Pete's Brewing Co. v. Whitehead

• Decision Date: 10 September 1998
• Docket Number: No. 97-1528-CV-W-1.,97-1528-CV-W-1.
• Citation: Pete's Brewing Co. v. Whitehead, 19 F.Supp.2d 1004 (W.D. Mo. 1998)
• Parties: PETE'S BREWING COMPANY, et al., Plaintiffs, v. Hope E. WHITEHEAD, in her official capacity as Supervisor of the Missouri Division of Liquor Control, et al., Defendants.
• Court: U.S. District Court — Western District of Missouri

19 F.Supp.2d 1004

PETE'S BREWING COMPANY, et al., Plaintiffs, v. Hope E. WHITEHEAD, in her official capacity as Supervisor of the Missouri Division of Liquor Control, et al., Defendants.

No. 97-1528-CV-W-1.

United States District Court, W.D. Missouri, Western Division.

September 10, 1998.

COPYRIGHT MATERIAL OMITTED

Jennifer Gille Bacon, William E. Quirk, George E. Leonard, Shughart, Thomson & Kilroy, Kansas City, MO, for plaintiffs.

Andrea Spillars, Kurt U. Schaefer, Missouri's Atty. General's Office, Jefferson City, MO, Dan Conley, Quarles & Brady, Milwaukee, WI, for defendants.

ORDER

WHIPPLE, District Judge.

Pending before the Court is Plaintiffs' Complaint for declaratory judgment and injunctive relief. Plaintiffs seek to permanently enjoin the enforcement of Missouri Revised Statute § 311.360.2. The parties agreed that this case would be tried to the Court. A hearing on the merits was conducted on February 5, 1998. The findings of fact and conclusions of law in this Order are based upon the evidence received at that trial and the post-trial briefs submitted by the parties.¹ For the following reasons, Plaintiffs motion for a permanent injunction is GRANTED.

I. FINDINGS OF FACT

1. The Court accepts the Stipulation of Facts [Doc. 92] submitted by the parties. The Court adopts and incorporates those findings of fact into this Order. Some of those acts are restated below in an effort to emphasize their importance and to add continuity to this Order. The Court has also made additional findings of fact which were not included in the parties stipulations but are based upon the evidence which has been submitted to the Court.

2. Plaintiffs are all out-of-state producers or importers of beer that is sold in Missouri.

3. In the Spring of 1996, the Missouri Legislature passed Senate Bill 933 which was subsequently codified as Missouri Revised Statute § 311.360.2. (Supp.1998).

4. Section 311.360.2, provides:

Any malt liquor which is offered for sale in this state and manufactured at other than a facility owned by the person whose name appears on the label of the container shall include on the label the name and location of the owner of the facility which produced and packaged the malt liquor. This subsection shall become effective January 1, 1997.

5. Malt liquor is defined at 11 CSR 70-2.010(3) as:

[A]ny beverage manufactured from pure hops or pure barley malt or wholesome grains or cereals and wholesome yeast and pure water, containing alcoholic excess of three and two-tenths percent (3.2%) by weight and not in excess of five percent (5%) by weight.

6. To clarify the terms "owner" and "facility" in § 311.360.2, the Supervisor of the Missouri Department of Liquor Control (the Supervisor) filed an emergency amendment and permanent amendment to 11 CSR 70-2.060 on November 21, 1996, to become effective December 31, 1996, which states:

(1) [I]f the name of the brewer or manufacturer of malt liquor which appears on the label is not the owner of the facility where the malt liquor was brewed or manufactured, then the name, owner and address of the facility shall also be set forth on the label.

* * * * * *

(7) For purposes of this regulation the following definitions apply:

(A) A "facility which brews or manufactures malt liquor" is defined as a brewery or manufacturing plant premises licensed by either, or both, the state within which it is located and/or the United States Federal Alcohol Administration; and

(B) An "owner" of a facility which brews or manufactures malt liquor is defined as a person, corporation, limited liability corporation, partnership or other legal business entity, who holds the entire facility in fee simple, or has a leasehold interest for a term of years in that entire facility, and is the person or business entity licensed for that entire facility by either or both, the state within which the facility is located and/or the United States Federal Alcohol Administration.

7. The stated purpose of the amendment to 11 CSR 70-2.060 was as follows:

This Emergency Statement is necessary to provide for the appropriate and timely direction of the brewing industry in the implementation of legislation requiring malt liquor containers to bear the name and address of the owner of the facility of brewing or manufacture on the label if that person is other than the declared label manufacturer or brewer. That legislation, enacted by Senate Bill 933, 88th General Assembly becomes effective on January 1, 1997. Consumers of malt liquor in the State of Missouri are entitled to know the identity of the brewer or manufacturer of an alcoholic beverage sold in Missouri. Likewise, malt liquor brewers and manufacturers require notice of the State's labeling standards within a sufficient time so as to be able to ensure timely compliance with statutory obligations imposed the General Assembly. Failure to implement this Emergency Rule would deprive Missouri consumers of appropriate and correct label information regarding a product (beer) commonly consumed by a large portion of the buying public and place certain members of the alcoholic beverage industry at risk for non-compliance[.]

