Kendall-Jackson Winery, Ltd. v. Branson

Decision Date03 January 2000
Docket NumberNo. 99 C 4998.,No. 99 C 3813.,No. 99 C 4312.,99 C 3813.,99 C 4312.,99 C 4998.
Citation82 F.Supp.2d 844
PartiesKENDALL-JACKSON WINERY, LTD., Plaintiff, v. Leonard L. BRANSON, et al., Defendants. Jim Beam Brands Co, a Delaware corporation, d/b/a Peak Wines International, Plaintiff, v. Leonard L. Branson, et al., Defendants. Sutter Home Winery, Inc., Plaintiff, v. Leonard L. Branson, et al., Defendants.
CourtU.S. District Court — Northern District of Illinois

Kevin A. Russell, David S. Foster, Patrick E. Gibbs, Latham & Watkins, Chicago, IL, for Kendall-Jackson Winery, Ltd.

Thomas A. Toppolo, Mary Therese Nagel, Illinois Atty. General's Office, Chicago, IL, for Leonard L. Branson, Don W. Adams, J.M. Hogan, Irving J. Koppel, Myrna E. Pederson.

Michael M. Conway, Michael Andrew Ficaro, John L. Rogers, Jeremiah Marsh, Hopkins & Sutter, P.C., Chicago, IL, David S. Americus Eugene E. Gozdecki, Gozdecki and DelGiudice, Chicago, IL, for Wirtz Corp.

MEMORANDUM OPINION AND ORDER

GOTTSCHALL, District Judge.

The plaintiffs in these three related actions are suppliers of wine. They claim that the recently passed Illinois Wine and Spirits Industry Fair Dealing Act, 1999 Public Act 91-2 [hereinafter "the Fair Dealing Act" or "the Act"], is unconstitutional as violative of the Contracts and dormant Commerce Clauses of the United States Constitution. The defendants are the members of the Illinois Liquor Control Commission and three wholesale distributors of alcoholic beverages. Prior to the filing of this action, each of the distributors had filed a petition before the Commission against one of the suppliers, charging that the supplier had violated the Fair Dealing Act. The plaintiffs in this action have moved to enjoin the proceedings before the Commission and have requested a declaration that the Fair Dealing Act is unconstitutional. The defendants have moved to dismiss this action, arguing that because of the pending proceedings before the Commission, this court should abstain from hearing the plaintiffs' constitutional challenge to the Fair Dealing Act. For the reasons set forth below, the defendants' motions to dismiss are denied and the plaintiffs' motions for a preliminary injunction are granted.

BACKGROUND
A. No. 99 C 3813

Plaintiff Kendall-Jackson is a winery based in Santa Rosa, California. In approximately December 1995, Kendall-Jackson selected Judge & Dolph to be the distributor of Kendall-Jackson's wines in northern Illinois. Judge & Dolph is an Illinois liquor distributorship owned by the defendant Wirtz Corporation. There is no written distributorship agreement between Kendall-Jackson and Judge & Dolph. Since early 1996, Judge & Dolph has acted as Kendall-Jackson's distributor in northern Illinois.

On April 22, 1999, Kendall-Jackson sent a letter to Judge & Dolph, stating that Kendall-Jackson would be terminating its distribution agreement with Judge & Dolph in 30 days. Kendall-Jackson claimed that it was terminating the agreement because of unsatisfactory performance by Judge & Dolph.

On May 21, 1999, the Illinois Wine and Spirits Industry Fair Dealing Act of 1999 was signed into law and immediately became effective. Pursuant to Section 35 of the Act, Judge & Dolph filed a petition for relief with the Illinois Liquor Control Commission. Judge & Dolph requested that the Commission find that Kendall-Jackson had violated Section 35(b) of the Act, which provides that a supplier may not terminate a distribution agreement "except by acting in good faith in all aspects of the relationship, without discrimination or coercion, and not in retaliation or as a result of the distributor's exercise of its right to petition the General Assembly" for passage of a bill. Judge & Dolph alleged in its petition that its performance was not deficient and that the real reason for the termination was Judge & Dolph's lobbying on behalf of the Act. Judge & Dolph also requested the Commission enter an order requiring Kendall-Jackson to continue providing products to Judge & Dolph until the dispute is resolved by a final order. Finally, Judge & Dolph requested that the Commission prohibit Kendall-Jackson from providing products to anyone else for distribution in the area served by Judge & Dolph until the dispute is resolved by a final order.

