Anheuser-Busch, Inc. v. Schnorf

• Citation: 738 F.Supp.2d 793
• Decision Date: 03 September 2010
• Docket Number: Case No. 10-cv-1601
• Parties: ANHEUSER-BUSCH, INC., et al., Plaintiffs, v. Stephen B. SCHNORF, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

738 F.Supp.2d 793

ANHEUSER-BUSCH, INC., et al., Plaintiffs,

v.Stephen B. SCHNORF, et al., Defendants.

Case No. 10-cv-1601.

United States District Court,

N.D. Illinois,

Eastern Division.

Sept. 3, 2010.

Edward Michael Crane, Albert Lee Hogan, III, Andrew J. Fuchs, Mark Edward Rakoczy, Nathan Andrew Shev, Skadden Arps Slate Meagher & Flom, LLP, Chicago, IL, John Joseph O'Shea, Fallucca & O'Shea, Detroit, MI, for Plaintiffs.

Shirley Ann Walls, Michael T. Dierkes, Illinois Attorney General's Office, Chicago, IL, for Defendant.

Claudette P. Miller, Dean J. Polales, Floyd D. Perkins, Sam Vinson, Seth Alexander Horvath, Ungaretti & Harris LLP, Anthony Joseph Ashley, Frederic T. Knape, Vedder Price P.C., Glenn Allen Rice, Neil M. Rosenbaum, Funkhouser Vegosen Liebman & Dunn, Ltd., Chicago, IL, Harlan C. Powell, James L. Webster, Webster Powell, P.C., Herman George Bodewes, Melissa Gayle Steward, Giffin, Winning, Cohen & Bodewes, PC, Springfield, IL, Jon Steckler, Michael D. Madigan, Madigan, Dahl & Harlan, P.A., Minneapolis, MN, Stephen Mark Diamond, University of Miami, School of Law, Coral Gables, FL, for Intervenor Defendants.

MEMORANDUM OPINION AND ORDER

ROBERT M. DOW, JR., District Judge.

Plaintiffs have filed a lawsuit challenging the Illinois Liquor Control Commission's ("Commission" or "ILCC") construction of the Illinois Liquor Control Act of 1934 ("Act") on several federal constitutional grounds. The lawsuit was spurred by Plaintiffs' contention that the Commission's action unlawfully blocked a "significant and important business transaction"—namely, the acquisition by Anheuser Busch, Inc. (an out-of-state brewer of beer) of City Beverages (an in-state distributor of beer).

Currently before the Court is Plaintiffs' motion for partial summary judgment [28], seeking a declaration that the Commission's construction of the Act violates the Commerce Clause. The Court granted Plaintiffs' request for expedited briefing on that claim (a request that the State Defendants, represented by the Illinois Attorney General, did not oppose) and heard oral argument on June 16, 2010. The Court also has granted the motions of several interested parties to participate as amici curiae: the Wine and Spirits Distributors Association ("WSDI"), the Association of Beer Distributors of Illinois ("ABDI"), and the Illinois Craft Brewers Guild, Ltd. ("Guild"). ¹

Having carefully considered the arguments of the parties and amici, both orally and in writing, the Court grants Plaintiffs' motion for partial summary judgment [28] on the Commerce Clause claim. In regard to the remedy that follows from the Court's Commerce Clause ruling, the partiesand amici agree that the Court, in the exercise of its discretion, must choose one of two alternatives: either "extension" or "nullification" of the unconstitutional in-state benefit. In the particular circumstances of this case, the Court concludes that "nullification"—that is, withdrawing self-distribution privileges from in-state brewers rather than extending those privileges to out-of-state brewers—does the "minimum damage" to the legislative and regulatory scheme under the Illinois Liquor Control Act, and thus is the appropriate remedy. Finally, because the Court's choice of remedy rests on judgments as to the intent of the Illinois General Assembly and implicates matters of public policy as to which the General Assembly is the ultimate arbiter, the Court temporarily stays enforcement of its ruling to provide the General Assembly an opportunity to act definitively on this matter if it chooses to do so.

I. Background

A. The Liquor Control Act

Like many states, Illinois regulates the production, importation, distribution, and sale of alcoholic beverages through a three-tier licensing system. The function performed at each of the tiers ( i.e., production, distribution/wholesale,² and retail) requires separate licensing and compliance with regulations specific to that tier. Pursuant to the Liquor Control Act, to distribute beer in Illinois, it is necessary to hold a Distributor's License, and to import beer from out-of-state for distribution in Illinois, it is necessary to hold an Importing Distributor's License. In-state beer producers may hold a Brewer's License, which entitles them to hold Distributor's and Importing Distributor's Licenses. See 235 ILCS 5/5-1(a) ( "A Brewer may make sales and deliveries of beer * * * to retailers provided the brewer obtains an importing distributor's license or distributor's license in accordance with the provisions of this Act."). According to the Commission, an out-of-state beer producer is ineligible to hold Distributor's and Importing Distributor's Licenses. However, out-of-state producers are not precluded from selling their product within the State. Indeed, in 2008, Plaintiff Anheuser-Busch, Inc. distributed more than 38 million gallons of beer within Illinois through various distributors. But, according to the Commission, an out-of-state producer must go through an in-state distributor. In other words, instate brewers are permitted to perform the distribution function in Illinois, while out-of-state brewers are precluded from doing the same. Taking this one step further, on account of its non-resident status, an out-of-state brewer may not possess an ownership interest in a licensed Illinois distributor.