8. The Supervisor determined that pursuant to § 311.360.2, malt liquor labels which list a fictitious trade name as the owner of the facility which produced and packaged the malt liquor did not comply with § 311.360.2.

9. On December 19, 1996, the Supervisor sent a memo to all manufacturers solicitors, and wholesalers of malt liquor licensed by the Missouri Department of Liquor Control (MDLC) informing them that § 311.360.2 was to become effective January 1, 1997. The memo included a copy of § 311.360.2 and 11 CSR 70-2.060.

10. The MDLC has thousands of labels on file going back to the 1940's.

11. A manufacturing license issued by the MDLC allows the licensee to produce beer in Missouri and a solicitors license allows the licensee to sell beer in Missouri to a licensed wholesaler. Mo. Rev. Stat. § 311.180

12. Manufacturers and solicitors are not required to notify the MDLC when they discontinue using a label. Therefore, many of the labels on file with the MDLC are no longer in use.

13. On April 7, 1997, the Supervisor sent a memo, to all manufacturers and solicitors requesting that they submit to the MDLC labels they are using which had been approved prior to January 1, 1997.

14. The April 7, 1997, memo did not require manufactures and solicitors to submit numerous other documents which they are required to submit to the MDLC when seeking label approval.

15. The purpose of the April 7, 1997, memo was to determine what labels were actually in use in Missouri, not to make a final determination on which labels comply with § 311.360.2.

16. By June, 1997, most solicitors had complied with the April 7, 1997, memo.

17. In response to the April 7, 1997, memo the MDLC received approximately 1,400 labels.

18. In July, 1997, the Supervisor met with several of the Plaintiffs, at their request, to discuss enforcement of § 311.360.2 and one week later she met with representatives from A-B to discuss the same issues.

19. On September 17, 1997, the Supervisor sent a letter to all manufacturers, solicitors, and wholesalers licensed by the MDLC stating that she had an enforcement strategy for § 311.360.2, but would not begin enforcing the law until after the Missouri Supreme Court issued its opinion in Stroh Brewery Co. v. State, 954 S.W.2d 323 (Mo.1997) (en banc).

20. On October 21, 1997, the Missouri Supreme Court issued its opinion in Stroh Brewery Co. v. State, 954 S.W.2d 323 (Mo. 1997) (en banc).

21. On November 10, 1997, the Supervisor sent a letter to all licensees of the MDLC stating that she would begin enforcing § 311.360.2 on December 10, 1997.

22. By November 10, 1997, the Supervisor still had not notified any licensee whether their labels were actually in compliance with § 311.360.2.

23. On November 19, 1997, the Supervisor sent a letters to Plaintiffs Pete's Brewing Company (Pete's) and Miller Brewing Company (Miller) informing them that some or all of their labels might not comply with § 311.360.2 and that they should submit documentation to the MDLC establishing that their labels comply.

24. This was the first notice these companies received that their labels might not comply with § 311.360.2, even though enforcement of this statute was scheduled to begin in twenty-one days.

25. Neither Pete's nor Miller supplied the requested documentation to the MDLC. Instead, they filed their Complaint and request for declaratory judgment in this case on November 21, 1997.

26. The MDLC has not approved or rejected any labels under § 311.360.2 nor has the MDLC issued any violation orders for violations of § 311.360.2.

27. Marketing experts describe the beer industry as a mature or static market. It is a highly competitive industry which experiences little growth and is saturated with competitors. Consequently, for a company to increase sales it typically has to gain market share or take sales away from a competitor. This may be contrasted with the computer industry where companies attempt to find new markets and new customers instead of targeting their competitors customers.

28. During the 1960's and 1970's the beer market experienced increasing concentration. A small number of large national breweries came to control most of the industry. Beginning in the mid-1980's a trend emerged where "speciality," "craft," or "micro" beers started to emerge. This segment of the market experienced significant growth in the early 1990's. Since the mid-1980's the number of beer producers has exploded from around I 00 to over 1,500. While the number of beer producers has expanded sharply, the "craft" brew segment still only occupies 2.5% to 4% of the total beer market.

29. While definitions of "craft," "speciality," and "micro" differ, the market is in agreement that all of these types of beer differ from "mainstream" beers. Mainstream...