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Monarch Beverage Co., Inc. v. Cook

United States Court of Appeals, Seventh Circuit

June 30, 2017

Monarch Beverage Co., Inc., Plaintiff-Appellant,
David Cook, et al., Defendants-Appellees.

          Argued March 29, 2016

         Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. l:13-cv-01674-SEB-MJD - Sarah Evans Barker, Judge.

          Before Flaum, Easterbrook, and Sykes, Circuit Judges.

          Sykes, Circuit Judge.

         We are again asked to decide whether an aspect of Indiana's alcohol regulation system violates the Equal Protection Clause. Two years ago we upheld an Indiana law that prohibits grocery and convenience stores from selling chilled beer. See Indiana Petroleum Marketers & Convenience Store Ass'n v. Cook, 808 F.3d 318 (7th Cir. 2015). In this case Monarch Beverage Company challenges a feature of Indiana's "prohibited interest" law that separates beer and liquor wholesaling by prohibiting beer wholesalers from holding an interest in a liquor-distribution permit. See IND. CODE §§ 7.1-3-3-19, 7.1-5-9-3, 7.1-5-9-6. Monarch contends that this component of the prohibited-interest law lacks a rational basis. A district judge rejected this argument and upheld the law. We affirm that judgment. Indiana's policy of separating beer and liquor wholesaling survives review for rationality.

         I. Background

         Indiana's alcohol regulatory scheme, like that of many other states, divides the market along two dimensions: three tiers of the distribution chain (producers, wholesalers, and retailers) and three kinds of alcohol (beer, liquor, and wine). A permit is required to do business in any part of this market. See id. §§ 7.1-3-2-1 to -5-5 (beer producer, wholesaler, and retailer permits); 7.1-3-7-1 to -10-13 (liquor); 7.1-3-12-1 to -15-3 (wine). With limited exceptions, Indiana prohibits any person who holds a permit in one tier of the distribution chain from also holding an interest in a permit in another tier. For example, anyone holding an interest in a beer producer's permit may not also hold an interest in a beer wholesaler's permit. See id. § 7.1-5-9-2. And anyone who holds an interest in any kind of retailing permit is generally prohibited from having any interest in a manufacturer's or wholesaler's permit of any type. See id. § 7.1-5-9-10(a). (Small-scale brewers and distillers are exempt from this restriction. See id. § 7.1-5-9-10(b).)

         In addition to restricting permits across the vertical tiers of the distribution chain, Indiana also restricts the issuance of permits within the wholesaling tier by type of alcohol. The law allows some wholesaling permits to be combined: a beer wholesaler can get a permit to wholesale wine; a liquor wholesaler can also get a permit to wholesale wine. See id. § 7.1-3-13-1. But the prohibited-interest law requires the separation of beer and liquor wholesaling: a beer wholesaler may not acquire an interest in a liquor-wholesaling permit and vice versa.[1] See id. § 7.1-5-9-3, -6. This aspect of Indiana's regulatory scheme is apparently unique to the state.

         Monarch holds permits to wholesale both beer and wine and would like to expand its business to include liquor. Indiana doesn't allow that combination of permits, so Monarch sued members of Indiana's Alcohol and Tobacco Commission to invalidate the law. (The defendants are sued in their official capacities, so we'll refer to them collectively as "Indiana.") The suit alleges that this aspect of the prohibited-interest law facially discriminates against beer wholesalers in violation of the Fourteenth Amendment's equal-protection guarantee. U.S. CONST, amend. XIV, § 1.

         On cross-motions for summary judgment, the district court rejected Monarch's challenge and upheld the law. The judge's decision proceeds along two lines of reasoning. First, she ruled that the equal-protection claim failed at the starting gate because Monarch could not identify a similarly situated class of persons that receives better treatment under the statute. Second, she applied rational-basis review and upheld the law as a rational regulatory measure. Monarch appealed.

         Meanwhile, separate litigation against the Commission is ongoing in state court on a related question testing how the prohibited-interest law applies to corporate alcohol distributors with overlapping ownership interests. While Monarch's appeal in this case has been pending, a Marion County judge issued a ruling rejecting the Commission's interpretation of the statute. Spirited Sales, LLC v. Indiana Alcohol & Tobacco Comm'n, No. 49D01-1502-PL-5520 (Marion Cry. Super. Ct. Aug. 24, 2016). The case is now before the Indiana Supreme Court, which heard argument on February 23, 2017. Though the cases involve the same statutory provisions, the question here is distinct and seems unlikely to be affected by the outcome of Spirited Sales, so we proceed to decision.

         II. Discussion

         We review a summary judgment de novo. Life Plans, Inc. v. Sec. Life of Denver Ins. Co., 800 F.3d 343, 348-49 (7th Cir. 2015). Indiana's prohibited-interest law doesn't draw lines based on race or any other suspect classification, it doesn't burden a fundamental right, and it raises no federalism concerns under the Supreme Court's dormant commerce-clause doctrine. So Monarch's equal-protection challenge triggers only the most lenient form of judicial review: the law is valid unless it lacks a rational basis. Fitzgerald v. Racing Ass'n of Cent. Iowa, 539 U.S. 103, 107 (2003); Indiana Petroleum Marketers, 808 F.3d at 322. This deferential standard of review is a notoriously "heavy legal lift for the challenger []." Indiana Petroleum Marketers, 808 F.3d at 322.

         Monarch devotes considerable attention to the origins of Indiana's prohibited-interest laws, arguing that the "uncontested historical evidence suggests that the prohibition was enacted to protect and promote a patronage system that operated to the benefit of state and local politicians." That may be true; Indiana doesn't put much effort into contesting Monarch's historiography. But any disagreement about the genesis of this law can be left unresolved. The Supreme Court has made it clear that under rational-basis review, the challenger must "negative every conceivable basis" that might support the challenged law, and "it is entirely irrelevant ... ...

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