Block v. Canepa

• Decision Date: 12 September 2022
• Docket Number: 2:20-cv-3686
• Parties: DEREK BLOCK, et al., Plaintiffs, v. JIM CANEPA, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

DEREK BLOCK, et al., Plaintiffs,
v.
JIM CANEPA, et al., Defendants.

No. 2:20-cv-3686

United States District Court, S.D. Ohio, Eastern Division

September 12, 2022

Chelsey M. Vascura Magistrate Judge

OPINION AND ORDER

SARAH D. MORRISON UNITED STATES DISTRICT JUDGE

Through this action, Plaintiffs challenge the constitutionality of portions of Ohio's liquor control laws. (Compl., ECF No. 1.) Plaintiff Kenneth M. Miller is an Ohio resident and wine collector. His co-plaintiff, The House of Glunz, Inc., is an Illinois wine retailer with no permit or license from the Ohio Division of Liquor Control.^[1] Defendant Dave Yost serves as Ohio's Attorney General.^[2] The Wholesale Beer & Wine Association of Ohio (“WBWAO”) has intervened as a defendant. (See ECF No. 17.) The matter is before the Court for consideration of Motions for Summary Judgment filed by Plaintiffs (Pls.' Mot. Summ. J., ECF No. 52), the Attorney General (AG's Mot. Summ. J., ECF No. 53), and the WBWAO (WBWAO's Mot. Summ. J., ECF No. 51). The parties have also filed a number of ancillary motions. Plaintiffs seek relief from this Court's prior Orders (Pls.' Am. Mot. Relief,

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ECF No. 54), and to strike certain testimony and exhibits offered in support of defendants' Motions for Summary Judgment (ECF Nos. 55-57). Finally, the WBWAO seeks to strike certain testimony and exhibits offered in support of Plaintiffs' Motion for Summary Judgment. (ECF No. 60.) All eight motions, being fully briefed, were the subject of oral argument held on September 9, 2022 (see ECF No. 90).

For the reasons set forth below, summary judgment is GRANTED in favor of the defendants. Accordingly, Plaintiffs' Motion for Summary Judgment is DENIED. Plaintiffs' Motion for Relief from Orders is also DENIED. Plaintiffs' Motions to Strike expert testimony are GRANTED IN PART and DENIED IN PART, and their Motion to Strike lay testimony is DENIED. The WBWAO's Motion to Strike is DENIED as moot.

I. BACKGROUND

A. Factual Background

Plaintiffs in this action represent consumers and purveyors of wine. Mr. Miller describes himself as “an active wine consumer who looks for good wines at good prices wherever [he] can find them.” (Miller Decl., ECF No. 52-2, ¶ 2.) He finds it “easier and less time-consuming” to shop for wines online, but is sometimes forced “to purchase less desirable wine,” due to limitations on sourcing. (Id., ¶ 7.) Chicagobased House of Glunz “is a family business . . . engage[d] in retail wine sales, including online sales, and has customers from all over the country[.]” (Donovan Decl., ECF No. 52-3, ¶ 1-2.) House of Glunz holds licenses to engage in its business from the City of Chicago and the State of Illinois. (Donovan Dep., ECF No. 50, 61: 7-19.)

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House of Glunz “would obtain an Ohio direct-shipping permit if one becomes available,” but it “has no intention of establishing physical premises in Ohio”- principally because the cost of doing so “would increase the cost of [its] wine and decrease its competitiveness.” (Donovan Decl., ¶¶ 8-9.)

The instant challenge arises from what Plaintiffs have been unable to do. Mr. Miller would like to purchase wine from out-of-state wine retailers and have it shipped directly to his home. (Miller Decl., ¶ 5.) The House of Glunz would like to sell wine to Ohio consumers and ship it directly to their homes. (Donovan Decl., ¶¶ 5-7.) They contend that the regulatory scheme preventing them from doing so runs afoul of the United States Constitution.

B. Ohio's Liquor Control Laws

Alcohol “is the only consumer product identified in the Constitution. Only its regulation by States is given explicit warrant.” Wine Country Gift Baskets.com v. Steen, 612 F.3d 809, 813 (5th Cir. 2010). The history of alcohol regulation in America has been told many times. See Tenn. Wine & Spirits Retailers Ass'n v. Thomas, 139 S.Ct. 2449, 2462-70 (2019); Granholm v. Heald, 544 U.S. 460, 476-89 (2005). Without reciting the full history here, it is enough to say that Prohibition began with the Eighteenth Amendment, and ended with the Twenty-first. See U.S. CONST. amend. XVIII, repealed by U.S. CONST. amend. XXI. While § 1 of the Twenty-first Amendment repealed the Eighteenth, § 2 prohibits:

The transportation or importation into any State. . . for delivery or use therein of intoxicating liquors, in violation of the laws thereof[.]

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U.S. Const. amend. XXI, § 2. Thus, § 2 “grants the States the power to regulate commerce with respect to alcohol.” Lebamoff Enterprises Inc. v. Whitmer, 956 F.3d 863, 869 (6th Cir. 2020), reh'g denied, Case No. 18-2199, Docket No. 56 (May 26, 2020), cert. denied, 141 S.Ct. 1049 (2021).

