Petition for Writ of Certiorari — Stawski Distributing Co. v. Browary Zywiec S. A.
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Supreme Court, U.S.
FILED
No.03- 931152 FEB g - 2004
OFFICE GF >
IN THE
Supreme Court of the United States
STAWSKI DISTRIBUTING CO., INC.,
Petitioner,
v.
BROWARY ZYWIEC S.A., doing business as
Zywiec Breweries, LLC,
Respondent.
On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES Court OF APPEALS
FOR THE SEVENTH CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
RAYMOND J. AVERNA
Counsel of Record
Gary ETTELMAN
Mark S. POMERANTZ
ETTELMAN & Hocuelser, P.C.
Attorneys for Petitioner
100 Quentin Roosevelt Blvd.
Garden City, NY 11530
(516) 227-6300
185559 ce
COUNSEL PRESS
(800) 274-3321 * (800) 359-6859
QUESTION PRESENTED
This petition involves whether the federal government
has the absolute right to supplant the powers granted to the
states by the Twenty-first Amendment to regulate the
distribution of alcoholic beverages within their borders.
In this case, the Court of Appeals for the Seventh Circuit
completely ignored this Court’s precedent and ruled that:
(i) state legislation passed under the grant of authority
contained within the Twenty-first Amendment is absolutely
and always subordinate to federal legislation pursuant to the
Supremacy Clause; and (ii) the only power granted to the
states under the Twenty-first Amendment is “to restrict
imports without regard to the dormant commerce clause.”
Discarding, without explanation, the balancing test
established by this Court as the method for resolving potential
conflicts between state enactments promulgated pursuant to
the Twenty-first Amendment and federal law, the Seventh
Circuit reversed the District Court and held that the Federal
Arbitration Act pre-empts Illinois’ state liquor laws. Unless
reviewed by this Court, the Court of Appeals’ ruling opens
the door for federal regulators to trample on the powers
reserved to the states to regulate the importation and
distribution of liquor within their borders.
Thus, petitioners respectfully request that certiorari be
granted on the following question:
Whether the Federal Arbitration Act pre-empts the
exercise by Illinois of a core power granted
pursuant to the Twenty-first Amendment without
regard to the competing state and federal interests?
ll
STATEMENT PURSUANT TO RULE 29.6
Petitioner Stawski Distributing Co., Inc. (““Stawski”), has
no parent corporation and no publicly held company owns
10% or more of its stock.
Ml
TABLE OF CONTENTS
an
Statement Pursuant to Rule 29.6 ...............
Table of Contents ... ih Se
Suoee OF Cred Authorities ...............2.0005,
ae
Opinions and Orders Entered Below ............
Statement of Jurisdiction .....................
A. Basis of Jurisdiction in the District Court ..
a
OT
Reasons for Granting the Petition ..............
I. Review Is Warranted To Preserve The
Authority Granted To The States Under The
Twenty-First Amendment ...............
ll
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Contents
Page
II. Review Is Also Warranted Because The
Seventh Circuit Decision Is In Conflict With
Supreme Court Precedent By Implicitly
Holding That The Choice Of Law And Choice
Of Forum Provisions Of IBIFDA Must Be
Analyzed InA Vacuum ................. 11
RIE oo oan pk ca cae wae oe ee a ea 14
VY
TABLE OF CITED AUTHORITIES
Page
Cases:
324 Liquor Corp. v. Duffy,
STF Wis AR IR v6 tA ae 9
California Retail Liquors Dealers Ass’n
v. Midcal Aluminum, Inc.,
CGF Ua Fe CA Sk ae vee eae eee 10
Capital Cities Cable, Inc. v. Crisp,
GOT Wa Ss Uae Ss ok vax dei ekevaoae eee 9,10
In re G. Heileman Brewing Co.,
ESO ee. STOR ELT LUPE 8 iv eons vnenanes 10, 11
Mitsubishi Motors Corp.
v. Soler Chrysler-Plymouth, Inc.,
S73 Ve. OUR Clee). 60 eee eee 12
North Dakota v. United States,
SPS UB S25 (IFO) 6 6k ade ea ceva anes 10, 11, 13
Sherk v. Alberto Culver Co.,
OT 7 SF Pele ovis stint 12
vi
Cited Authorities
Page
Constitutional Provisions:
Twenty-first Amendment ...................4. passim
Statutes:
The Federal Arbitration Act.
codified at 9 U.S.C. § 1, et seg. .......... ae 2
The Illinois Beer Industry Fair Dealing Act,
codified at 815 ILCS § 720, et seg. ........... 3
Vil
TABLE OFAPPENDICES
Appendix A — Opinion Of The United States Court
Of Appeals For The Seventh Circuit Decided
PT GE 5.545 Ohi eee es cee ee ees
Appendix B — Memorandum Opinion And Order
Of The United States District Court For The
Northern District Of Illinois, Eastern Division
Se SE Be, EE kb oat neo ee bkes cease ees
Appendix C — Order Of The United States Court
Of Appeals For The Seventh Circuit Denying
Petition For Rehearing Dated December 11, 2003
¢6¢@ 4 8 6 64 82 6 25 28 AOA CEE 4D. 2 4D ET RS SDS CES OVD
Page
7a
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Stawski Distributing Co., Inc., the Petitioner, respectfully
prays that this Court issue a writ of certiorari to review the
opinion in this case of the United States Court of Appeals
for the Seventh Circuit dated November 20, 2003.
OPINIONS AND ORDERS ENTERED BELOW
The opinion of the Seventh Circuit Court of Appeals is
reported at 349 F.3d 1023 (Appendix A). The Court of
Appeals was reviewing a decision and order of the District
Court that was unofficially reported at 2003 WL 21209860
(N.D. Ill. May 22, 2003) (Appendix B).
STATEMENT OF JURISDICTION
The Court of Appeals’ decision was entered on November
20, 2003. Stawski filed a timely petition for rehearing that
was denied on December 11, 2003 (Appendix C). This
Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1).
STATUTES INVOLVED
~
The following enactments, in relevant part, are involved
in this case:
i) The Twenty-first Amendment to the Constitution
provides:
Section 2. The transportation or importation into
any State, Territory, or possession of the Umted
States for delivery or use therein of intoxicating
liquors, in violation of the laws thereof, is hereby
prohibited.
2 rn
ii) The Federal Arbitration Act, codified at 9 U.S.C. § 1,
et seq., including and incorporating the Convention on
the Recognition and Enforcement of Foreign Arbitral
Awards (the “New York Convention’):
Article II of the New York Convention provides:
l.
to
~
Each Contracting State shall recognize an
agreement in writing under which the parties
undertake to submit to arbitration all or any
differences which have arisen or which may
arise between them in respect of a defined
legal relationship, whether contractual or not,
concerning a subject matter capable of settlement
by arbitration.
The Court of a Contracting State, when seized of
an action in a matter in respect to which the
parties have made an agreement within the
meaning of this article, shali, at the request of
one of the parties, refer the parties to arbitration,
unless it finds that the said agreement is null
and void, inoperative or incapable of being
performed.
