Mountain Crest SRL, LLC v. Anheuser-Busch Inbev Sa/NV, Individually & A. & Molson Coors Brewing Co.

• Decision Date: 16 May 2018
• Docket Number: 17-cv-595-jdp
• Parties: MOUNTAIN CREST SRL, LLC, Plaintiff, v. ANHEUSER-BUSCH InBEV SA/NV, individually and as successor to InBev SA/NV and Interbrew S.A. and MOLSON COORS BREWING COMPANY, individually and as successor to Molson Canada Inc., Defendants.
• Court: U.S. District Court — Western District of Wisconsin

MOUNTAIN CREST SRL, LLC, Plaintiff, v. ANHEUSER-BUSCH InBEV SA/NV, individually and as successor to InBev SA/NVand Interbrew S.A. and MOLSON COORS BREWING COMPANY,individually and as successor to Molson Canada Inc., Defendants.

17-cv-595-jdp

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN

May 16, 2018

OPINION & ORDER

Plaintiff Mountain Crest SRL, LLC owns and operates Minhas Brewery, which is located in Monroe, Wisconsin. Mountain Crest is suing defendants Anheuser-Busch InBev SA/NV and Molson Coors Brewing Company under both the Sherman Act and Wisconsin common law, alleging that a conspiracy between defendants has hindered its efforts to export its beer to Ontario, Canada. Defendants have moved to dismiss Mountain Crest's second amended complaint on multiple grounds. Dkt. 50.

According to Mountain Crest, defendants' conspiracy has led to limitations on its ability to sell larger quantities of beer at a discount in some Ontario liquor stores. But the conduct Mountain Crest challenges is governed by a contract with the government of Ontario. The agreement was reaffirmed in 2015 and is now authorized by an Ontario statute enacted the same year. Liquor Control Act, R.S.O. 1990, c. L.18, § 10(3) (Can.). Under these circumstances, even if the court assumes that defendants urged the Ontario government to adopt the limitations that Mountain Crest is challenging, defendants' conduct is authorized under the act of state doctrine, which prohibits federal courts from invalidating the public acts of a foreign government. This conclusion is consistent with a recent decision by an Ontario court, Hughes v. Liquor Control Board of Ontario, CV-14-518059CP, 2018 ONSC 1723 (Ont. Sup. Ct. Mar. 15, 2018), concluding that the same conduct alleged in this case did not violate Canadian antitrust law because the conduct was approved by the Ontario government. The court will grant the motion to dismiss Mountain Crest's claims under the Sherman Act and decline to exercise supplemental jurisdiction over the state law claims in accordance with 28 U.S.C. § 1367(c)(3).

REGULATORY BACKGROUND

To help place Mountain Crest's factual allegations and claims in context, it is useful to first provide a brief overview of the relevant regulatory framework.¹ In Ontario, the sale of beer is governed by the Liquor Control Act, which created the Liquor Control Board of Ontario (LCBO) and declared that the LCBO "is for all purposes an agent of Her Majesty and its powers may be exercised only as an agent of Her Majesty." Liquor Control Act, R.S.O. 1990, c. L.18, §§ 2(1) and 4.03(2) (Can.). See also Hughes, 2018 ONSC 1723, ¶ 82 (LCBO is "a Crown agency wholly owned by the Government of Ontario").

Among other things, the LCBO has the power "to control the sale, transportation and delivery of liquor," "to establish government stores for the sale of liquor to the public," "to authorize manufacturers of beer and spirits and wineries that manufacture Ontario wine to sell their beer, spirits or Ontario wine in stores owned and operated by the manufacturer or the winery and to authorize Brewers Retail Inc. to operate stores for the sale of beer to the public," "to determine the nature, form and capacity of all packages to be used for containing liquor to be kept or sold," and "to do all things necessary for the management and operation of the Board in the conduct of its business." Liquor Control Act, R.S.O. 1990, c. L.18, § 3(1) (Can.). Only a government agency may import liquor into Canada. Importation of Intoxicating Liquors Act, R.S.C. 1985, c. I-3, § 3(1) (Can.).

The LCBO has authorized Brewers Retail Inc. (BRI) to sell liquor as a "government store" under the Liquor Control Act. Sale of Liquor in Government Stores, O. Reg. 232/16, § 6 (Can.). See also Hughes, 2018 ONSC 1723, ¶ 86 ("Brewers Retail is an established government store and the LCBO determines in what municipalities Brewers Retail may have stores."). BRI is a distribution and retail business that was incorporated in 1927 as a cooperative of Ontario brewers. Dkt. 49, ¶ 44. See also Hughes, 2018 ONSC 1723, ¶ 92 ("Brewers Retail was established for the specific purpose of providing Ontario with an efficient and cost-effective channel through which large volumes and packages of beer could be distributed and sold across the province."). BRI does business as "The Beer Store." BRI and the LCBO are the only two options in Ontario for buying beer for consumption off site. Hughes, 2018 ONSC 1723, ¶ 91. If an American brewer such as Mountain Crest wishes to export its beer to Ontario, the brewer must go through the LCBO or BRI. BRI has a three-quarter market share of beer sales in the province. Dkt. 49, ¶ 52. See also Hughes, 2018 ONSC 1723, ¶ 91 ("Save for the beer sold at the LCBO's Ordinary, Combination, and Agency Stores, Brewers Retail is the distributor, wholesaler, and retailer of beer in Ontario.").

