Lebamoff Enters. v. Snyder

347 F.Supp.3d 301

LEBAMOFF ENTERPRISES, et al., Plaintiffs,

v.SNYDER, et al., Defendants, Michigan Wine & Beer Wholesalers Association Intervening Defendant.

Case No. 17-10191

United States District Court, E.D. Michigan, Southern Division.

Signed September 28, 2018

Hugh M. Davis, Jr., Constitutional Litigation Associates, John C. Philo, Sugar Law Center, Detroit, MI, James A. Tanford, Kristina M. Swanson, Robert D. Epstein, Epstein Cohen Seif & Porter, LLP, Indianapolis, IN, for Plaintiffs.

Donald S. McGehee, Mark G. Sands, Michigan Attorney General, East Lansing, MI, Melinda Leonard, Michigan Department of Attorney General, Farmington, MI, for Defendants.

OPINION AND ORDER DENYING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT [33], DENYING INTERVENOR'S MOTION FOR SUMMARY JUDGMENT [34], AND GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT [31]

Arthur J. Tarnow, Senior United States District Judge

Plaintiffs—individual wine consumers (Jack Strike, Jack Schulz, and Richard Donovan), an individual wine merchant (Joseph Doust), and an Indiana corporation that operates fifteen alcohol retail stores in Indiana (Lebamoff Enterprises, Inc.)—filed this 42 U.S.C. § 1983 action to challenge the constitutionality of Michigan Senate Bill 1088, 2016 Mich. Pub. Laws Act 520 ("2016 PA 520"). They claim that Defendants—Governor of Michigan Rick Snyder, Attorney General William Schuette, and Chairperson of the Michigan Liquor Control Commission ("MLCC") Andrew J. Deloney—have violated their rights under the Commerce Clause and the Article IV Privileges and Immunities Clause of the United States Constitution.

Plaintiffs ask the Court to declare 2016 PA 520 unconstitutional to the extent that it amends M.C.L § 436.1203 to prohibit non-Michigan wine retailers from 1) selling and distributing wine directly to Michigan consumers, and 2) obtaining licenses and engaging in their occupations in Michigan. They seek an injunction prohibiting Defendants from enforcing 2016 PA 520 and requiring them to allow out-of-state wine retailers to distribute wine directly to consumers in Michigan.

FACTUAL BACKGROUND

The laws governing wine retailing in Michigan were amended by 2016 PA 520 on March 29, 2017. The old laws allowed licensed Michigan retailers, and retailers from other states with similar licenses, to ship wine to Michigan consumers only by using their own employees and not by using a third party-delivery service. M.C.L.A. 436.1203, effective from March 25, 2014 to March 28, 2017. The new laws permit certain Michigan wine retailers to sell, ship, and deliver alcoholic beverages directly to Michigan customers by using a licensed third party carrier, but they prohibit out-of-state retailers from shipping to Michigan customers by any means. M.C.L.A. 436.1203. The law thus expanded the shipping rights of Michigan retailers while eliminating the shipping rights of out-of-state retailers.

The MLCC, by way of the Michigan Liquor Control Code, controls and regulates the sale and importation of alcohol through a three-tier distribution system of suppliers, wholesalers, and retailers. Licensed suppliers sell beer, wine, and mixed spirits to licensed wholesalers, who in turn sell these products to licensed retailers. Licensed retailers may only purchase wine from licensed Michigan wholesalers. Licensed retailers then sell alcohol to consumers. The MLCC exercises its powers over the three tiers of distribution to regulate the behavior of market participants. For instance, retailers are forbidden to negotiate volume discounts with wholesalers or purchases on credit. Mich. Comp. L. § 436.1609a(5) ; Mich. Admin. Code, R, 436.1625(5), 436.1726(4). Michigan also requires wholesalers to "post-and-hold" prices to police against industry favoritism or covert volume discounts. Mich. Admin. Code, R. 436.1726.

PLAINTIFFS' LAWSUIT

Plaintiffs challenge the new version of M.C.L. § 436.1203(2), as enacted on January 5, 2017. The law permits retailers who obtain specially designated merchant ("SDM") licenses to deliver wine to Michigan consumers using a common carrier, their own vehicle, or a third-party facilitator. M.C.L. §§ 436.1203(3), (12), and (15). These provisions do not apply to Lebamoff Enterprises, Inc., however, because as an "outstate seller of wine," it is ineligible to become "licensed as a specially designated merchant." M.C.L. § 436.1607(1).