Section 2 of the FAA provides:
A written provision in any maritime transaction
or a contract evidencing a transaction involving
commence to settle by arbitration a controversy
‘thereafter arising out of such contract or
transaction, or the refusal to perform the whole
or any party thereof, or an agreement in writing
to submit to arbitration an existing controversy
arising out of such contract, transaction,
or refusal, shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at
law or in equity for the revocation of any contract.
1i1) The Illinois Beer Industry Fair Dealing Act, codified
at 815 ILCS § 720, et seq. states in pertinent part:
§ 9 (1) If the brewer or wholesaler who is a party
(6)
to an agreement pursuant to this Act fails to
comply with this Act or otherwise engages
in conduct prohibited under this Act, the
affected party may maintain a civil suit in
court if the course of action directly related
to or stems from the relationship of the
individual parties under the agreement,
provided that any such suit shall be filed in
a State or federal court of competent
jurisdiction located in Illinois.
With respect to any dispute arising under
this Act or out of the relationship between
the brewer and wholesaler, the wholesaler
and the brewer each has the absolute right
before it has agreed to arbitrate a particular
dispute to refuse to arbitrate that particular
dispute. . . A brewer may not, as a condition
of entering into or renewing an agreement,
require the wholesaler to agree to arbitration
instead of judicial remedies.
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4
STATEMENT OF THE CASE
A. Basis of Jurisdiction in the District Court
This is an action to enjoin the wrongful termination of a
long-standing and successful distribution relationship
between a Polish manufacturer of beer (“Zywiec’’) and its
original United States importer and distributor (“Stawsk1’’).
Stawsk1 is an Illinois corporation located in Chicago. Zywiec
is a Polish corporation. Jurisdiction in the District Court was
founded on 28 U.S.C. § 1332(a}(2), based on the parties’
complete diversity, and the matter in controversy exceeded
$75,000 exclusive of interest and costs.
B. Factual Background
In 1959, Stawski was granted the exclusive right to
distribute Zywiec’s products throughout the United States.
Prior to Stawski’s appointment, Zywiec did not have its
products sold in the United States. Over the past 43 years,
Stawski expended substantial resources marketing the
products and created substantial goodwill in Zywiec’s
products and in the name “Zywiec Beer.” Stawski’s sales of
Zywiec’s brands grew from zero in 1959 to more than 160,000
cases in 2001. Moreover, Stawski’s sales have doubled since
1997. In addition to importing and acting as a master
distributor selling to wholesalers in other states, Stawski is
the exclusive distributor of Zywiec’s products to retailers in
the State of Illinois. -
For years, the relationship between Stawski and Zywiec
was amicable, profitable and mutually beneficial. In or about
1996, when Zywiec’s current principal owner, Heineken
International, N.V., first obtained an interest in Zywiec, that
relationship began to change.
5
Zywiec required Stawski to execute an “Import and
Wholesale Distribution Agreement” dated July 7, 1997
(the “Agreement’’). Exercising the unequal bargaining power
between brewer and wholesaler that the Illinois Beer Industry
Fair Dealing Act (“IBIFDA”’) seeks to redress, Zywiec
reduced Stawski’s territory, which since 1959 had been the
entire United States, by eliminating, without compensation,
New York, New Jersey and Connecticut from Stawski’s
exclusive distribution rights. The Agreement contains a
perpetual term, but states that either party may terminate upon
12-months written notice.
Also in violation of IBIFDA, the Agreement:'(i) contains
an arbitration clause requiring any disputes under the
Agreement to be settled by the Arbitration Court of the Polish
Chamber of Foreign Trade in Warsaw; and (11) purports to
be governed by Polish Civil Law.
In a letter dated July 10, 2002, Zywiec attempted to
terminate the Agreement upon 12-months notice. In further
violation of IBIFDA, the notice itself did not state the reasons
for the termination and did not provide Stawski with an
opportunity to cure.
On October 7, 2002, Stawski’s counsel wrote to Zywiec
informing Zywiec that its actions violated the IBIFDA,
requiring that terminations be for good cause only and with
an opportunity to cure. In a response dated November 14,
2002, Zywiec’s counsel stated IBIFDA has no bearing on
the parties’ relationship, that Polish law exclusively applied,
and that arbitration in Poland was the sole forum available
to resolve the parties’ dispute.
iii ii
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6
As aresult, on December 2, 2002 Stawski was forced to
file this action. On March 17, 2003, Stawski received a Notice
dated February 25, 2003, informing Stawski that Zywiec had
commenced an arbitration proceeding by filing a statement
of claim with the Court of Arbitration at the Polish Chamber
of Commerce (the “Polish Arbitration”). In the Polish
Arbitration, Zywiec seeks resolution of the same issues
brought by Stawski in this lawsuit. Zywiec also asserted that
Polish law controls, and urged the arbitrators to totally ignore
IBIFDA. —
Zywiec then appeared in this action and moved the
District Court for an Order staying this action and to compel
Stawski to appear in the Polish Arbitration. Stawski cross-
moved to stay the arbitration.
C. Proceedings Below
On May 22, 2003, the District Court issued an opinion
and order granting Stawski’s motion to stay the Polish
Arbitration and denying Zywiec’s motion to compel Stawski
to arbitrate and stay the federal action. See 2003 WL
21209860 (Appendix B). The District Court recognized that
if “this were the usual case” there would be little difficulty
in enforcing the arbitration clause in the Agreement pursuant
to the FAA.
The District Court, followed well-established Supreme
Court precedent:
In deciding whether a state statute enacted
pursuant to the Twenty-first Amendment should
prevail when in conflict with federal law, a
two-step analysis should be applied. First, the
J
‘threshold’ matter is whether the statute does, in
fact, conflict with federal law. 324 Liquor Corp.
v Duffy, 479 U.S. 335, 341 (1987). If the conflict
does exist, the relevant inquiry is ‘whether the
interests implicated by a state regulation are so
closely related to the powers reserved by the
Twenty-first Amendment that the regulation may
prevail, notwithstanding that its requirements
directly conflict with the express federal policies.
324 Liquor Corp., 479 U.S. at 347, quoting Capital
Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714
(1984).
(Appendix B, at 13a-14a.)
After determining a conflict existed between the FAA
and IBIFDA’s forum requirements, the District Court found
that “IBIFDA is sufficiently within the core values of the
Twenty-first Amendment for the state statute to prevail over
the FAA and the corresponding federal interests.” (Appendix
B, at 21a.) The District Court then ordered the Polish
Arbitration stayed. Subsequently, the District Court granted
Stawski a preliminary injunction enjoining the attempted
termination on the basis that Stawski had established a degree
of likelihood of success on its claim that Zywiec’s actions
violated the substantive provisions of IBIFDA, and that in
the absence of preliminary relief, Stawski would be
irreparably harmed. See 2003 WL 22290412 (N.D. Ill. Oct.
6, 2003) and 2003 WL 22595266 (N.D. Ill. Nov. 10, 2003).
