Milton S. Kronheim & Co. v. Dist. of Columbia

• Decision Date: 24 February 1995
• Docket Number: Civ. A. No. 95-0226-LFO.
• Citation: 877 F. Supp. 21
• Court: U.S. District Court — District of Columbia
• Parties: MILTON S. KRONHEIM & CO., INC., Plaintiff, v. DISTRICT OF COLUMBIA, et al., Defendants.

877 F. Supp. 21

MILTON S. KRONHEIM & CO., INC., Plaintiff, v. DISTRICT OF COLUMBIA, et al., Defendants.

Civ. A. No. 95-0226-LFO.

United States District Court, District of Columbia.

February 24, 1995.

COPYRIGHT MATERIAL OMITTED

Mark D. Hopson, Bradford A. Berenson, Sidley & Austin, Washington, DC, for plaintiff.

Garland Pinkston, Jr., Acting Corp. Counsel, D.C., Martin L. Grossman, Deputy Corp. Counsel, D.C. Civ. Div., William J. Earl, Chief, Major Case Section, James C. McKay, Jr., Jack M. Simmons, III, Asst. Corp. Counsel, D.C., Office of Corp. Counsel, Washington, DC, for defendants.

MEMORANDUM

OBERDORFER, District Judge.

Plaintiff, an alcoholic beverage wholesaler licensed in the District of Columbia, seeks a preliminary injunction against defendants to prevent enforcement of a provision of the District of Columbia Wholesale Liquor Industry Storage Act of 1986 (the "Storage Act") and a "come to rest" policy, both of which require plaintiff to maintain warehouse facilities in the District of Columbia. Plaintiff argues that any local warehousing requirement violates the Commerce Clause. After an evidentiary hearing on the motion on February 10, 1995, a ruling from the bench granted plaintiff's motion for reasons there stated and to be further elaborated by a Memorandum to be filed. This is that Memorandum.

I.

Plaintiff Milton S. Kronheim & Co., Inc. is a District of Columbia corporation, licensed by the D.C. Alcoholic Beverage Control Board to do business as an alcoholic beverage wholesaler. Margolies Aff. dated January 31, 1995, at ¶ 1. Kronheim distributes alcoholic beverages to retailers in the District. Its approximately 80 suppliers are brewers, wineries, and major distillers of liquor. Id. ¶ 4. Kronheim also has an affiliate, The Kronheim Company, Inc., a corporation organized and existing under the laws of the state of Maryland, with its principal place of business in Baltimore, Maryland. The Kronheim Company, Inc. is a wholesale distributor of alcoholic beverages in Maryland. Id. ¶ 5.

Presently, Kronheim (D.C.) and Kronheim (Md.) have separate warehouse facilities. Kronheim (D.C.) leases space in two contiguous warehouses in northeast Washington, D.C. The larger warehouse, located at 2900 V Street, N.E., contains approximately 40,000 square feet of warehouse space and 17,000 square feet of office space. The warehouse has two loading docks, both of which face a narrow street. The warehouse ceiling is 18 feet high and is supported by closely spaced floor-to-ceiling pillars throughout the warehouse. Plaintiff states that 18-wheel trailers have difficulty accessing the loading docks because the docks face a narrow street and that the pillars and low ceiling render a portion of the floor space unusable. Plaintiff further asserts that the smaller warehouse, with 22,500 square feet of floor space, has similar problems. Kronheim's leases on the two warehouses expire on March 31, 1995 and February 28, 1995 respectively.

Until January 31, 1995, Kronheim (D.C.) leased a third warehouse at 2920 V Street, N.E, with approximately 20,000 square feet of floor space. The lessor sold the warehouse, and the new owner took possession of it for its own use upon the expiration of the lease on January 31, 1995. Id. ¶ 6.

Kronheim (D.C.) wishes to consolidate its warehousing with its Maryland affiliate. Kronheim asserts that in order to consolidate the two firms' warehousing into a single storage facility, it needs 200,000 square feet of warehouse storage space, of which 10-20% must be refrigerated storage, with an adjoining 20,000 to 40,000 square feet of office space. It further seeks a warehouse with 24-foot-high clear ceilings, at least eight truck loading bays, adequate parking for its office and warehouse personnel, and a location near the center of the combined area served by both Kronheim (D.C.) and Kronheim (Md.) with ready access to I-95 and other major transportation arteries. Larson Aff. ¶ 5.

Kronheim (D.C.) projects that it will lose money in 1995 unless it is able to reduce costs or increase revenues. Margolies Aff. dated January 31, 1995, at ¶ 14. It asserts that due to the nature of the alcoholic beverage wholesale industry, it may go out of business permanently unless it restores itself to profitability, and that the only way to restore itself to profitability is to consolidate its D.C. warehouses with those of its Maryland affiliate. Id. ¶¶ 8-13, 15-18.

