Wine and Spirits Retailers v. R.I. and Providence
| Decision Date | 08 April 2005 |
| Docket Number | No. 04-418-T.,04-418-T. |
| Citation | 364 F.Supp.2d 172 |
| Parties | WINE AND SPIRITS RETAILERS, INC. and John Haronian v. STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS, and Jeffrey J. Greer, in his capacity as Associate Director of the Rhode Island Department of Business Regulation, United Independent Liquor Retailers of Rhode Island, Intervenor-Defendant. |
| Court | U.S. District Court — District of Rhode Island |
Evan T. Lawson, Robert J. Roughsedge, Michael Williams, Lawson & Weitzen, Boston, MA, for Plaintiffs.
Rebecca Tedford Partington, Rhode Island Attorney General's Office, Providence, RI, for Defendants.
Joseph S. Larisa, Jr., Esq., Providence, RI, for Intervenor-Defendant.
Wine & Spirits Retailers, Inc. (W & S) brought this action to declare unconstitutional a Rhode Island statute prohibiting the retail sale of alcoholic beverages by chain stores and/or franchise businesses. The case, presently, is before this Court for consideration of W & S's request for a preliminary injunction prohibiting the State from enforcing the statute.
The issue presented is whether the statute violates W & S's First Amendment right to freedom of speech or its Fourteenth Amendment right to equal protection. After an evidentiary hearing and for the reasons hereinafter stated, this Court answers those questions in the negative; and, therefore, denies W & S's motion for a preliminary injunction.
Since 1933, Rhode Island, like many other states, has statutorily prohibited the retail sale of alcoholic beverages by "chain store organizations." R.I. Gen. Laws § 3-5-11; see Granite State Grocers Assoc. v. State Liquor Comm'n, 112 N.H. 62, 289 A.2d 399, 402 (1972) (). The prohibition applies to holders of Class A licenses issued to those who operate liquor stores but it does not apply to holders of other classes of licenses issued to restaurants and private clubs. Until recently, Rhode Island's statute did not define the term "chain store organization" but the Department of Business Regulation which was charged with responsibility for enforcing the statute interpreted that term to mean two or more stores having common ownership.
Approximately seven years ago, W & S, which, itself, does not hold a Class A license, began enlisting independently-owned liquor stores to operate as its franchisees under the name Douglas Wine & Spirits. The terms of the franchise arrangement are set forth in the Uniform Franchise Offering Circular filed by Wine & Spirits with the Department of Business Regulation and in W & S's standard franchise agreement. Those terms include provisions that authorize W & S to designate the geographical territory in which the franchisee may operate; the inventory items that the franchisee is allowed or required to carry; the vendors from which the franchisee may purchase those items; and the layout of the franchisee's store. The franchisee is required to pay an annual franchise fee and to contribute to an advertising and promotion fund controlled by W & S. In exchange, W & S agrees to grant the franchisee exclusive franchise rights within the assigned territory; to help the franchisee train its employees; and to advise the franchisee with respect to advertising, marketing, and other aspects of the franchisee's business.
On July 8, 2004, the Rhode Island General Assembly amended the statute to specify the kinds of activities that would cause a business to be classified as a "chain store organization" and, also, to prohibit the retail sale of alcoholic beverages by franchise operations. The effective date of the amendments was delayed until April 1, 2005, apparently, in order to afford existing franchisees an opportunity to bring themselves into compliance.
On September 29, 2004, W & S brought this action against the State of Rhode Island and Jeffrey Greer, in his capacity as Associate Director of the Rhode Island Department of Business Regulation, seeking to declare the statute unconstitutional. Several months later, in January 2005, W & S filed its motion for a preliminary injunction and shortly after the motion was scheduled for hearing, United Independent Liquor Retailers of Rhode Island (UILR), an association of independent liquor stores, was granted leave to intervene as a defendant. On March 16, 2005, this Court conducted an evidentiary hearing and heard arguments by all parties.
