S. Glazer's Wine & Spirits, LLC v. Harrington
| Decision Date | 29 March 2022 |
| Docket Number | Civil No. 21-1254 (JRT/ECW) |
| Citation | 594 F.Supp.3d 1108 |
| Parties | SOUTHERN GLAZER'S WINE AND SPIRITS, LLC, and Southern Glazer's Wine and Spirits of Minnesota, LLC, Plaintiffs, v. John HARRINGTON, in his capacity as Commissioner of the Minnesota Department of Public Safety, Defendant, v. Johnson Brothers Liquor Company, and Bellboy Corporation, Intervenor Defendants. |
| Court | U.S. District Court — District of Minnesota |
Peter J. Schwingler and William Thomson, STINSON LEONARD STREET LLP, 50 South Sixth Street, Suite 2600, Minneapolis, MN 55402, for plaintiffs.
Jason Marisam, MINNESOTA ATTORNEY GENERAL'S OFFICE, 445 Minnesota Street, Suite 1100, St. Paul, MN 55101, for defendant.
Forrest Tahdooahnippah, Nicholas J. Bullard, Steven J. Wells, and Vanessa J. Szalapski, DORSEY & WHITNEY LLP, 50 South Sixth Street, Suite 1500, Minneapolis, MN 55402; James T. Smith, HUFFMAN, USEM, CRAWFORD & GREENBERG, PA, 5101 Olson Memorial Hwy., Suite 1000, Golden Valley, MN 55422, for intervenor defendants.
Daniel N. Rosen, ROSEN LLC, 60 South Sixth Street, Suite 3615, Minneapolis, MN 55402, for amicus curiae Kick's Liquor Store, Inc., Zipp's Liquor Store, Inc., John Wolf Enterprises, Inc., JPG Corporation, and Keith and Linda's Place, Inc.
Plaintiffs Southern Glazer's Wine and Spirits, LLC and Southern Glazer's Wine and Spirits of Minnesota, LLC (together, "Southern") brought this action against Defendant John Harrington in his capacity as Commissioner of the Minnesota Department of Public Safety ("the State") alleging that Minn. Stat. § 340A.307 —otherwise known as the Coleman Act—unconstitutionally violated the dormant Commerce Clause. After a thorough review by the Minnesota Attorney General's Office, the State agreed that the Coleman Act was unconstitutional. Southern and the State filed a Joint Motion for Entry of Stipulated Judgment and Permanent Injunction prohibiting the State from enforcing the Coleman Act against Southern. Intervenor Defendants Johnson Brothers Liquor Company and Bellboy Corporation (together, "Intervenors") intervened in this action with the intention of defending the Coleman Act's constitutionality.1
The case is before the Court on both Southern's Motion for Judgment on the Pleadings and Southern and the State's Joint Motion for Entry of Judgment. Because the Coleman Act violates the dormant Commerce Clause, the Court will grant Southern's Motion for Judgment on the Pleadings. The Court will use its inherent authority to stay this Order for 60 days because legislation pending before the Minnesota Legislature may moot the current controversy.
Southern is the nation's largest liquor wholesaler and entered the Minnesota market in 2010. (Compl. ¶¶ 5–6, May 19, 2021, Docket No. 1.) Although Southern is not directly subjected to any alleged unconstitutional discrimination, Southern has multiple contracts with out-of-state producers that are regulated by the Coleman Act. (Id. ¶ 25.) Southern's contracts with out-of-state producers contain language giving it exclusive distribution rights in Minnesota but, pursuant to the Coleman Act's allegedly discriminatory language, Southern is unable to enforce these rights as out-of-state producers are banned from establishing exclusive distributorships and must offer their products equally to all wholesalers. Minn. Stat. § 340A.307, subd. 1 ; (Decl. Surelda Heard ("Heard Decl."), Exs. A–D, Oct. 12, 2021, Docket No. 88.).
The State agrees with Southern that the Coleman Act is unconstitutional after reviewing this Court's decision in Alexis Bailly Vineyard, Inc. v. Harrington , 482 F.Supp.3d 820 (D. Minn. 2020). In Alexis Bailly , portions of Minnesota's Farm Winery Act were found unconstitutional under the dormant Commerce Clause for treating out-of-state products differently than their instate counterpart. 482 F.Supp.3d at 828. Rather than defend what it determined was an unconstitutional law, the State sought to resolve Southern's challenge and avoid the inefficient use of resources prolonged litigation would require. (Reply Supp. Joint Mot. at 2, Dec. 15, 2021, Docket No. 128.)
Intervenors are Minnesota-based wholesalers seeking to defend the Coleman Act against Southern's constitutional challenge due to the allegedly devastating financial effects their businesses would suffer. (Decl. of David Gewolb2 Supp. Mot. Intervene ¶¶ 2, 5, June 4, 2021, Docket No. 22; Decl. of Mark Hubler Supp. Mot. Intervene ¶¶ 7–9, June 4, 2021, Docket No. 24.)
