Wine and Spirits v. Rhode Island

• Decision Date: 10 August 2005
• Docket Number: No. 05-1549.,05-1549.
• Parties: WINE AND SPIRITS RETAILERS, INC. and John Haronian, Plaintiffs, Appellants, v. State of RHODE ISLAND et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

418 F.3d 36

WINE AND SPIRITS RETAILERS, INC. and John Haronian, Plaintiffs, Appellants, v. State of RHODE ISLAND et al., Defendants, Appellees.

No. 05-1549.

United States Court of Appeals, First Circuit.

Heard June 7, 2005.

Decided August 10, 2005.

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Evan T. Lawson, with whom Robert J. Roughsedge, Michael Williams, and Lawson & Weitzen, LLP were on brief, for appellants.

Rebecca Tedford Partington, Deputy Chief, Civil Division, Department of Attorney General, with whom Patrick C. Lynch, Attorney General, was on brief, for state appellees.

Joseph S. Larisa, Jr., with whom Larisa Law and Consulting, LLC was on brief, for intervenor-appellee.

Before SELYA, Circuit Judge, HILL,^* Senior Circuit Judge, and LYNCH, Circuit Judge.

SELYA, Circuit Judge.

Rhode Island, like many states, regulates the intrastate channels through which alcoholic beverages may be manufactured, imported, and sold. One recently enacted piece of this regulatory mosaic prevents any franchisor or franchisee from holding a Class A retail liquor license. See R.I. Gen. Laws § 3-5-11.1. Another piece, enacted at the same time, amended a related statute, which prohibits any "chain store organization" from holding such a license, id. § 3-5-11(a), so that it explicitly encompasses package stores that engage in certain coordinated business activities, see id. § 3-5-11(b).

Plaintiff Wine & Spirits Retailers, Inc. (W & S), a franchisor of package stores, brought this action against the State seeking, inter alia, to enjoin the enforcement of those new enactments.¹ W & S premised its suit on the thesis that the two statutes, singly and in combination, violate (i) its First Amendment rights to speech and association and (ii) its Fourteenth Amendment right to equal protection.

In this early chapter of the litigation, W & S appeals from the district court's denial of its motion for a preliminary injunction. Having weighed the considerations relevant to the preliminary injunction balance, we conclude that the district court did not abuse its discretion in determining that W & S failed to show a likelihood of success on the merits of its claims and, therefore, did not demonstrate an entitlement to preliminary injunctive relief.

I. BACKGROUND

Under Rhode Island law, any individual or entity engaged in the manufacture, sale, or importation of alcoholic beverages must hold a valid license issued by the Department of Business Regulation (DBR). See R.I. Gen. Laws § 3-5-1. A Class A retail license entitles the holder to obtain alcoholic beverages from licensed wholesalers and to operate a retail package store, from which the beverages may be sold in sealed containers. See id. §§ 3-7-1, 3-7-3. Since 1933, the State has prohibited chain store organizations from holding Class A liquor licenses. See 1933 R.I. Pub. Laws ch.2013, § 6 (current version at R.I. Gen. Laws § 3-5-11). This enactment gave the DBR full discretion to determine whether an entity fell into the "chain store" category. Id.

The ingenuity of lawyers is nearly endless and, recently, franchised package stores began to crop up throughout Rhode Island. In an apparent effort to block this easy evasion of the chain store prohibition, the Rhode Island General Assembly amended section 3-5-11 to identify a set of licensee activities that would allow the DBR to find that an entity was in fact a chain store organization. The new statute, enacted July 8, 2004 and effective April 1, 2005, expanded the term "chain store organization" to encompass:

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.

R.I. Gen. Laws § 3-5-11(b)(1). By its terms, this statute restricts a holder of a Class A liquor license from participating in many business activities that are typical of a franchise relationship.

Simultaneous with the enactment of section 3-5-11(b), the General Assembly passed what is now section 3-5-11.1. This provision has a similar but more direct effect: it explicitly excludes franchisees from holding Class A liquor licenses. The amended statute reads in pertinent part:

To promote the effective and reasonable control and regulation of the Rhode Island alcoholic beverage industry and to help the consumer by protecting their choices and ensuring equitable pricing. Class A liquor license[s] authorized by this title shall not be granted, issued, renewed or transferred to or for the use of any liquor franchisor or franchisee. Class A liquor license holders are expressly prohibited from utilizing the provisions of the Franchise Investor [sic] Act, [R.I. Gen. Laws] § 19-28-1 et seq.