ALLEGATIONS OF FACT

The court draws the following allegations from Mountain Crest's second amended complaint, Dkt. 49, which is the operative pleading.

A. The parties

Mountain Crest owns and operates Minhas Brewery in Monroe, Wisconsin, which is Mountain Crest's principal place of business and operations. In 2003, the brewery started brewing for the Canadian "value-beer label" Mountain Crest, and exported the beer to Alberta, Canada on a contract basis. Id., ¶ 17. In 2009, Mountain Crest began exporting beer to Ontario, Canada from Wisconsin. The brewery Mountain Crest operates is currently the 12th largest independently owned brewery in the United States. Mountain Crest's goal is "to compete with the major brewers in the low-cost value end of the beer market." Id., ¶ 19.

Anheuser-Busch InBev SA/NV (ABI) is a corporation organized and existing under the laws of Belgium, with its headquarters in Leuven, Belgium. The Belgian company was previously known as Interbrew SA and later, InBev SA. In 1995, Interbrew SA acquired 100% of Labatt Breweries of Canada. Molson Coors Brewing Company is the result of the combination of Molson Inc. (Canada) into the Adolph Coors Company (Delaware) in February 2005.

ABI and Molson Coors acquired control of BRI by acquiring Labatt Breweries of Canada and Molson Inc. (Canada), the original members of the BRI cooperative. Defendants' subsidiaries each own 49% of BRI. At all relevant times, "defendants" have exclusively shared control. Sleeman Breweries Ltd, the Canadian subsidiary of Japanese brewer Sapporo, is a minority shareholder of BRI.

B. Events leading up to the June 2000 agreement

In 1992, Labatt and Molson were both independent Canadian companies that dominated the Ontario beer market and jointly controlled BRI. At that time, BRI sold only beer brewed in Ontario. The LCBO sold both domestic and imported beer, but focused on wine and spirits. See also Hughes, 2018 ONSC 1723, ¶¶ 92 and 114 ("The LCBO focused on wine and spirits [because it] did not develop the infrastructure necessary to warehouse, distribute and sell beer on a scale necessary to service Ontario's retail and licencee consumers. . . . In the early 1990's, approximately 95% of all domestic beer sold in Ontario was sold through Brewers Retail.").

During the 1990s and into the 2000s, Labatt and Molson operated an unincorporated trade association that consisted of just the two companies called "Brewers of Ontario," led by Jan H. Westcott, the executive director. Westcott operated as a representative of Labatt and Molson executives and took direction directly from the CEOs of both companies on a regular basis. They used this trade association (as opposed to BRI itself) to negotiate their commercial relationship with the LCBO.

The historical practice of the LCBO was to limit its sale of beer to containers no larger than a six pack, with some exceptions. See also Hughes, 2018 ONSC 1723, ¶ 115 (LCBO "followed [that practice] for decades"). In September 1993, the LCBO began considering a change to this practice, noting in a memo that "[n]o legislative or regulatory changes [would be] required." Dkt. 49, ¶ 73. But see Hughes, 2018 ONSC 1723, ¶ 157 ("The LCBO would have needed the Provincial Government's approval to change this status quo [regarding the sale 12 packs and 24 packs], and the Government refused to grant any such approval."). The author of the LCBO memo anticipated opposition from Molson and Labatt because BRI "sales will be diverted to the LCBO." Dkt. 49, ¶ 73.

In July 1994, Molson and Labatt executives met with LCBO executives. Molson and Labatt were "not interested in any widespread sale of 12's and 24's in LCBO stores" because it would give too much access to their U.S.-based competitors with whom they did not have distribution agreements. Dkt. 49, ¶ 75. The LCBO "felt completely at the mercy of Labatt and Molson" because Labatt and Molson already had exclusive distribution agreements with Anheuser-Busch, Miller Brewing, and Coors Brewing. Id., ¶ 77.

In 1995, Interbrew acquired Labatt. Also in 1995, Molson and Labatt representatives agreed to begin supplying the LCBO with 12 and 24 packs for a limited number of LCBO stores. But in December 1998, LCBO corporate staff and Molson and Labatt executives produced a joint "Working Protocol," stating in part that "[t]he LCBO agrees to discontinue its stocking of 12 and 24 SKUs." Id., ¶ 102. LCBO CEO Andy Brandt "felt pressure from Minister [of Consumer and Commercial Relations David] Tsubouchi to concede to demands from Molson and Labatt." Id., ¶ 103. During a January 1999 LCBO board meeting, board members expressed their support for "allowing various package sizes for brewers wishing to sell beer through the LCBO." Id., ¶ 104.

The brewers and the LCBO continued negotiating an agreement related to the LCBO's sales of larger format beer packages. At this time, Molson and Interbrew "were still engaged in their multi-year group boycott, refusing to supply the LCBO with any 6-packs beyond what the LCBO already had, providing any cases of...