Minnesota, like most states, employs a "three-tier system" to regulate alcohol classified by the separation of manufacturers, wholesalers, and retailers through licensing requirements. (Intervenor Defs.’ Mem. Opp. Mot. J. Pleadings at 4, Nov. 17, 2021, Docket No. 113.) In a three-tier system, a manufacturer cannot sell directly to retailers and instead sells to wholesalers while wholesalers cannot sell directly to consumers and subsequently sell to retailers. See Tenn. Wine & Spirits Retailers Ass'n v. Thomas , ––– U.S. ––––, 139 S. Ct. 2449, 2457, 204 L.Ed.2d 801 (2019). The three-tiered system has routinely been upheld and is "unquestionably legitimate." Granholm v. Heald , 544 U.S. 460, 489, 125 S.Ct. 1885, 161 L.Ed.2d 796 (2005).
In its current form, the Coleman Act prohibits exclusive distribution agreements for alcohol produced outside of Minnesota and instead requires that the products be offered on an equal basis to all wholesalers—a practice known as open wholesaling. Minn. Stat. § 340A.307, subd. 1. Open wholesaling has not always been a requirement in Minnesota as exclusive distributorships were previously permitted. Fed. Distillers Inc. v. State , 304 Minn. 28, 229 N.W.2d 144, 152–53 (1975). However, the Minnesota Legislature became concerned about exclusive distribution under which a "retailer ... in order to sell a particular brand of liquor, was compelled to deal with a particular wholesaler and to pay that wholesaler's price" and passed legislation prohibiting exclusive distributorships in 1969. Id. at 153 n. 10 (quoting Minn. Stat. § 340.984 ). The 1969 legislative effort initially proved to be ineffective because "distillers and wholesalers found it to their advantage to continue the practice of sole distributorships by the distillers, declaring that they had no agreement but simply cho[osing] in their discretion to limit sales to a wholesaler of demonstrated loyalty, efficiency, and selling ability." Id. at 152. Therefore, the Minnesota Legislature attempted to remedy its previous failure and passed the Coleman Act in 1973.
Under the Coleman Act, only out of-state liquor producers must offer their products on equal terms to all wholesalers. Minn. Stat. § 340A.307, subd. 1 () After the Minnesota Supreme Court held in Fed. Distillers that the term "licensed importer" applied to a company that imported bulk liquor, rectified and bottled it in the state, the Minnesota Legislature amended the Coleman Act to explicitly exempt products that further are "distilled, refined, rectified, or blended" liquor within the state. Minn. Stat. § 340A.307, subd. 4. As it stands, the Coleman Act currently imposes open wholesaling on out-of-state producers and products while exempting Minnesota producers and products and allowing the latter to establish exclusive distributorships.
On May 19, 2021, Southern filed the Complaint in this case seeking both a declaration that the Coleman Act is unconstitutional and an injunction against future enforcement. (Compl. ¶¶ 27–36.) After this Court's ruling in Alexis Bailly Vineyard , Southern contacted the State and inquired about the Coleman Act's constitutionality. ( The State agreed that the Coleman Act violated the dormant Commerce Clause. (Id. ) Accordingly, Southern filed this Complaint and the parties filed a Joint Motion for Stipulated Judgment, asking the Court to enter the requested declaratory judgment and injunction.
Intervenors moved to intervene as defendants due to their interest in defending the Coleman Act. (Intervenor Mem. Supp. Mot. Intervene at 3–4, June 4, 2021, Docket No. 20.) After successfully intervening, Intervenors requested the Court stay the case until the end of the 2022 legislative session to permit the Minnesota Legislature to consider proposed amendments to the Coleman Act. (Mot. Stay at 1, Aug. 13, 2021, Docket No. 45.) On September 10, the Magistrate Judge denied Intervenors’ Motion. (Order Denying Mot. Stay, Sept. 29, 2021, Docket No. 68.)3
Intervenors also requested that the Court allow them to amend their pleadings to assert crossclaims seeking declaratory judgments that (1) the Coleman Act is constitutional and (2) can be preserved through severance. (Mot. Am., Ex. B, Nov. 1, 2021, Docket No. 102.) The Magistrate Judge denied Intervenors’ Motion because "the Intervenor Defendants all but admit their crossclaims are redundant of the factual and legal issues already in the case." (Order Denying Mot. Am. at 5, Dec. 7, 2021, Docket No. 121.)4
While Southern and the State's Joint Motion was pending, Southern filed a Motion for Judgment on the Pleadings and all of the relevant parties agreed to a briefing schedule permitting a single hearing on the Joint Motion and Southern's Motion for relief under Rule 12(c).
Rule 12(c) of the Federal Rules of Civil Procedure provides that "[a]fter the pleadings are closed ... a party may move for judgment on the pleadings."...
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