Prior to 1982, the Illinois Attorney General had opined that all brewers could self-distribute under the Liquor Control Act. In 1982, the General Assembly amended the statute to provide that out-of-state brewers must hold Non-Resident Dealer Licenses.³ Because the Act did not specifically authorize non-resident dealers to distribute, the Commission has interpreted the Act to prohibit non-resident dealers from holding a Distributor's or Importing Distributor's License.⁴

B. The Current Dispute

Plaintiff Anheuser-Busch, Inc. ("AB Inc.") is a wholly owned subsidiary of Anheuser-Busch Companies, Inc. AB Inc. does not brew or produce beer within Illinois and has not done so at any time relevant to this matter. At all times relevant to this matter, AB Inc. has exported beer produced elsewhere in the United States into Illinois for distribution within the state.

Each year during the period from 1982 through 2005, the Illinois Liquor Control Commission ⁵ issued to AB Inc., in its own name, one or more Illinois Distributor's and Importing Distributor's Licenses. During much of the period from 1982 through 2005, one or more affiliates of AB Inc. also held one or more Distributor's and Importing Distributor's Licenses. From 2005 through the present, AB Inc. affiliate Wholesaler Equity Development Corporation ("WEDCO") has maintained an ownership interest in an entity that held one or more Distributor's and Importing Distributor's Licenses. Plaintiff WEDCO is a wholly-owned subsidiary of Anheuser-Busch Companies, Inc. From the formation of Plaintiff City Beverage—Illinois LLC in 2005 through the present, WEDCO has maintained a thirty percent ownership interest in City Beverage. Plaintiffs SD of Illinois, Inc. ("SDI") and Double Eagle Distributing Company ("Double Eagle") (SDI and Double Eagle are referred to collectively as the "Soave Entities") each have owned a thirty-five percent interest in City Beverage. City Beverage is the parent company of City Bloomington, City Chicago, and City Markham. City Bloomington, City Chicago, and City Markham have held from 2005 through the present both Illinois Distributor's and Importing Distributor's Licenses in various names.

In December 2009, WEDCO reached an agreement with the Soave Entities to purchase the Soave Entities' combined seventy percent interest in CITY Beverage. The transaction was scheduled to close on February 12, 2010. On January 6, 2010, AB Inc. and WEDCO notified the Commission that WEDCO planned to purchase a distributor in Illinois. From January 6 through January 17, the Commission requested information from Plaintiffs regarding the ownership of WEDCO. On January 27, 2010, AB Inc. and WEDCO notified the Commission that WEDCO (a wholly owned subsidiary of AB Inc.) planned to acquire the additional seventy percent interest in CITY Beverage.

The parties prepared to close on the transaction on February 12. On February11, 2010, Ivan Fernandez, legal counsel for the Commission, e-mailed to Nancy Kamp of AB Inc. a letter from Defendant Haymaker stating that it would be unlawful for WEDCO to complete the acquisition of City Beverage. After receipt of Defendant Haymaker's letter, AB Inc. and WEDCO postponed the purchase of City Beverage that otherwise appeared poised to close on February 12, because Mr. Haymaker's letter stated that it would violate Illinois law to do so. To date, the parties have not completed the transaction.

On March 2, 2010, the Commission held a "Special Session" on the question of whether an Illinois non-resident dealer may hold an Illinois Distributor License. On March 10, 2010, the Commission issued a ruling in which it stated that the Illinois Liquor Control Act "prohibits an Illinois-licensed Non-Resident Dealer from possessing an ownership interest in a licensed Illinois distributor." In support of its decision, the Commission explained that the three-tier system promotes temperance by protecting against "vertical monopolies and economies of scale that would lead to the introduction of cheap alcohol liquor into the marketplace." In support of its ruling, the Commission also cited the State's interest in tax collection, an orderly market, and public safety. The ruling permitted WEDCO to retain its current minority interest in CITY Beverage due to the "history and facts surrounding this case." The declaratory ruling added that the Commission would "renew said CITY Beverage distributors licenses upon their expiration and as currently owned absent any other license disqualifying factors. This factual determination is limited solely to the history and facts surrounding this case and will have no...