On November 20, 2003, the Seventh Circuit vacated
the District Court’s order staying the Polish Arbitration.
_ See 349 F.3d 1023 (7" Cir. 2003) (Appendix A). Discarding
without explanation this Court’s balancing test announced
8
in a long line of cases resolving conflicts between state liquor
laws promulgated pursuant to the Twenty-first Amendment
and federal laws, the Seventh Circuit simply held that all
state liquor laws are pre-empted by federal law under the
Supremacy Clause, regardless of whether the state statute
addresses a core concern of the Amendment. Ignoring
precedent established by this Court the Seventh Circuit
eviscerated the power conferred to the states by the Twenty-
first Amendment, holding that the scope of the Twenty-
first Amendment is limited to allowing states to restrict
imports without regard to the dormant commerce clause.
349 F.3d at 1026.
REASONS FOR GRANTING THE PETITION
I. REVIEW IS WARRANTED TO PRESERVE THE
AUTHORITY GRANTED TO THE STATES UNDER
THE TWENTY-FIRST AMENDMENT
The Seventh Circuit ignored Supreme Court precedent
on an issue of great national and international importance.
Whether the Twenty-first Amendment allows the states to
regulate the distribution of liquor within its borders even if
the regulation conflicts with the FAA is an issue that affects
not only every state, but many national and international
businesses in an industry that generates billions of dollars in
revenues annually. Approximately forty states have enacted
statutes similar to IBIFDA establishing a three-tier liquor
distribution system and redressing imbalances between
powerful brewers and their distributors.
Illinois (as well as many other states) has determined
that in order to ensure the enforcement of its legislation
governing the creation and regulation of its liquor distribution
es
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9
system, disputes between brewers and wholesalers be must
be decided under IIlinois law in a forum located in Illinois.
The Seventh Circuit’s decision dramatically undermines the
ability of the Illinois legislature to regulate the distribution
of alcoholic beverages within its borders. The Seventh
Circuit’s decision, if undisturbed, would eviscerate the
Twenty-first Amendment and allow federal regulators to
trample on the powers granted to the states to regulate the
importation and distribution of liquor within their borders.
The decision would also empower brewers to avoid state
liquor regulations by compelling arbitration in foreign
tribunals under foreign law.
The Seventh Circuit simply ignored the test established
by this Court to resolve potential conflicts between state
liquor regulations and federal law. The court failed to
determine:
Whether the interests implicated by a state
regulation are so closely related to the powers
reserved by the Twenty-first Amendment that the
regulation may prevail, notwithstanding that its
requirements directly conflict with express federal
policies.
324 Liquor Corp. v. Duffy, 479 U.S. 355, 347 (1984), quoting
Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714 (1984).
In failing to even apply the test, the Seventh Circuit not
only ignored this Court’s decisions in 324 Liquor Corp. and
Capital Cities, but also ignored this Court’s repeated
statement that Section 2 of the Twenty-first Amendment gives
a state “virtually complete control over the importation and
sale of liquor and the structure of the liquor distribution
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10
system.” North Dakota v. United States, 495 U.S. 423, 431
(1990), citing California Retail Liquors Dealers Ass’n vy.
Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980). Indeed,
the Court of Appeals treated this case as if it involved cheese,
not beer; as if there was no Twenty-first Amendment; as if
years of well-established Supreme Court precedent did not
even exist.
Contrary to the Seventh Circuit’s decision, the Supreme
Court did not, in Midcal and Capital Cities, eliminate the
ability of a state to regulate liquor where such regulations
are in conflict with federal law. The Court held in those cases
that the state interests implicated by those regulations were 4
not sufficiently related to the core interests of the Amendment
and were therefore outweighed by the competing federal
interests. Indeed, after Midcal and Capital Cities were
decided, this Court upheld a state liquor regulation
conflicting with federal policy in North Dakota v. United
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States, 495 U.S. 423 (1990), a case that the Seventh Circuit |
failed to consider or mention. More recently, in a well- i
reasoned decision following Supreme Court precedent, a 2
bankruptcy court held that a provision in the United States 4
Bankruptcy Code must yield to an Oregon liquor regulation. :
In re G. Heileman Brewing Co., 128 B.R. 876, 885 (S.D.N.Y. 4
1999). The Heileman case, although not binding on the :
Seventh Circuit, was also ignored. ;
a
4
The Court of Appeals was simply incorrect in its view
that the District Court’s decision was unique in finding that
the Twenty-first Amendment “allowed states to foreclose the
application of federal statutes to the liquor business.”
Moreover, the “admission by counsel” noted by the court in
its decision that “since Crisp, no other federal court has held
that the twenty-first amendment allows any state to disregard
;
5
4
:
11
any federal statute or international treaty” was not made by
counsel for Stawski, but by amicus, after Stawski’s counsel’s
argument concluded. Had the question been posed to
Stawski’s counsel, the panel’s attention would have been
directed to this Court’s decision in North Dakota, as well as
the Heileman decision.
When the proper test is applied, the inescapable result
(reached by the District Court) is the limitations placed on
arbitration by IBIFDA are so closely related to the core
powers reserved to the states by the Twenty-first Amendment,
that the regulations are not pre-empted by the FAA or the
New York Convention under the Supremacy Clause. Without
the protection afforded to state liquor legislation under
controlling Supreme Court precedent, the state’s power to
regulate its liquor distribution system is illusory. The federal
government would be able, at its pleasure, to override state
authority, and any brewer could avoid the application of such-
regulations simply by inserting a clause in their distribution
agreement requiring foreign arbitration applying foreign law.
Il. REVIEW IS ALSO WARRANTED BECAUSE THE
SEVENTH CIRCUIT DECISION IS IN CONFLICT
WITH SUPREME COURT PRECEDENT BY
IMPLICITLY HOLDING THAT THE CHOICE OF
LAW AND CHOICE OF FORUM PROVISIONS OF
IBIFDA MUST BE ANALYZED IN A VACUUM
Implicit in the Seventh Circuit’s decision is a finding
that the forum selection provision and choice of law provision
of the Illinois statute should be examined in a vacuum,
independent of the overall liquor regulatory scheme of which
they are a part. In doing so, however, the Seventh Circuit
misinterpreted the Supreme Court precedent upon which it
12
relied, and ignored other Supreme Court precedent which
demonstrates that the contrary is true; the choice of law and
forum selection provisions of IBIFDA must be analyzed in
the context of the statutory scheme of which they are a part.
Neither Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614 (1985), nor Sherk v. Alberto
Culver Co., 417 U.S. 506 (1974), the cases relied on by the
Seventh Circuit, support the view that forum selection and
choice of law provisions should be independently analyzed
and enforced. Rather, those cases merely recognize that
statutory claims can be arbitrated and, in particular, under
international arbitration. In both of those cases, however, the
arbitration clauses were enforced as written. Moreover, in
Sherk, the choice of law provision contained in the arbitration
clause was also enforced.