A preliminary injunction is considered an extraordinary remedy because it involves the granting of interim relief before the facts are fully developed by a full-blown trial on the merits. In determining whether a preliminary injunction should be granted, the Court must assess and balance the probability that the movant ultimately will succeed on the merits; any irreparable harm that the movant is likely to suffer if the injunction does not issue; any irreparable harm that the opposing party is likely to suffer if the injunction does issue; and the effect that the issuance or failure to issue an injunction may have on the public interest. Rosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219 221 (1st Cir.2003); S.E.C. v. Fife, 311 F.3d 1, 8 (1st Cir.2002).
W & S mounts a two-pronged challenge to the statute. First, W & S argues that the statute violates its First Amendment right to freedom of speech and association because the statute prevents W & S from "[p]roviding paid marketing and management advice" to its franchisees and prohibits the retail sale of alcoholic beverages by franchise organizations. W & S Mem. Supp. Mot. Prelim. Inj. at 8-9, 13, and 15. W & S also argues that the prohibition against franchising violates its Fourteenth Amendment right to equal protection because the prohibition applies to Class A licensees who sell alcoholic beverages for off-premises consumption but not to other categories of licensees who sell for on-premises consumption.
W & S's claim that the statute violates its freedom of speech is directed at R.I. Gen. Laws § 3-5-11(b)(1) which provides:
(b) The term "chain store organization" is defined to include, but [sic] not limited to:
(1) Any group of one or more holders of Class A liquor licenses who engage in one or more of the following practices with respect to the business conducted under such licenses, either directly or indirectly, or have any direct or indirect beneficial interest in the following practices:
(i) Common, group, centralized or coordinated purchases of wholesale merchandise.
(ii) Common billing or utilization of the services of the same person or the same entity in the management or operation of more than one liquor licensed business.
(iii) Participation in a coordinated or common advertisement with one or more liquor licensed business in any advertising media.
(iv) Coordinated or common planning or implementation of marketing strategies.
(v) Participation in agreed upon or common pricing of products.
(vi) Any term or name identified as a chain or common entity.
More specifically, in its memorandum, W & S argues that the prohibition against common planning or implementation of marketing strategies contained in subsection (b)(1)(iv) prevents W & S from "providing paid marketing and management advice" to its franchisees. W & S Mem. Supp. Mot. Prelim. Inj. at 8-9, 13, and 15. During oral argument, W & S also contended, for the first time, that its freedom of speech is infringed by the prohibition against "coordinated or common advertisement" contained in subsection — (b)(1)(iii).
The short answer to W & S's challenge to the prohibition against common planning or implementation of market strategies is that subsection (b)(1)(iv) does not, in any way, prevent W & S from "providing paid marketing and management advice." What it prohibits is concerted activity on the part of Class A licensees to engage in such practices. W & S does not hold a Class A license and remains free to provide licensees with planning and/or marketing advice which, during the hearing, it described as advice regarding marketing, methods of doing business, what products to sell, and how to set up a store. The fact that the statute may have the collateral effect of rendering less valuable any marketing advice that suggests common advertising does not infringe on W & S's freedom of expression any more than a prohibition against the sale of liquor to minors would infringe on W & S's "right" to dispense advice on how a licensee could more effectively market liquor to minors. While the Constitution may protect one's right to counsel others regarding the conduct of their affairs, it does not guarantee that particular kinds of conduct that one might desire to recommend must be sanctioned by the law.
W & S relies on Bd. of Trustees of the State Univ. of New York v. Fox, 492 U.S. 469, 109 S.Ct. 3028, 106 L.Ed.2d 388 (1989) but that case is readily distinguishable from this one. Fox involved a regulation that directly prohibited private commercial enterprises from operating on state university campuses, Fox, 492 U.S. at 471, 109 S.Ct. 3028, and was interpreted to prevent tutoring, medical consultations and the rendition of legal advice to students in their dormitories, id. at 482, 109 S.Ct. 3028. By contrast, subsection (b)(1)(iv) does not contain any such prohibition. It leaves W & S free to provide marketing and management advice and even advice regarding coordinated planning and implementation of marketing strategies. It merely prevents Class A licensees from acting in concert to engage in such activities.
Nor does the prohibition against coordinated or common advertisement contained in subsection (b)(1)(iii) restrict W & S's freedom of speech. That subsection, too, applies...
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