Id. § 3-5-11.1(a). The latter statute also nullifies all franchise agreements involving the retail sale of alcoholic beverages, id. § 3-5-11.1(b); stipulates that any franchisor or franchisee who is a party to such an agreement must terminate it within thirty days of the statute's effective date, id. § 3-5-11.1©, and empowers the DBR to fine violators (including franchisors) and to revoke or suspend a transgressor's liquor license and/or franchise registration, id. § 3-5-11.1(d).

At the time these bills were passed, W & S had been operating for roughly seven years as a franchisor of independently owned Class A liquor retailers. It had a portfolio of eleven franchise agreements in Rhode Island, all of which were registered under the Franchise Investment Act, R.I. Gen. Laws §§ 19-28.1-1 to 19-28.1-34. These franchisees conducted business under names owned by W & S (seven under the name "Douglas Wine & Spirits" and four under the name "People's Liquor Warehouse").

In general, W & S's franchise agreements provided that, for an annual fee, royalties, a commitment to maintain certain quality standards, and a pledge to pay into a joint advertising and promotion fund, the franchisee would receive an exclusive franchise territory. The franchisee also would receive the right to use either the Douglas or People's trade name and other proprietary marks, and would be given access to a compendium of marketing, advertising, training, accounting, purchasing, and consulting services. Additionally, the franchise agreements authorized W & S to require the franchisees to carry certain products, to designate vendors for those items, and to dictate the layout of each retail store (including product placement).

In July of 2004 (when sections 3-5-11(b) and 3-5-11.1 were enacted), W & S was negotiating with two more potential Rhode Island franchisees. Recognizing the relevance of the new statutes to its operation, W & S wrote to the DBR on August 12, 2004, asking whether it would be permissible to register those two new franchises prior to the statutes' effective date. The DBR responded on September 1, 2004, explaining that W & S would have to submit applications in order for any new franchise registrations to be considered. The DBR's letter left no doubt that this would be an exercise in futility; the epistle declared the DBR's position to be "that as of April 1, 2005, all store franchise agreements as of that time will become null and void and it [thereafter] will be illegal for a Class A package store to operate under a franchise agreement."

II. TRAVEL OF THE CASE

With the death knell set to toll, W & S filed this action on September 29, 2004. Its complaint set forth eight statements of claim. On January 18, 2005, W & S moved to enjoin enforcement of the challenged provisions throughout the currency of the litigation. In the motion for preliminary injunctive relief, it relied on only three of its eight claims: (i) that sections 3-5-11 and 3-5-11.1 prohibit it from engaging in expression protected by the First Amendment; (ii) that the laws violate its First Amendment right to association; and (iii) that the laws violate the Equal Protection Clause of the Fourteenth Amendment by treating it differently from others who are similarly situated. The State opposed the motion. The United Independent Liquor Retailers of Rhode Island (UILRRI), an association of Class A licensees that had lobbied for passage of the challenged laws, successfully moved to intervene as a party defendant and sided with the State.

Following a hearing, the district court denied the request for a preliminary injunction, principally on the ground that W & S had not demonstrated a likelihood of success on the merits. See Wine & Spirits Retailers, Inc. v. Rhode Island, 364 F.Supp.2d 172, 176-83 (D.R.I.2005). W & S filed a timely notice of appeal. See Fed. R.App. P. 4(a); 28 U.S.C. § 1292(a)(1). We granted expedited review.

In the meantime, the district court had granted an injunction pending appeal, see Fed.R.Civ.P. 62©, to prevent the State "from enforcing R.I. Gen. Laws § 3-5-11 to the extent that the enforcement action is based solely on a Class A licensee's use of a name similar to or the same as that of another licensee." Wine & Spirits Retailers, Inc. v. Rhode Island, 364 F.Supp.2d 172 (D.R.I.2005) (unpublished order). At W & S's request, we extended that injunction to the date of the issuance of our mandate but, like the lower court, denied other requested relief....