Indeed, in Sherk, this Court noted: “A contractual
provision specifying in advance the forum in which disputes
shall be litigated and the law to be applied is, therefore, an
almost indispensable precondition to achievement of the
orderliness and predictability essential to any business
transaction.” 417 U.S. 506, 517, 94S. Ct. 2449, 2455 (1974).
Rather than advance this goal, the Seventh Circuit hindered
it. The decision as to choice of law ultimately resides with
the arbitrator. Further, the judgment of a United States court
purporting to require the application of the law of a particular
jurisdiction is not binding upon international arbitrators who
are not subject to the court’s jurisdiction. Accordingly, under
the Seventh Circuit’s holding there can be no certainty as to
forum and choice of law at the contract stage where, as
here, a contract provides for arbitration in a foreign tribunal
(deemed enforceable by the Seventh Circuit) and the
application of foreign law (deemed unenforceable by the
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Seventh Circuit). However, state statutes such as IBIFDA
providing for both forum and choice of law satisfy the
laudable goal of providing certainty in international
transactions. .
Second, as this Court has noted, a state liquor statutory
scheme should be analyzed as a whole, not in its individual
parts. North Dakota v. United States, 495 U.S. 423, 438-39
(1990) (“The labeling and reporting regulations are
components of an extensive statewide system of regulations
...”). In this case, as in North Dakota, the state statutory
provisions in issue are part of the overall statutory scheme
that created and regulates the three-tier distribution system
for alcoholic beverages within Illinois. As District Court
Judge Lefkow noted, following precisely the same logic as
this Court in North Dakota, the forum selection provision,
inclusive of the choice of law provision, is essential to
enforcement of the overall statutory scheme.
14
CONCLUSION
Petitioner respectfully submits that the Seventh Circuit
erred in essentially applying a per se rule against any
state liquor regulation conflicting with federal policy.
Left unreviewed, the Court of Appeals decision eviscerates
the powers reserved to the states by the Twenty-first
Amendment and would allow federal policy to usurp the
states’ ability to regulate the importation and distribution of
alcoholic beverages within their borders.
Respectfully submitted,
RAYMOND J. AVERNA
Counsel of Record
Gary ETTELMAN
Mark S. POMERANTZ
ETTELMAN & HOCHEISER, P.C.
Attorneys for Petitioner
100 Quentin Roosevelt Blvd.
Garden City, NY 11530
(516) 227-6300
APPENDIX
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APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE SEVENTH
CIRCUIT DECIDED NOVEMBER 20, 2003
IN THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
No. 03-2553
STAWSKI DISTRIBUTING CO., INC.,
Plaintiff-Appellee,
V.
BROWARY ZYWIEC S.A., doing business
as Zywiec Breweries, LLC,
Defendant-Appellant.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 02 € 8708—Joan Humphrey Letkow, Judge
Argued October 29, 2003 Decided November 20, 2003
Before FLAUM, Chief Judge, and EASTERBROOK and
KANNE, Circuit Judges.
EASTERBROOK, Circuit Judge. The contract between
Stawski, a distributor of beer, and Zywiec, a brewer, provides
that any dispute will be arbitrated in Poland (where Zywiec’s
brewery is located) under Polish law. When Zywiec notified
2a
Appendix A
Stawski that it would sell beer in Illinois through someone
else, Stawski filed this suit in federal court under the diversity
jurisdiction, see 28 U.S.C. § 1332(a)(2), contending that the
termination would violate the Illinois Beer Industry Fair
Dealing Act, 815 ILCS 720/1 to 720/9. Stawski asked the
court for an injunction compelling Zywiec to continue
providing beer; Zywiec asked the court to stay the litigation
in favor of arbitration. The court granted Stawski’s request
and denied Zywiec’s. The judge wrote that, even though the
arbitration agreement is supported by both federal law and
international treaty (the New York Convention, 21 U.S.T.
2517 (1970), implemented by 9 U.S.C. §§ 201-08), the
Constitution’s twenty-first amendment gives states the power
to displace both national and international law for the liquor
business. Zywiec immediately appealed, as it is entitled to
do under 9 U.S.C. § 16(a)(1).
Stawski concedes that the parties’ agreement to arbitrate
would be enforceable for any business other than liquor. -
Illinois does not forbid arbitration between brewers and
distributors, but it does require arbitration to be offered as a
Separate item on an a la carte menu, while Zywiec made
arbitration part of a standard-form contract. Federal law, by
contrast, disables states from subjecting arbitration to rules
that are not generally applicable to other contractual choices,
see Southland Corp. v. Keating, 465 U.S. 1 (1984), and this
means that take-it-or-leave-it offers are enforceable,
see Metro East Center for Conditioning and Health v. Qwest
Communications International, Inc., 294 F.3d 924 (7th Cir.
2002), for Illinois enforces the (other) terms of form
contracts. So national and international law—apart from any
considerations under the twenty-first amendment—make
enforceable Stawski’s agreement to arbitrate in Poland.
Pics, &
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3a
Appendix A
Choice of law is another matter altogether. Neither the
Federal Arbitration Act nor the New York Convention
provides any shelter for a choice-of-law agreement that
otherwise would violate state rules forbidding parties to opt
out of certain substantive norms. The Supreme Court made
this clear in Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614 (1985), and Scherk v. Alberto-
Culver Co., 417 U.S. 506 (1974), its leading decisions on
international arbitration of commercial disputes. The federal
securities laws (the subject of Scherk) contain provisions
forbidding the alteration of their rules by private agreement.
15 U.S.C. §§ 77n, 78cc(a). This led to the argument that
arbitration could not be allowed, because eiiher a choice-
of-law clause or lack of familiarity with U.S. law might
induce arbitrators hearing disputes in foreign lands not to
apply our securities laws. The Justices concluded, however,
that both domestic and international arbitration affects venue
but not substance, and that a risk that arbitrators will not do
their legal duty does not distinguish securities disputes from
any others. The Court took the same approach to antitrust
issues in Mitsubishi, holding that international arbitrators
must apply U.S. law to transactions that could stifle
competition in the United States, and that an opportunity to
obtain judicial review under the New York Convention
ensures that the panel will do so. (We added in Baxter
International, Inc. v. Abbott Laboratories, 315 F.3d 829
(7th Cir. 2003), that the point of review is to ensure that the
subject had been addressed and resolved rather than evaded;
this differs from independent judicial review of the merits.)
Arbitration of statutory issues today 1s routine, even when
substantive rights are not subject to waiver. See, e.g., Circuit
4a
Appendix A
City Stores, Inc. v. Adams, 532 U.S. 105 (2001); Rodriguez
de Quijas v. Shearson/American Express, Inc., 490 U.S. 477
(1989); Shearson/American Express, Inc. Vv. McMahon,
482 U.S. 220 (1987). The upshot is that the choice-of-law
clause in the Stawski-Zywiec contract is invalid under Illinois
law, which requires application of Illinois substantive law to
Illinois distributorships. 815 ILCS 720/9(6). (Zywiec does
not contend that our Treaty of Friendship, Commerce, and
Navigation with Poland authorizes it to insist that Polish
rather than Illinois law be applied to disputes of this kind.)