On June 2, 1999, the Commission found that the petition by Judge & Dolph "establishes a prima facie case that there was an improper termination of the distributorship relationship" under Section 35(b). The Commission issued an order requiring Kendall-Jackson to "continue providing the product or products alleged to have been withdrawn in violation of the Fair Dealing Act to the Petitioner at prices and quantities in effect under the prior distributorship relationship ... during the pendency of this matter and until such time as the Commission has entered its final order. ..." The Commission did not bar Kendall-Jackson from providing products to other distributors in the area served by Judge & Dolph. Judge & Dolph's petition to the Commission was not verified or certified nor was it accompanied by any affidavits. The Commission did not provide Kendall-Jackson with notice that it was considering Judge & Dolph's petition and did not conduct a hearing.

On June 9, 1999, Kendall-Jackson filed this action, requesting that this court enjoin enforcement of the Fair Dealing Act against Kendall-Jackson and declare the Act unconstitutional. Kendall-Jackson claims that the Act violates the Contracts Clause of the U.S. Constitution by substantially impairing Kendall-Jackson's contractual rights. Kendall-Jackson also claims that the Act violates the dormant Commerce Clause of the U.S. Constitution by discriminating against out-of-state wineries. Finally, Kendall-Jackson seeks a declaration that its termination of its distribution agreement with Judge & Dolph is effective and lawful.

B. No. 99 C 4312

Plaintiff Jim Beam Brands Co. is the parent corporation for Peak Wines International. Peak is a winery and a California corporation with its principal place of business in Geyersville, California. Defendant Pacific Wine Company is a distributor in Illinois. In 1993, Peak and Pacific entered into an agreement under which Pacific became the exclusive distributor of Peak's wines in Illinois. Jim Beam acquired Peak in June 1998.

The bill that later became the Fair Dealing Act was passed by the Illinois Senate on May 14, 1999. On May 17, 1999, Peak informed Pacific orally and in writing that Peak was terminating Pacific's exclusive distributorship rights with respect to all Peak brands. As noted above, the Fair Dealing Act was signed into law on May 21, 1999, four days after Jim Beam/Peak informed Pacific that it was terminating the distribution agreement.

On May 28, 1999, Pacific filed a petition with the Illinois Liquor Control Commission, alleging that Peak and Jim Beam violated Section 35 of the Fair Dealing Act when the distribution agreement was terminated. The petition was not verified or certified. On June 2, 1999, in response to Pacific's request, the Commission issued an order requiring Jim Beam/Peak to continue providing products to Pacific until the Commission issues a final order resolving the dispute. Jim Beam/Peak was not given notice or the opportunity to respond before the Commission issued its order. Although Pacific also requested that the Commission issue an order prohibiting Jim Beam/Peak from distributing products to other distributors in Pacific's distribution area, the Commission did not issue such an order.

Like plaintiff Kendall-Jackson, Jim Beam/Peak has filed an action claiming that the Fair Dealing Act is unconstitutional. The action filed by Jim Beam/Peak was reassigned to this court pursuant to Local General Rule 2.31.

C. No. 99 C 4998

Plaintiff Sutter Home Winery is based in St. Helena, California. Defendant RJ Distributing Co. is a Peoria-based wholesale distributor of wines and spirits. On October 6, 1993, Sutter Home and RJ entered into a written distribution agreement. The agreement was valid through June 30, 1994, and was renewed thereafter for a period of six months or one year in each year from 1994 to 1998. The agreement permitted Sutter Home to terminate the agreement if, among other things, there was a change of ownership or management of RJ or if RJ attempted to assign its rights or obligations under the agreement. RJ agreed to provide at least 15 days prior notice of any contemplated change of ownership or management or of any attempted assignment.

In a May 7, 1999 letter to its "Dear Valued Customers," RJ announced that "RJ Distributing Company's wine division has joined with Pacific Wine & Spirits from Chicago to create a new company called R.J. Pacific." The May 7 letter, which was sent on the letterhead of R.J. Pacific L.L.C. and signed by Robert Jockisch, the president and chief executive officer of RJ, attached a listing of wines available to retailers from the newly formed company, including each of the Sutter Home products RJ was to distribute under RJ's distributorship agreement with Sutter Home.

On or about May 14, 1999, Sutter Home learned of RJ's May 7, 1999 letter. In a May 18, 1999 letter, Sutter Home informed RJ that

We were told that you changed the ownership or management of your company, or assigned your rights or obligations under your Sutter Home and Montevina agreements with us. Such actions rendered our agreements void.

In any event, as you know, our agreements expire by their own terms on June 30, 1999. We will not be renewing the agreements upon that expiration.

On May 28, 1999, RJ filed a petition with the Illinois Liquor Control Commission, requesting a finding that Sutter Home violated Section 35 of the Fair Dealing Act by failing to renew the distribution agreement. The petition included an affidavit from Jockisch averring that the information in the petition was correct. RJ also requested that...

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