Monarch Beverage Company, Inc. v. David Cook, in his official capacity as Chairman of the Indiana Alcohol and Tobacco Commission

Dec 17 2015, 8:09 am
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Richard A. Smikle Gregory F. Zoeller
Derek R. Molter Attorney General of Indiana
Ice Miller LLP Thomas M. Fisher
Indianapolis, Indiana Solicitor General
Barry S. Simon Heather Hagan McVeigh
Kannon K. Shanmugam Lara Langeneckert
Allison B. Jones Deputy Attorneys General
Amy Mason Saharia Indianapolis, Indiana
Katherine Moran Meeks
Williams & Connolly LLP ATTORNEYS FOR AMICUS CURIAE
Washington, D.C. WINE & SPIRITS DISTRIBUTORS OF
INDIANA
Michael P. Maxwell, Jr.
John B. Herriman
Clark Quinn Moses Scott &
Grahn, LLP
Indianapolis, Indiana
ATTORNEYS FOR AMICUS CURIAE
THE INDIANA BEVERAGE
ALLIANCE
Steven M. Badger
Matthew P. Thielemann
Badger Law
Carmel, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Court of Appeals of Indiana | Opinion 49A02-1504-PL-245 | December 17, 2015 Page 1 of 14
Monarch Beverage Company, December 17, 2015
Inc., Court of Appeals Case No.
Appellant-Plaintiff, 49A02-1504-PL-245
Appeal from the
v. Marion Superior Court
The Honorable Timothy Wayne
David Cook, in his official Oakes, Judge
capacity as Chairman of the Trial Court Cause No.
Indiana Alcohol and Tobacco 49D02-1403-PL-6456
Commission, et al.,
Appellees-Defendants.
Kirsch, Judge.
[1] Indiana’s Alcoholic Beverages Law, which consists of several statutory
provisions (“the Prohibited Interest Provisions”), prohibits alcohol wholesalers
from holding interests in both beer and liquor permits. Monarch Beverage
Company, Inc. (“Monarch”) filed a complaint against David Cook, in his
official capacity as Chairman of the Indiana Alcohol and Tobacco
Commission, et al. (“the State”), alleging that the Prohibited Interest Provisions
violate the Equal Privileges and Immunities Clause of the Indiana Constitution
because the statutes discriminate on their face against beer wholesalers by
prohibiting beer wholesalers from seeking a permit to distribute liquor and such
restraint is not based upon an inherent difference between beer and liquor
wholesalers. The trial court granted summary judgment in favor of the State
and against Monarch, finding the statutes to be constitutional. Monarch
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appeals the trial court’s order, alleging that the trial court erred in its
determination that the statutes are not unconstitutional.
[2] We affirm.
Facts and Procedural History1
[3] Indiana extensively regulates the alcoholic beverage industry in the state and
has done so since the end of Prohibition. The general purposes of the
regulation of alcohol in Indiana are: (1) “[t]o protect the economic welfare,
health, peace, and morals of the people of this state”; (2) “[t]o regulate and limit
the manufacture, sale, possession, and use of alcohol and alcoholic beverages”;
and (3) “[t]o provide for the raising of revenue.” Ind. Code § 7.1-1-1-1. When
Prohibition ended, Indiana, like most other states, adopted a three-tier system
for regulating the production, distribution, and sale of alcohol. The first tier
consists of brewers, vintners, and distillers, who manufacture alcoholic
products. The second tier is comprised of wholesalers who purchase alcoholic
products from the manufacturers and sell the products to the retailers and
dealers. The third tier consists of retailers and dealers who sell alcoholic
products directly to consumers.2 With limited exceptions, no business holding a
1
Oral argument was heard on this case on December 1, 2015 in the Indiana Supreme Court courtroom in
Indianapolis, Indiana. We commend counsel on the excellent quality of their written and oral advocacy.
2
Retailers include bars and restaurants that sell alcohol for on-premises consumption; dealers include liquor
and grocery stores that sell alcohol for off-premises consumption.