But a need to apply domestic substantive law does not
foreclose international arbitration between Stawski and
Zywiec, any more than it did in Mitsubishi—another
controversy arising out of a manufacturer’s effort to change
its arrangements with a dealership protected by state-law
restrictions on unilateral alterations.
Does the twenty-first amendment entitle states to trump
the parties’ contract to arbitrate, the Federal Arbitration Act,
and the nation’s treaty commitments to its trading partners?
As far as we can see, the district judge’s affirmative answer
is wholly novel. Twenty years or so ago, several courts held
that the twenty-first amendment allowed states to foreclose
the application of federal statutes to the liquor business.
That position was unanimously dispatched by the Supreme
Court in California Retail Liquor Dealers Ass'n v. Midcal
Aluminum, Inc., 445 U.S. 97 (1980), with respect to the
federal antitrust laws, and again in Capital Cities Cable, Inc.
v. Crisp, 467 U.S. 691 (1984), with respect to the federal
telecommunications laws. It had not resurfaced since—until
the district court’s opinion in this case. Counsel candidly
(and accurately) admitted at oral argument that, since Crisp,
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Appendix A
no other federal court has held that the twenty-first
amendment allows any state to disregard any federal statute
or international treaty.
Section 2 of the twenty-first amendment provides:
“The transportation or importation into any State, Territory,
or possession of the United States for delivery or use therein
of intoxicating liquors, in violation of the laws thereof, is
hereby prohibited.” This language permits the states to restrict
imports without regard to the “dormant commerce clause.”
See Bridenbaugh v. Freeman-Wilson, 227 F.3d 848
(7th Cir. 2000). It does not have any more sweeping effect.
In particular, as the Court held in Midcal and Crisp, and has
reiterated since, “the Twenty-first Amendment does not in
any way diminish the force of the Supremacy Clause”’.
44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 516
(1996). Illinois has not set out to curtail beer imports from
Poland; Stawski argues, to the contrary, that Illinois law
compels a Polish brewer to continue providing it with
supplies. That is some distance from the language of § 2,
which does not relieve Illinois of its obligation to respect
federal statutes and treaties, “the supreme Law of the Land”
(U.S. Const. Art. VI cl. 2). Suppose that Illinois had
attempted to require all disputes arising out of the Beer
Industry Fair Dealing Act to be litigated in state court. Could
such a statute block Zywiec from removing to federal court
under 28 U.S.C. § 1441(a), given the complete diversity of
citizenship? Surely not. Cf. Breuer v. Jims Concrete of
Brevard, Inc., 123 S.Ct. 1882 (2003). Yet a federal court
would be a forum different from the one specified by Illinois
law, just as arbitration occurs in a different forum. If removal
under federal law is proper, then arbitration under federal
a
6a
Appendix A
law must be proper—in either event, it is the Supremacy
Clause that subordinates the state’s preference to the
federal rule.
Thus the contract’s forum-selection clause is enforceable,
even though its choice-of-law clause is not. At oral argument,
Zywiec’s counsel suggested that the two are so intertwined
that it would be pointless to arbitrate in Poland if the panel
could not apply Polish law. Counsel retreated from this
position later, however, and we hesitate to bind him to what
may have been a poor choice of words. We leave to the
parties, and the district court on remand, consideration of
the question whether choice of law may be separated from
choice of forum. The judgment of the district court is vacated,
and the matter is remanded for proceedings consistent with
this opinion.
A true Copy:
Teste:
Clerk of the United States Court of
Appeals for the Seventh Circuit
Ta
APPENDIX B — MEMORANDUM OPINION AND
ORDER OF THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS,
EASTERN DIVISION DATED MAY 22, 2003
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
No. 02 C 8708
Judge Joan H. Lefkow
STAWSKI DISTRIBUTING CO., INC.,
Plaintiff,
vs.
ZYWIEC BREWERIES PLC,
Defendant.
MEMORANDUM OPINION AND ORDER
On December 2, 2002, plaintiff, Stawski Distributing Co.,
Inc. (“Stawski’’), filed this action against defendant, Zywiec
Breweries PLC (“Zywiec”), seeking to enjoin Zywiec from
wrongfully terminating a beer distribution relationship under
the Illinois Beer Industry Fair Dealing Act, 815 ILCS 720 et
seq. (“IBIFDA” or the “Act”). Stawski, an Illinois corporation
with its principal place of business in Chicago, is an importer
and distributor of wine, spirits, beer and mineral water. Zywiec,
a Polish corporation with its principal place of business
in Poland, is a brewer of malt beverages and exports into the
United States Zywiec Beer, Krakus Beer and Porter Beer
(the “Products”). Stawski formerly served as the exclusive
8a
Appendix B
distributor of Zywiec’s Products in the United States, but
currently imports and distributes only to the states of Illinois,
Michigan, Wisconsin, Indiana, Ohio, Minnesota and Colorado.
The parties executed an “Import and Wholesale Distribution
Agreement” dated July 7, 1997 (the ““Agreement’’), containing
a perpetual term that either party could terminate on 12-month’s
written notice. The Agreement also contained an arbitration
clause purporting to have any disputes settled by the Arbitration
Court of the Polish Chamber of Foreign Trade in Warsaw under
Polish Civil Law.
On July 10, 2002, Zywiec sent Stawski a letter attempting
to terminate the Agreement on 12-month’s notice. Stawski
maintains that the letter does not state the reasons for the
termination and does not provide Stawski with an opportunity
to cure in violation of the IBIFDA. Stawski alleges that the
IBIFDA governs the relationship between the parties and
requires a supplier to provide a statement of reasons for the
cancellation of an agreement, a good-faith effort to resolve all
disputes under any agreement, and a period to cure the stated
reasons for termination. E.g., 815 ILCS 720/3(2), 720/4.
Therefore, Stawski filed this suit under the IBIFDA seeking
declaratory relief, a permanent injunction, and damages under
theories of unjust enrichment- misappropriation of goodwill,
breach of covenant of good faith and fair dealing, unjust
enrichment-misappropriation of intellectual property nghts and
breach of contract.
Zywiec, in belief that the filing of this action breached
the Agreement, filed an arbitration demand with the
Polish Arbitration Court in Warsaw on February 13, 2003.
The arbitration is scheduled to take place in Poland on June 3,
9a
Appendix B
2003. Currently, Zywiec has moved this court to stay the instant
action and compel arbitration as per the terms of the Agreement.
Stawski has cross-moved for the court to stay the arbitration on
grounds that it has the right under the IBIFDA to bring this
action alleging violation of the Act in this forum. Moreover,
Stawski claims that the arbitration clause in the Agreement is
invalid and violates the IBIFDA. Because this action is between
a citizen of Illinois and a citizen of a foreign state and the amount
in controversy exceeds $75,000, this court’s jurisdiction rests
in 28 U.S.C. § 1332(a)(2). For the reasons stated below, Zywiec’s
motion to stay this case and to compel arbitration is denied while
Stawski’s motion for a stay of arbitration is granted.