Ohio has taken full advantage of that power. See Ohio Rev. Code § 4301.011. Chapters 4301 and 4303 of the Ohio Revised Code, along with their implementing regulations, establish a comprehensive scheme governing the transportation, importation, distribution, and sale of alcoholic beverages. (Though the definition of “alcohol” extends beyond wine, that particular beverage is the type at issue here.) Together, those laws establish a three-tier system for distributing wine in Ohio. Entities operating in each tier-first, manufacturers; second, wholesalers; and third, retailers-must obtain a permit from the Ohio Division of Liquor Control. See, e.g., Ohio Rev. Code §§ 4303.03, 4303.07, 4303.10, 4303.12. With limited exception, wine must pass through each tier before reaching a consumer. Generally, permitted manufacturers must sell to permitted wholesalers (who may purchase only from permitted manufacturers), see Ohio Rev. Code §§ 4303.07, 4303.10, 4301.58(C), and permitted wholesalers must sell to permitted retailers (who may purchase only from permitted wholesalers), see Ohio Rev. Code. §§ 4303.03(B)(1), 4303.35; Ohio Admin. Code 4301:1-1-46(B), (F). Wholesalers and retailers are required to maintain a physical presence within the state of Ohio, and all wine sold by those entities is required to “come to rest” at that physical location. (See Stevenson/Jones Report, ECF No. 51-2, ¶ 62.a.); see also Ohio Rev. Code

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§§ 4301.10(A)(1), 4301.10(A)(6), 4303.292(A); Ohio Admin Code 4301:1-1-22(B). This prescribed supply chain allows the state's alcohol regulatory and enforcement agencies to keep close watch over the sale and movement of wine throughout Ohio. (See id., ¶ 4.) It has the added benefit of allowing the state to efficiently collect excise taxes, which are paid by manufacturers and wholesalers instead of the much larger population of retailers. (See Stevenson/Jones Report, ¶ 77); see also Ohio Rev. Code § 4301.43.

To qualify for a permit, participants in the three-tier system must comply with a host of additional regulations and requirements. See Ohio Rev. Code § 4303.25. For example, permit applicants must submit to an initial inspection of their premises by the Ohio Division of Liquor Control's Investigative Services Unit. (Powers Decl., ECF No. 53-1, ¶ 8. See also Chung Decl., ECF No. 53-2, ¶ 14.) The Compliance Agent conducting that inspection will have received specialized training on Ohio's liquor control laws. (Powers Decl., ¶¶ 9, 12.) A permit holder must submit to renewal inspections of their premises and books and records annually thereafter, as well as inspections based on any complaints the Division might receive. (Id., ¶ 23. See also Chung Decl., ¶¶ 18, 20.) During these inspections, Compliance Agents monitor for adherence to: ownership rules, see, e.g., Ohio Rev. Code § 4301.24(B), Ohio Admin. Code 4301:1-1-24(B); environmental cleanliness and product safety standards, see, e.g., Ohio Admin. Code 4301:1-1-17; minimum pricing requirements, see, e.g., Ohio Admin. Code 4301:1-1-03; and form-of-payment restrictions, see, e.g., Ohio Rev. Code § 4301.24(D). (Chung Decl., ¶¶ 17-18.) If a violation is found, the

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permit holder may be subject to enforcement action-including Correction Notices and fines, up to suspension or revocation of the permit. (Powers Decl., ¶ 24.) Each year, the Division conducts thousands of renewal inspections. (Chung Decl., ¶¶ 2123.) In the three-year period ending August 31, 2021, the Division issued 1,357 Correction Notices and 129 formal citations to permit holders. (Chung Decl., ¶¶ 2526.)

Two such regulations are particularly relevant to the case sub judice. First, Ohio law prohibits wine retailers who do not have a Division-issued permit from shipping wine directly to Ohio consumers (the “Direct Ship Restriction”). See Ohio Rev. Code §§ 4301.58(C), 4301.60, 4303.25, 4303.27. Because Ohio requires permitted retailers to maintain a physical presence in the state, the Direct Ship Restriction has the effect of severely limiting out-of-state retailers' ability to sell their wares to Ohio consumers-even those retailers that are licensed to sell wine by their home state. (See Wark Report, ECF No. 52-4, ¶¶ 9-13, 19, 27, 57.) And second, Ohio law prohibits individuals from transporting more than 4.5 liters of wine from out-of-state in any 30-day period (the “Transportation Limit”), further restricting out-of-state retailers' access to the Ohio market. See Ohio Rev. Code §§ 4301.20(L), 4301.60

II. MOTION FOR RELIEF FROM ORDERS

Plaintiffs' Complaint challenged two provisions of the Ohio liquor control laws-the Direct Ship Restriction and the Transportation Limit-by bringing claims against four state officials-Jim Canepa, Superintendent of Liquor Control for the Ohio Division of Liquor Control; Dave Yost, Ohio Attorney General; Thomas

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J. Stickrath, Director of the Ohio Department of Public Safety; and Deborah Pryce, Chair of the Ohio Liquor Control Commission. (Compl., ECF No. 1.) Those officials moved to dismiss the Complaint on multiple grounds. (ECF No. 19.) This Court dismissed Plaintiffs' claims against Superintendent Canepa, Director Stickrath, and Chair Pryce after concluding that they were entitled to Eleventh Amendment immunity, and that...