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license for one of the three tiers may hold an interest in a license for any other
tier. See Ind. Code §§ 7.1-5-9-2, 7.1-5-9-4, 7.1-5-9-6 to -10.
[4] The focus of this litigation is on the second tier, the wholesalers of alcoholic
products. Wholesalers are central to the alcohol regulatory system by creating a
buffer between the manufacturers and retailers; they also serve as a port of entry
for out-of-state alcoholic products imported into the state, collect excise taxes
on alcohol, and ensure that alcoholic products are sold only to licensed retailers
and dealers.
[5] In order to wholesale or distribute alcohol in Indiana, one must obtain a permit
issued for that limited purpose by the Indiana Alcohol and Tobacco
Commission (“the Commission”). See Ind. Code §§ 7.1-3-3-1, 7.1-3-8-1. 7.1-3-
13-1. The Commission authorizes the distribution of alcohol by type, i.e., beer,
wine, liquor, and requires a separate permit to distribute each type of alcohol.
Wholesalers are regulated by the Commission in several ways, including being
prohibited from tying purchases of one type of alcoholic product to purchases of
another, from imposing minimum purchase requirements on retailers and
dealers, and from entering into exclusivity contracts with retailers and dealers.
See Ind. Code § 7.1-5-5-7; 905 Ind. Admin. Code 1-5.1-1. Additionally,
wholesalers must make their prices known in writing to their customers, and the
prices must be made available to all retailers and dealers on a
nondiscriminatory basis for at least seven days after they are publicized. See
I.C. 7.1-5-5-7(a); 905 I.A.C. 1-31-2.
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[6] The Commission also regulates the type and number of permits a particular
wholesaler may hold at any given time. The Commission issues separate
permits for the wholesale distribution of beer, wine, and liquor. Beer wholesale
permits are issued on a county-by-county basis, with a limit on the number of
wholesale permits that can be issued by each county based on the county’s
population. Ind. Code § 7.1-3-22-2. Wine and liquor wholesale permits,
however, are issued statewide without any limit to the number of permits that
can be awarded. See generally Ind. Code §§ 7.1-3-22-1 to -10. Under Indiana
Code sections 7.1-5-9-3, 7.1-5-9-4, 7.1-5-9-6, and 7.1-3-3-19 (“the Prohibited
Interest Provisions”), a wholesaler may obtain one of the three individual
permits, both a wine and a beer permit, or both a wine and a liquor permit.
However, a wholesaler may not hold both a beer and a liquor wholesale permit.
I.C. 7.1-5-9-3(b). Despite this restriction, any wholesaler who holds permits for
wine and for liquor may also distribute up to a million gallons a year of flavored
malt beverages, which are a type of beer. Ind. Code §§ 7.1-3-8-3, 7.1-3-13-3(d).
Likewise, a wholesaler who hold permits for wine and for beer may distribute
brandy and certain cream-based liquors. Ind. Code §§ 7.1-3-3-5, 7.1-3-13-3.
[7] Wholesalers who have acquired a permit for beer receive certain statutory
franchise protections. One such franchise protection makes it unlawful for a
manufacturer of beer to terminate an agreement or contract with a beer
wholesaler “unfairly and without due regard for the equities of the other party.”
Ind. Code § 7.1-5-5-9(c). Additionally, when a beer supplier obtains the rights
to a particular brand of beer from another beer supplier, the new supplier
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cannot transfer the distribution right to a new wholesaler unless that new
wholesaler compensates the existing wholesaler for the fair market value of the
existing wholesaler’s right to distribute the beer. Ind. Code §§ 7.1-3-25-7. 7.1-3-
25-9, 7.1-3-25-13. Under such statutory protection, a beer wholesaler that loses
an account due to a transfer of rights in the supply tier will be protected from
bearing the financial burden of the transfer. If a violation of these franchise
protections is suspected, a beer wholesaler can report it to the Commission,
who is required to investigate and enforce injunctions under the provisions.
Ind. Code § 7.1-2-3-26. A wholesaler who holds a permit for wine or liquor or
both does not receive such protections by the Commission.