To this end, plaintiff seeks to acquire a warehouse in Jessup, Maryland. The Jessup warehouse purportedly has enough space for consolidated operations, sufficiently high ceilings, few support pillars, and loading docks with an access area that can accommodate 18-wheel trailers. Plaintiff asserts that the Jessup warehouse's combination of features (location, size, space configuration, features and access) makes it unique in the Washington-Baltimore area. Id. ¶¶ 22-23. Plaintiff claims that if it is unable to move to the Jessup facility, it will be forced to go out of business. Id. ¶ 31; Mollerick Aff. ¶ 10.

Plaintiff has a "handshake" agreement to purchase the Jessup warehouse, and the present owner tendered a written contract on January 27, 1995. Margolies Aff. dated January 31, 1995, at ¶ 24. Plaintiff has introduced uncontradicted evidence that the seller must close the transaction involving the Jessup facility on or before March 14, 1995, and that due to the complexity of the transaction, it must sign the purchase contracts "in the next few days ... or the seller will sell the Jessup facility to another buyer." Margolies Aff. dated February 10, 1995, at ¶ 8.

If plaintiff were to move its warehousing operations to the Jessup, Maryland facility, it would remain a District of Columbia corporation, and it asserts that the efficiencies from consolidation with its Maryland affiliate may lead to greater revenues, resulting in more corporate income tax to the District. Approximately ninety percent of the total taxes plaintiff pays to the District are excise taxes imposed upon the sale of alcoholic beverages to District retailers and would be unaffected by the location of Kronheim's warehouse. Twenty-two of Kronheim's 84 employees are District residents and pay income tax to the District. Plaintiff predicts that its license fees and the sales tax it remits would remain constant. Because Kronheim presently leases warehouse space in the District, its landlords are responsible for related property tax irrespective of whether plaintiff remains their tenant. Mollerick Aff. ¶ 9.

On September 28, 1993, the Board granted an exemption from the local warehousing requirement to American Potomac Distributing Company, a liquor wholesaler and competitor of Kronheim. The Board granted that exemption after a preliminary hearing on March 10, 1993 and a factfinding hearing on August 19, 1993. Furthermore, the Board granted the exemption "temporarily ... for the period of American Potomac's current license (1993-1995)." Pl. Exh. 2. There is no evidence that the Board has granted any exemptions since then.

II.

Plaintiff must satisfy a four-part test to secure a preliminary injunction. It must demonstrate a substantial likelihood of success on the merits; immediate and irreparable injury absent relief, that the threatened harm to it substantially outweighs any harm that an injunction might pose to defendants and third parties; and that the injunction it seeks will serve the public interest. Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.1977).

A.

In January, 1934, Congress passed the District of Columbia Alcoholic Beverage Control Act (the "ABC Act"), ch. 4, 48 Stat. 319 (1934). The ABC Act, enacted less than two months after ratification of the Twenty-first Amendment abolishing prohibition, established the District's regulatory structure for liquor and created the District of Columbia Alcoholic Beverage Control Board. The ABC Act was codified in title 25 of the District of Columbia Code. In 1987, the District of Columbia Council promulgated the Wholesale Liquor Industry Storage Act, which amended section 114(f) of title 25 of the D.C.Code by adding, in relevant part, the following: "no licensee may store beverages upon premises outside the District...." D.C.Code § 25-114(f).

The Board also purports to require that any alcoholic beverage sold by a District wholesaler to a District retail customer must "come to rest" in the District for at least 24 hours prior to sale. The uncontradicted evidence is that the rule is informal and unwritten, but that the Board enforces it. Berenson Aff. ¶ 4. Plaintiff seeks an injunction against enforcement of this portion of the D.C.Code and the "come to rest" rule.

B.

In 1988, Quality Brands Inc., a licensed alcoholic beverage wholesaler in the District and a competitor of plaintiff Kronheim, sought a declaratory judgment in this Court that the local warehousing requirement enacted by the D.C. Council in the D.C. Wholesale Liquor Industry Storage Act was unconstitutional. Quality Brands, Inc. v. Barry, Civ. No. 88-1999. On cross-motions for summary judgment, Judge George Revercomb held that (1) the local warehousing requirement facially discriminates against interstate commerce, Quality Brands v. Barry, 715 F.Supp. 1138, 1140 (D.D.C.1989); (2) the articulated purposes given for the requirement cannot withstand the "strict scrutiny" accorded facially discriminatory legislation, id. at 1140-42; and (3) the Twenty-First Amendment does not authorize the District to discriminate against interstate commerce protected by the Commerce Clause. Id. at 1142-43. Consequently, Judge Revercomb found that the local warehousing requirement embodied in the Act violated the Commerce Clause, and he enjoined its enforcement.

The Court of Appeals affirmed the Quality Brands decision without a published opinion. 901 F.2d 1130 (D.C.Cir.1990). In relevant part, its unpublished Memorandum stated:

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