DISCUSSION
Stawski moves to stay the arbitration in this case on grounds
that it has the right to bring an action for Zywiec’s alleged
violations of the IBIFDA in this forum. Stawski claims that
Zywiec has (1) improperly terminated the Agreement without
cause, without an opportunity to cure and without compensation,
see 815 ILCS 720/4; (2) violated the IBIFDA by presenting
Stawski with an agreement failing to comply with the IBIFDA
because the Agreement required arbitration of all disputes,
see 815 ILCS 720/5(12);' and (3) violated procedural provisions
1. 815 ILCS 720/5 provides
No brewer shall:
* * *
(12) Present an agreement requiring the wholesaler to
arbitrate all disputes without offering the wholesaler in
writing the opportunity to reject arbitration and elect to
resolve all disputes by maintaining a civil suit in
accordance with this Act.
paicaaaaaamamarmmaaaaaaaaaa saat ia. igi
10a
Appendix B
of the IBIFDA because that Act allows both parties the
absolute right to reject arbitration of any particular claim
and to have any claim arising out of the statute to be decided
in a court of competent jurisdiction in Illinois. See 815 ILCS
720/9(1) & (6).2
2. 815 ILCS 720/9(1) provides,
If the brewer or wholesaler who is party to an agreement
pursuant to this Act fails to comply with this Act or
otherwise engages in conduct prohibited under this Act,
the affected party may maintain a civil suit in court if
the cause of action directly relates or stems from the
relationship of the individual parties under the
agreement, provided that any such suit shall be filed in
a State or federal court of competent jurisdiction located
in Illinois.
815 ILCS 720/9(6) provides,
With respect to any dispute arising under this Act or out
of the relationship between brewer and wholesaler, the
wholesaler and the brewer each has the absolute right
before it has agreed to arbitrate a particular dispute to
refuse to arbitrate that particular dispute. Arbitration shall
be conducted in accordance with the -Commercial
Arbitration Rules of the American Arbitration
Association and the laws of this State, and judgment upon
the award rendered by the arbitrator may be entered in
any court having jurisdiction. A brewer may not, as a
condition of entering into or renewing an agreement,
require the wholesaler to agree to arbitration instead of
judicial remedies.
lla
Appendix B
Zywiec, while disputing that the IBIFDA does not allow
for parties to agree to general pre-dispute arbitration clauses,
see Geneva Int'l Corp. v. Urquell, No. 00 C 0152, 2000 WL
1898573, at *2-*3 (N.D. Ill. Dec. 26, 2000), concedes that
the statute attempts to restrict the ability of suppliers to
present arbitration agreements to distributors. Based on the
IBIFDA’s restrictions on the ability of suppliers to enforce
their arbitration agreements, Zywiec contends that the
IBIFDA is preempted by the Federal Arbitration Act (“FAA”),
9 U.S.C. §§ 1 et seg. Zywiec, therefore, asks the court to
apply the FAA so as to stay this action and compel arbitration.
If this were the usual case, the court would have little
difficulty disposing of these motions. The parties entered into
the Agreement that contained an arbitration clause. The FAA
provides that
A written provision in any . . . contract evidencing
a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of
such contract or transaction, . . . or any agreement
in writing to submit to an arbitration an existing
controversy arising out of such a contract,
transaction or refusal, shall be valid, irrevocable,
and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any
contract.
9 U.S.C. § 2. This statute “compels judicial enforcement of
a wide range of written arbitration agreements.” Circuit City
Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001). While
Stawski argues that it may bring suit in this court for
12a
Appendix B
violations of the IBIDFA and that the arbitration and forum
selection clauses are invalid pursuant to the Act, under normal
circumstances, because such a state statute would be in
conflict with the FAA, it would be preempted under the
Supremacy Clause. See, e.g., Southland Corp. v.. Keating,
465 U.S. 1, 10 (1984) (“In enacting § 2 of the [FAA],
Congress declared a national policy favoring arbitration and
withdrew the power of the states to require a judicial forum
for the resolution of claims which the contracting parties
agreed to resolve by arbitration.”); Saturn Distrib. Corp. v.
Paramount Saturn, Ltd ., 326 F.3d 684, 687 (5th Cir. 2003)
(“{T]he strong federal policy favoring arbitration preempts
state laws that act to limit the availability of arbitration.”);
Brayman Constr. Corp. v. Home Ins. Co., 319 F.3d 622,
627 (3d Cir. 2003) (“The FAA prevents state law from
undermining parties’ contracts to arbitrate.”); Koveleskie v.
SBC Capital Markets, 167 F.3d 361, 367 (7th Cir. 1999) (“[If
a state singles out arbitration agreements, either statutorily
or judicially, by imposing restrictions separate from general
contract law, that state law is preempted by the FAA.”).
This case, however, presents an issue that complicates
the matter. As the IBIFDA deals expressly with Illinois’s
power to regulate the liquor industry, it is “promulgated
pursuant to authority of the State under the provisions of the
Twenty-first Amendment to the United States Constitution
and to promote the public’s interest in fair, efficient and
competitive distribution of malt beverage products.”
815 ILCS 720/2(A). Section 2 of the Twenty-first Amendment
to the United States Constitution provides that the
“transportation or importation into any State, Territory, or
possession of the United States for delivery or use therein of
13a .
Appendix B
intoxicating liquors, in violation of the laws thereof, is hereby
prohibited.” As the Supreme Court has stated on numerous
occasions, this gives a state “ ‘virtually complete control’
over the importation and sale of liquor and the structure of
the liquor distribution system.” North Dakota v. United
States, 495 U.S. 423, 431 (1990), citing California Retail
Liquors Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S.
97, 110 (1980). The question, therefore, becomes what effect
the Twenty-first Amendment has on the FAA in this case.
Stawski advances the claim that while the FAA might
otherwise preempt any statute restricting arbitration, in
this case the Twenty-first Amendment preempts the FAA,
which, in turn, causes the IBIFDA provisions to be “saved.”
Naturally, Zywiec disagrees and argues that the FAA applies
and is not preempted under the Twenty-first Amendment.
Apparently no case law exists dealing with a situation in
which the Twenty-first Amendment conflicts with the FAA,
although Stawski does cite to an analogous situation where
a portion of the bankruptcy code was found to be preempted
by the Twenty-first Amendment. See In re G. Heileman
Brewing Co., Inc., 128 B.R. 876, 885 (S.D.N.Y. 1991) (“The
Twenty-first Amendment raises Oregon’s direct interest in
alcohol regulation within its borders to a greater plateau than
the competing bankruptcy interest.”). Moreover, Stawski
points to several Supreme Court cases discussed below which
have developed a framework for analyzing statutes enacted
under the Twenty-First Amendment when a conflict with
federal law is present.
In deciding whether a state statute enacted pursuant to
the Twenty-first Amendment should prevail when in conflict
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ee
14a
Appendix B
with federal law, a two-step analysis should be applied. First,
the “threshold” matter is whether the statute does, in fact,
conflict with federal law. 324 Liquor Corp. v. Duffy, 479 U.S.