[8] Monarch is a wholesaler of alcoholic products in Indiana and currently
possesses permits to distribute both beer and wine. Monarch has been a
wholesaler of beer since 1947, when it began operation, and a wholesaler of
wine since 1976. Monarch distributes wine in all ninety-two counties in
Indiana and beer in eighty-nine counties and is the exclusive distributor of
MillerCoors beer in seventy of those eighty-nine counties. It distributes wine
manufactured by E. & J. Gallo Winery (“Gallo”). Gallo also manufactures
four liquor products, which Gallo would like Monarch to distribute as well;
however, because Monarch holds a permit for the wholesale of beer, under
Indiana law, it cannot also obtain a permit to wholesale liquor.
[9] On March 5, 2014, Monarch filed a complaint against the State, alleging that
Indiana’s restriction against the joint wholesaling of beer and liquor,
specifically, the Prohibited Interest Provisions, violates the Equal Privileges and
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Immunities Clause of the Indiana Constitution. After discovery, the parties
filed cross-motions for summary judgment. The State contended that Monarch
could not maintain an Equal Privileges and Immunities claim because the
Prohibited Interest Provisions treated all wholesalers alike and that, even if they
did not, the statutes were justified as they are rationally related to the legitimate
public purposes underlying Indiana’s regulation of the alcoholic beverage
industry. Monarch asserted that an Equal Privileges and Immunities claim
existed because the Prohibited Interest Provisions singled out beer wholesalers
for disparate treatment and that such treatment is not justified by an inherent
and substantial difference between beer wholesalers and liquor wholesalers.
[10] On April 22, 2015, the trial court issued an order denying Monarch’s motion
for summary judgment and granting summary judgment in favor of the State.
In its order, the trial court did not agree with Monarch that the Equal Privileges
and Immunities Clause supports its “challenge of a discriminatory restraint on
beer wholesalers” because at the “time of election of which wholesaler to be,
beer or liquor, the wholesalers stand equal.” Appellant’s App. at 11. The trial
court stated its belief that the solution for Monarch “is a political one, best
suited for the halls of the Statehouse, and not a constitutional one, found at the
courthouse.” Id. Monarch now appeals.
Discussion and Decision
[11] “When a party claims that a statute is unconstitutional on its face, the claimant
assumes the burden of demonstrating that there are no set of circumstances
under which the statute can be constitutionally applied.” Meredith v. Pence, 984
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N.E.2d 1213, 1218 (Ind. 2013) (citing Baldwin v. Reagan, 715 N.E.2d 332, 337
(Ind. 1999)). “[I]n reviewing the constitutionality of a statute, ‘every statute
stands before us clothed with the presumption of constitutionality unless clearly
overcome by a contrary showing.’” Id. (quoting Baldwin, 715 N.E.2d at 338).
Our methodology for interpreting and applying provisions of the
Indiana Constitution is well established. It requires a search for
the common understanding of both those who framed it and
those who ratified it. To determine this intent, we examine the
language of the text in the context of the history surrounding its
drafting and ratification, the purpose and structure of our
constitution, and case law interpreting the specific provisions.
We look to history to ascertain the old law, the mischief, and the
remedy. A statute challenged under the Indiana Constitution
stands before this Court clothed with the presumption of
constitutionality until clearly overcome by a contrary showing.
The party challenging the constitutionality of a statute bears the
high burden of overcoming this presumption and establishing a
constitutional violation, and any doubts are resolved in favor of
the legislature.
Paul Stieler Enters., Inc. v. City of Evansville, 2 N.E.3d 1269, 1272-73 (Ind. 2014)
(internal citations and quotations omitted).