Plaintiff Lebamoff Enterprises, Inc. ("Lebamoff") operates fifteen retail wine and liquor stores—called Cap n' Cork—in the Fort Wayne, Indiana area. Many of Lebamoff's customers live in cities in southwest Michigan and have requested that Lebamoff ship wine to them. (Pls.' Ex. 2 at ¶ 2). Lebamoff is unable to do so however, despite being fully equipped to ship and deliver wine. (Id. at ¶ 6). Plaintiff Joseph Doust is a wine merchant and one of the co-owners of Lebamoff Enterprises. Plaintiffs Richard Donovan, Jack Strike, and Jack Schulz are Michigan wine consumers who wish to be able to order wine from out-of-state retailers. They prefer to order wine on the internet, and they allege that many of their desired vintages are not available in the Michigan market. (Pls. Ex. 5, 6, & 7).

PROCEDURAL HISTORY

Plaintiffs filed a Complaint [1] on January 20, 2017 and an Amended Complaint [5] on February 6, 2017.

On March 17, 2017, the Michigan Beer & Wine Wholesalers Association moved, unopposed, to intervene as a defendant. The Court entered an Order permitting intervention [13] on April 6, 2017.

Plaintiffs filed a Motion for Summary Judgment [31] on February 28, 2018. Intervenors and the original Defendants filed Motions for Summary Judgment [33, 34] on April 2, 2018. The motions have been fully briefed, and a hearing was held before the Court on September 6, 2018.

LEGAL STANDARD

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Defendants bear the burden of establishing that there are no genuine issues of material fact, which may be accomplished by demonstrating that Plaintiffs lack evidence to support an essential element of their case. Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Plaintiffs cannot rest on the pleadings and must show more than "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. , 475 U.S. at 586-87, 106 S.Ct. 1348. Plaintiffs must "go beyond the pleadings and by ... affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’ designate ‘specific facts showing that there is a genuine issue for trial.’ " Celotex Corp. , 477 U.S. at 324, 106 S.Ct. 2548 (quoting Fed. R. Civ. P. 56(e) ); see also United States v. WRW Corp. , 986 F.2d 138, 143 (6th Cir. 1993).

ANALYSIS

A.

The Commerce Clause gives Congress the power "[t]o regulate Commerce with foreign Nations, and among the several States." U.S. Const., art. I, § 8, cl. 3. The United States Supreme Court has "interpreted the Commerce Clause to invalidate local laws that impose commercial barriers or discriminate against an article of commerce by reason of its origin or destination out of state." C & A Carbone, Inc., v. Town of Clarkstown , N.Y., 511 U.S. 383, 390, 114 S.Ct. 1677, 128 L.Ed.2d 399 (1994). Relatedly, the Commerce Clause "encompasses an implicit or ‘dormant’ limitation on the authority of the States to enact legislation affecting interstate commerce." Healy v. The Beer Institute, Inc. , 491 U.S. 324, 326 n.1, 109 S.Ct. 2491, 105 L.Ed.2d 275 (1989). The dormant Commerce Clause prevents states from "unjustifiably [ ] discriminat[ing] against or burden[ing] the interstate flow of articles of commerce." Or. Waste Systems, Inc. v. Dep't of Env't Quality of Or. , 511 U.S. 93, 98, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994).

The dormant Commerce Clause inquiry is two-fold. First, the Court must determine whether the statute at issue "directly regulates or discriminates against interstate commerce, or [whether] its effect is to favor in-state economic interests over out-of-state interests." Dep't of Revenue of Ky. v. Davis , 553 U.S. 328, 338, 128 S.Ct. 1801, 170 L.Ed.2d 685 (2008) ; Int'l Dairy Foods Ass'n v. Boggs , 622 F.3d 628, 644 (6th Cir. 2010). Plaintiffs bear the burden of showing that Michigan's law is discriminatory. Id.

If Plaintiffs prove that the law discriminates against interstate commerce, the law "will survive only if it advances a legitimate local purpose that cannot be adequately served by reasonable alternatives." Dep't of Revenue of Ky., 553 U.S. at 338, 128 S.Ct. 1801 ; see also Or. Waste Systems , 511 U.S. at 100, 114 S.Ct. 1345. If the defendant fails to meet its burden at this stage of the inquiry, the law is upheld "unless the burden it imposes upon interstate commerce is clearly excessive in relation to the putative local benefits." Int'l Dairy Foods Ass'n , 622 F.3d at 644 (citations and quotation marks omitted); see also Tenn. Scrap Recyclers Ass'n v. Bredesen , 556 F.3d 442, 449 (6th Cir. 2009) ("Protectionist laws are generally struck down without further inquiry, because absent an extraordinary showing the burden they impose on interstate commerce will always outweigh their local benefits.") (Citations omitted).

B.

Plaintiffs have met their burden of proving that the regulatory system created by 2016 PA 520 discriminates against interstate Commerce. The new statute permits only those who "hold a specially designated merchant license located in this state" to use a common carrier to ship to consumers in Michigan. 2016 PA 520 § 203(3). Though Defendants argue that Plaintiffs have every right to open a retail location in Michigan and ship from that store while maintaining their Indiana residency, courts have "viewed with particular suspicion state statutes requiring business operations to be...