335, 341 (1987). If a conflict does exist, the relevant inquiry
is “whether the interests implicated by a state regulation are
so closely related to the powers reserved by the Twenty-first
Amendment that the regulation may prevail, notwithstanding
that its requirements directly conflict with express federal
policies.” 324 Liquor Corp., 479 U.S. at 347, quoting Capital
Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714 (1984).
As mentioned above, both parties agree that the IBIFDA
conflicts with the FAA. The FAA provides for the judicial
enforcement of written arbitration agreements entered into
between parties so long as the contract in which those
agreements are contained “involves commerce” and no
generally applicable contract defense applies. 9 U.S.C. § 2;
Doctor's Assocs. v. Casarotto, 517 U.S. 681, 685-86 (1996).
Moreover, the New York Convention, enabled through the
FAA, see 9 U.S.C. § 201, requires a court to refer a dispute
to arbitration when (1) there is an agreement to arbitrate,
(2) providing for arbitration in the territory of a signatory of
the Convention, (3) arising out of a legal relationship
considered to be commercial, and (4) one party is not an
American citizen or the commercial relationship has
reasonable relation to one or more foreign states. 9 U.S.C. §
202; Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-97 (Ist
Cir. 1982).
The IBIFDA conflicts with the broad policy of
enforceability of arbitration clauses under the FAA in a
number of ways. Initially, when a violation of the Act occurs,
lSa
Appendix B
the IBIFDA allows for suit to be filed in a state or federal
court in Illinois. 815 ILCS 720/9(1). Thus, in a situation such
as this one in which the agreement between the parties
contains an arbitration clause specifying that disputes should
be handled through arbitration in a particular forum, the
IBIFDA conflicts with those provisions by allowing for suit
to be brought in Illinois. In addition, the IBIFDA prohibits a
brewer from even presenting an agreement requiring a
wholesaler to arbitrate all disputes without offering the
wholesaler in writing the opportunity to reject arbitration and
elect to have all disputes decided by maintaining a civil
action. 815 ILCS 720/5(12). This would run contrary to the
FAA’s broad policy of allowing for the enforceability of
arbitration disputes agreed to by parties. Finally, Stawski
reads the IBIFDA as providing that a wholesaler and brewer
each has the absolute right before it has agreed to arbitrate a
dispute to refuse to arbitrate that particular dispute. 815 ILCS
720/9(6). In addition, the Act provides that if arbitration is
agreed to, it must be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association and the laws of Illinois. Jd. Zywiec disagrees
with Stawski’s interpretation concerning the absolute right
to refuse to arbitrate and argues that pre-dispute arbitration
clauses are valid under the IBIFDA. See Geneva Int’l Corp.,
2000 WL 1898573, at *2-*3.° Nevertheless, Zywiec does not
dispute that the IBIFDA invalidates a distributorship
3. Zywiec also cites Geneva for the conclusion that the FAA
preempts any restrictions on arbitration, clauses contained in the
IBIFDA. While that is the ultimate conclusion the court reached in
that case, there was no analysis presented under the Twenty-first
Amendment. Thus, the court does not believe Geneva is instructive
of the issue as presented here.
l6a
Appendix B /
agreement’s arbitration provisions which would normally be
valid under the FAA. Given that the other conflicts listed
above exist between the IBIFDA and the FAA, the court need
not definitively decide whether this clause also presents a
conflict.
Since conflicts do exist between the IBIFDA and the
FAA, the next question for the court to determine is whether
the interests implicated by the IBIFDA are so closely related
to the powers reserved by the Twenty-first Amendment that
the IBIFDA may prevail notwithstanding any conflict with
the FAA. Phrased another way by the Supreme Court, when
conflict between the Twenty-first Amendment and federal
interests is present, “[t]he competing state and federal
interests can be reconciled only after careful scrutiny of those
concerns in a ‘concrete case.’ ” Midcal Aluminum, 445 U.S.
at 946, quoting Hostetter v. Idlewild Liquor Corp., 377 U.S.
324, 332 (1964).
In Midcal Aluminum, the Court considered a challenge
to a state statute enacted under the Twenty-first Amendment
which conflicted with federal antitrust interests under the
Sherman Act, 15 U.S.C. §§ 1 et seg. The state statute in
question provided that no “state-licensed wine merchant may
sell wine to a retailer at other than the price set ‘either in an
effective price schedule or in an effective fair trade
contract... .’”’ Midcal Aluminum, 445 U.S. at 99, quoting
Cal. Bus. & Prof. Code Ann. § 24862 (West. Supp. 1980).
The Court first examined the policies behind the Sherman
Act, noting that the federal interest in competition promoted
by the antitrust laws was both “familiar and substantial.”
Id. at 110. Moreover, while these antitrust laws were statutory
17a
Appendix B
and not constitutional creations, the Court noted that
Congress had “ ‘exercised all the power it possessed’ under
the Commerce Clause when it approved the Sherman Act.”
Id. at 111, quotins Atlantic Cleaners & Dyers v. United States,
286 U.S. 427, 435 (1932). Thus, the Court “acknowledge[{d]
the importance of the [Sherman Act’s] procompetition
policy.” Jd.
The Court went on to compare the federal interest in
competition under the Sherman Act with the state’s interest
protected by the price maintenance system. The Court relied
on another California Supreme Court case in finding that
the interests protected by the California statute were
temperance and orderly market conditions, specifically
“protect[ing] small licensees from predatory pricing policies
of large retailers.” /d. at 112, citing Rice v. Alcoholic Beverage
Control Appeals Bd., 21 Cal. 3d 431, 451, 146 Cal. Rptr.
585, 598, 579 P.2d 476, 490 (1978). The Court relied on the
California Supreme Court’s previous opinion that such price
controls did not promote temperance. Jd. The Court also
relied on the California Supreme Court’s conclusion that such
price controls were not necessary to the economic survival
of small retailers, finding “no persuasive justification to
continue ‘fair trade laws which eliminate price competition
among retailers.’ /d. at 113, quoting Rice, 21 Cal. 3d at
457, 146 Cal. Rptr. at 603, 579 P.2d at 494. Thus, the Court
concluded that the “unsubstantiated” state concerns put
forward in the case did not rise to the stature of the goals of
the Sherman Act, and the Twenty-first Amendment “provides
no shelter for the violation of the Sherman Act caused by the
wine pricing program.” /d. at 113-14.
18a
Appendix B
In Capital Cities Cable, Inc., the Court examined a state
statute enacted under the Twenty-first Amendment that
prohibited television broadcast of wine commercials in the
state, thereby causing great difficultly to cable television
operators who retransmitted out-of-state signals. 467 U.S.
at 695-96. This state statute was in conflict with existing
federal regulations of cable broadcasting promulgated by the
Federal Communications Commission (“FCC”) pursuant to
powers delegated under the Communications Act of 1934,
47 U.S.C. §§ 151 et seq. The Court found the federal interest
in the FCC regulations governing signal carriage by cable
television operators to be substantial, as this regulatory
scheme struck “a balance between protecting non-cable
households from loss of regular television broadcasting
service due to competition from cable systems and ensuring
that the substantial benefits provided by cable of increased
and diversified programming are secured for the maximum
numbers of viewers.” Jd. at 714.