[12] When reviewing the grant of summary judgment, our standard of review is the
same as that of the trial court. Seth v. Midland Funding, LLC, 997 N.E.2d 1139,
1140 (Ind. Ct. App. 2013) (citing Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904
N.E.2d 1267, 1269-70 (Ind. 2009)). We stand in the shoes of the trial court and
apply a de novo standard of review. Old Utica Sch. Pres., Inc. v. Utica Twp., 7
N.E.3d 327, 330 (Ind. Ct. App. 2014) (citing FLM, LLC v. Cincinnati Ins. Co.,
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973 N.E.2d 1167, 1173 (Ind. Ct. App. 2012), trans. denied), trans. denied. Our
review of a summary judgment motion is limited to those materials designated
to the trial court. Ind. Trial Rule 56(H); FLM, 973 N.E.2d at 1173. Summary
judgment is appropriate only where the designated evidence shows there are no
genuine issues of material fact and the moving party is entitled to judgment as a
matter of law. T.R. 56(C). For summary judgment purposes, a fact is
“material” if it bears on the ultimate resolution of relevant issues. FLM, 973
N.E.2d at 1173. We view the pleadings and designated materials in the light
most favorable to the non-moving party. Id. Additionally, all facts and
reasonable inferences from those facts are construed in favor of the non-moving
party. Id. (citing Troxel Equip. Co. v. Limberlost Bancshares, 833 N.E.2d 36, 40
(Ind. Ct. App. 2005), trans. denied).
[13] The party who lost in the trial court has the burden of demonstrating that the
grant of summary judgment was erroneous. Id. We will affirm upon any
theory or basis supported by the designated materials. Id. When a trial court
grants summary judgment, we carefully scrutinize that determination to ensure
that a party was not improperly prevented from having his or her day in court.
Id. In this case, the parties filed cross-motions for summary judgment;
however, the fact that cross-motions for summary judgment were made does
not alter our standard of review. Mahan v. Am. Standard Ins. Co., 862 N.E.2d
669, 676 (Ind. Ct. App. 2007), trans. denied. “Instead, we must consider each
motion separately to determine whether the moving party is entitled to
judgment as a matter of law.” Id.Court of Appeals of Indiana | Opinion 49A02-1504-PL-245 | December 17, 2015 Page 9 of 14
[14] Monarch argues that the Prohibited Interest Provisions are unconstitutional
because the statutes violate Article 1, section 23 of the Indiana Constitution, the
Equal Privileges and Immunities Clause. In Collins v. Day, 644 N.E.2d 72 (Ind.
1994), our Supreme Court “engaged in a comprehensive review of the history
and purposes animating the adoption of Section 23 as part of Indiana’s 1851
Constitution and of the subsequent case law, particularly our early decisions
that were contemporaneous with its adoption and which were ‘accorded strong
and superseding precedential value.’” League of Women Voters of Ind., Inc. v.
Rokita, 929 N.E.2d 758, 769 (Ind. 2010) (quoting Collins, 644 N.E.2d at 77).
Combining history, text, and subsequent case law, the Court adopted a
“superseding analytical formulation that, when statutes grant unequal privileges
or immunities to differing persons or classes of persons, the Equal Privileges
and Immunities Clause imposes two requirements”: (1) “‘the disparate
treatment accorded by the legislation must be reasonably related to inherent
characteristics [that] distinguish the unequally treated classes’”; and (2) “‘the
preferential treatment must be uniformly applicable and equally available to all
persons similarly situated.’” Id. at 769-70 (quoting Collins, 644 N.E.2d at 80).
Additionally, in determining whether a statute complies with or violates Section
23, we must exercise substantial deference to legislative discretion. Id. at 770.
[15] Monarch argues that the Prohibited Interest Provisions are facially
discriminatory, and the trial court erred when it determined that Monarch
cannot sustain an Equal Privileges and Immunities claim because the
Prohibited Interest Provisions subject all wholesalers to the same discriminatory
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restraint. Monarch contends that the Prohibited Interest Provisions are
“quintessential examples of laws that classify” because the laws clearly
designate a trait, the possession of a beer wholesaler permit, and impose
burdens on those that hold such a trait. Monarch alleges that the Prohibited
Interest Provisions specifically deny to anyone holding a beer wholesaler’s
permit the privilege of holding a liquor wholesaler’s permit, and likewise,
anyone holding a liquor wholesaler’s permit from holding a beer wholesaler’s
permit, while affording that opportunity to everyone else.
