mean the Board has none. Unpublished final orders, licensing determinations and internal enforcement guidance are not all publicly indexed, and if one of them contains the interpretation, the deference argument weakens a great deal.

What has not been decided is the application. No decision construing WAC 314-12-140(1), or applying the undue influence definition to a notice resting on an ownership structure, was located. The reading that a notice has to identify influence over purchasing, marketing or sales decisions is an argument available to a licensee rather than a holding. Two features of the statute cut against it: the ten illustrations are expressly nonexclusive, and the Board may act on a predictive finding.

So the fair summary is that the text and one published case give a licensee facing an ownership-based notice real material to work with, and that no article can tell you what your notice is worth.

What can I do about it, and can I ask the Board before I close?

You have a hearing, if you ask for it. RCW 66.28.300 gives the recipient of an administrative violation notice or a notice of intent to deny the right to request a hearing under chapter 34.05 RCW, the Administrative Procedure Act. The right exists on request, so it is something you do, not something that happens to you.

The same section works in the other direction, before anybody is in trouble. Any industry member, retailer or other person may ask the Board to determine whether a proposed financial interest would result in undue influence. Given the Board's authority to unwind a closed transaction, that is worth weighing against closing and hoping.

Where this goes wrong

The licensee answers the Board's theory instead of reading the statute. Explaining why your ownership is harmless accepts the premise that ownership is the violation, and RCW 66.28.290(1) starts from the opposite premise.

Somebody treats the ten illustrations in RCW 66.28.285(6) as a closed list. They are expressly not, and an argument that depends on an arrangement being absent from them is an argument the statute's own words answer.

Somebody argues that nothing has gone wrong yet. The standard reaches an interest more likely than not to result in undue influence, so a prediction is enough and the absence of proven harm is not a defense by itself.

Being a true party of interest gets mistaken for undue influence. WAC 314-07-035 reaches LLC members over ten percent, managers and officers, stockholders over ten percent, and anyone entitled to more than ten percent of gross or net sales. That rule decides who goes on the license. RCW 66.28.285(6) defines conduct.

Somebody works from an old copy of the rule. WAC 314-12-140 was amended by WSR 26-18-093, effective October 3, 2026, so a printout older than this month is superseded.

The notice turns out to be about a different subsection. WAC 314-12-140(2) prohibits an industry member advancing, and a retailer receiving, money or money's worth, listing gifts, discounts, loans, premiums, rebates and free liquor, except as permitted under RCW 66.28.310. A gift problem and an ownership problem read alike in a letter and are not the same case.

An argument from a website, this one included, gets read as a prediction.

What a lawyer does here

The early work is mostly reading, in a particular order. Getting the hearing requested. Working out which provision the notice rests on, because subsection (1) and subsection (2) of WAC 314-12-140 are different cases. Testing the structure against RCW 66.28.290(2) and RCW 66.28.295, where the arrangement may simply be permitted. Then pinning down what the Board says was influenced, which decisions, and on what evidence.

After that it is the two questions the cases turn on. Whether the Board has ever adopted the interpretation it is applying to you, as policy rather than in a letter, which is a records question before it is an argument. And whether the rule as applied reaches past the statute it implements, against a presumption that rules are valid.

I handle Washington liquor licensing and LCB enforcement work from my office in downtown Spokane, for breweries, wineries, distilleries, distributors, bars and taprooms, alongside the entity and contract questions that come with an ownership dispute. I am admitted in Washington, WSBA #55307, and Oregon, OSB #242384. I previously owned a brewery and a winery, which is the reason I read a cross-tier rule for what it does to a business and not only for what it says. I represent clients throughout Washington.

If the Board's theory is your ownership structure, I offer a free consultation by appointment at my Spokane office, 601 W. 1st Ave., Suite 1400. Bring the notice, the envelope, your operating agreement or bylaws, any lease or management agreement the Board mentioned, and the closing documents if the interest came from a closed transaction.

Disclaimer

This article is general information about Washington law, not legal advice, and reading it does not create an attorney-client relationship. No court has applied the statutes or the decisions described here to a notice like the one you may be holding, so nothing here predicts any outcome. Law changes, and how it applies depends on facts specific to your situation. If you have a question about your own circumstances, speak with a lawyer.