[16] As a threshold matter, before reaching the two-part test from Collins, it is
necessary that an appellant identify two groups of people who are disparately
treated by the statute the appellant challenges. Robertson v. Gene B. Glick Co.,
960 N.E.2d 179, 185 (Ind. Ct. App. 2011) (citing Collins, 644 N.E.2d at 78-79),
trans. denied. Therefore, before we can engage in the Equal Privileges and
Immunities analysis, Monarch must demonstrate that the challenged statutes
grant unequal privileges or immunities to differing persons or classes of persons.
League of Women Voters, 929 N.E.2d at 769-70. In other words, Monarch must
show that the Prohibited Interest Provisions allow for disparate treatment of
beer wholesalers and another class of persons.
[17] In its order granting summary judgment to the State and denying summary
judgment to Monarch, the trial court did not agree with Monarch’s contention
that the Prohibited Interest Provisions created a discriminatory restraint on beer
wholesalers and that, therefore, the Equal Privileges and Immunities Clause
analysis applied to Monarch’s challenge. The trial court stated that, “[a]t the
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time of election of which wholesaler to be, beer or liquor, the wholesalers stand
equal [and] [o]nly after the election by statute do the subsequent and
consequential restrictions apply.” Appellant’s App. at 11. Finding that Monarch
had not met the threshold requirement that an appellant must identify two
groups of people who are disparately treated by the challenged statute, the trial
court did not reach the two-part test.
[18] Under the Prohibited Interest Provisions, a wholesaler may obtain one of the
three individual permits, both a wine and a beer permit, or both a wine and a
liquor permit. However, a wholesaler may not hold both a beer and a liquor
wholesale permit. I.C. 7.1-5-9-3(b). Therefore, the Prohibited Interest
Provisions treat all persons and all wholesalers of alcohol exactly the same.
Each person who wishes to become an alcohol wholesaler comes to the
Commission with the same basic choice, whether to become a wholesaler of
beer or a wholesaler of liquor. At the time the person makes a choice, they are
treated equally, and the Prohibited Interest Provisions do not somehow force
some persons to become beer wholesalers and others to become liquor
wholesalers. After the person has made the choice to wholesale either beer or
liquor, they are still treated equally as beer and liquor wholesalers are equally
prohibited from obtaining permits to distribute any other alcohol except for
wine. No one may hold an interest in both a beer and a liquor permit.
[19] Monarch does not identify any similarly situated class that receives preferential
treatment under the Prohibited Interest Provisions. Monarch contends that the
Prohibited Interest Provisions “deny to anyone holding a beer wholesaler’s
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permit the privilege of holding a liquor wholesaler’s permit, and vice versa,
while affording that opportunity to everyone else.” Appellant’s Br. at 17 (emphasis
added). Monarch does not explain who the phrase everyone else refers to and
identifies no particular class that is treated differently under the Prohibited
Interest Provisions. Pursuant to the Prohibited Interest Provisions, all persons
who seek to obtain a wholesaler’s permit from the Commission are treated
equally and have an equal opportunity to choose to become either a beer
wholesaler or a liquor wholesaler, and after a choice has been made, beer and
liquor wholesalers are equally prohibited from acquiring a permit to distribute
any other alcohol except for wine. There can be no Equal Privileges and
Immunities claim where all classes of person are treated equally. Robertson, 960
N.E.2d at 185. The Prohibited Interest Provisions preclude any person from
acquiring permits to become a wholesaler of both beer and liquor and treat
Monarch no differently than other persons.
[20] Because Monarch has not identified any group of people who are disparately
treated by the Prohibited Interest Provisions and allowed to obtain permits to
distribute both beer and liquor, it has failed to meet the threshold requirement
that the challenged statutes must grant unequal privileges or immunities to
differing classes of persons. See League of Women Voters, 929 N.E.2d at 769-70.
Therefore, we conclude that Monarch has not shown sufficient disparate
treatment to invoke the Equal Privileges and Immunities analysis, and the
Prohibited Interest Provisions are constitutional. The trial court did not err in
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granting summary judgment in favor of the State and in denying summary
judgment to Monarch.
[21] Affirmed.
Najam, J., and Barnes, J., concur.
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