By comparison, the Court found that Oklahoma’s
advertising ban on out-of-state signals was designed to further
the state’s interest in “discouraging consumption of
intoxicating liquor.” Jd. at 714-15. The Court characterized
this interest as “modest” or “narrow” given that the
consumption of alcohol in Oklahoma increased in the last
20 years despite a ban on advertising of such beverages and
Oklahoma had not chosen to press its campaign against
alcohol on all fronts because print and broadcast commercials
were still allowed for beer as well as advertisements for all
liquors contained in newspapers, magazines and other
19a
Appendix B
publications printed outside of the state. /d. at 715. The court
noted,
In contrast to state regulations governing the
conditions under which liquor may be imported
or sold within the State, therefore, the application
of Oklahoma’s advertising ban to the importation
of distant signals by cable television operators
engages only indirectly the central power reserved
by § 2 of the Twenty-first Amendment-that of
exercising “control over whether to permit
importation or sale of liquor and how to structure
the liquor distribution system.” Midcal Aluminum,
445 U.S. at 110.
When this limited interest is measured against
the significant interference with the federal
objective of ensuring widespread availability of
diverse cable services throughout the United
States-an objective that will unquestionably be
frustrated by strict enforcement of the Oklahoma
statute-it is clear that the State’s interest is not of
the same stature as the goals identified in the
FCC’s ruling and regulations. As in Midcal
Aluminum, therefore, we hold that when, as here,
a state regulation squarely conflicts with the
accomplishment and execution of the full
purposes of federal law, and the State’s central
power under the Twenty-first Amendment of
regulating times, places, and manner under which
liquor may be imported and sold is not directly
implicated, the balance between state and federal
20a
Appendix B
power tips decisively in favor of the federal law,
and enforcement of the state statue is barred by
the Supremacy Clause.
Id. at 715-16.4
In this case, the court is presented with nothing to suggest
that the federal interest in the FAA is insubstantial. The FAA
was enacted in “response to hostility of American courts to
the enforcement of arbitration agreements, a judicial
disposition inherited from then longstanding English
practice.” Circuit City Stores, Inc., 532 U.S. at 111. In passing
the FAA, Congress “declared a national policy favoring
arbitration. . . .” Southland Corp., 465 U.S. at 10. The FAA’s
“involving commerce” provision has been given broad effect
to apply to a wide range of contracts. Allied-Bruce Terminix
Co. v. Dobson, 513 U.S. 265, 273-74 (1995). Moreover,
similar to the Sherman Act, the FAA, as interpreted by the
Supreme Court, implements Congress’s intent “to exercise
4. For other cases providing a similar analysis where statutes
enacted under the Twenty-first Amendment conflict with federal
interests, see, e.g., 324 Liquor Corp., 479 U.S. at 350-51 (1987)
(concluding that price control statute with “unsubstantiated” interests
in protecting small retailers and promoting temperance did not afford
immunity from the Sherman Act); Brown-Forman Distillers Corp. v.
New York State Liquor Auth., 476 U.S. 573, 584-85 (1986) (finding
New York statute preempted under federal law because it attempted
to control sales in other states and not to regulate transportation and
sale of alcoholic beverages in New York); Bacchus Imports, Ltd. v.
Dias, 468 U.S. 263, 276 (1984) (“State laws that constitute mere
economic protectionism are therefore not entitled to the same
deference as laws enacted to combat the perceived evils of an
unrestricted traffic in liquor.”).
2la
Appendix B
[its] commerce power to the full.” Circuit City Stores,
532 US. at 112, quoting Allied-Bruce, 513 U.S. at 277. All
_ of the above persuades the court that the federal interest in
the enforceability of arbitration clauses is substantial.
Unlike the situations in Midcal Aluminum and Capital
Cities Cable, Inc., however, the court believes that the
IBIFDA is sufficiently within the core values of the Twenty-
first Amendment for the state statute to prevail over the FAA
and the corresponding federai interests. The IBIFDA’s
purpose is to “promote the public’s interest in fair, efficient
and competitive distribution of malt beverage products by
regulation and encouragement of brewer and wholesaler
vendors to conduct their business relations.” 815 ILCS 720/
2(A). The Act purports to reach these goals by “assuring the
beer wholesaler is free to manage its business enterprise,
including the wholesaler’s right to independently establish
its selling prices” and by “assuring the brewer and the public
of service from wholesalers who will devote reasonable
efforts and resources to sales and distribution of all the
brewer’s products, which wholesaler has been granted the
right to sell and distribute and maintains satisfactory sales
levels.” 815 ILCS 720/2(A)(1) & (11).
In choosing a three-tiered system of alcohol distribution
which includes suppliers, wholesalers and retailers, Illinois
has properly exercised the powers it has been granted under
the Twenty-first Amendment to structure the liquor
distribution system or to facilitate “orderly market
conditions,” what the Seventh Circuit has referred to as a
“euphemism for reducing competition and facilitating tax
collection.” See Bridenbaugh v. Freeman-Wilson, 227 F.3d
22a
Appendix B
848, 851 (7th Cir. 2000). As the goal of the Act is to encourage
a stable brewer/wholesaler relationship so as to protect the
liquor distribution system Illinois has chosen to implemeni,
it certainly is sufficiently related to core state interests under
the Twenty-first Amendment. See North Dakota, 495 U.S. at
431, Captial Cities Cable, 467 U.S. at 715, Midcal Aluminum,
445 US. at 110.
In response, Zywiec urges the court to examine only the
restrictions on arbitration and forum selection contained in
the IBIFDA to determine whether these restrictions are
sufficiently related to core concerns under the Twenty- first
Amendment. Zywiec argues that such restrictions are not
related to core Twenty-first Amendment concerns involving
the importation of liquor or the structure of any liquor
distribution system. Even if the court were to assume,
however, that such arbitration and forum restrictions
contained in the IBIFDA should necessarily be looked at
outside of the general purposes of the Act, this argument is
problematic.
The IBIFDA’s purpose is to promote fair and efficient
brewer and wholesale relationships in Illinois. As evidenced
by the Act’s restrictions on forum and arbitration clauses and
the restrictions it imposes on terminations of distributorships,
at least part of the Act is meant to deal with perceived
inequitable bargaining positions between brewers and
wholesalers in their contracts. This is at the center of
Stawski’s claim, that as a wholesaler, it is not in a position
to counter the demands of the brewer, despite what Stawsk:
claims has been a long and prosperous relationship for each.
Moreover, regardless of any agreement entered into between
23a
Appendix B
a wholesaler and a brewer, Illinois certainly maintains a
strong interest in regulating that relationship when the
wholesaler is located in Illinois. To examine the restrictions
on arbitration in a vacuum would be to eviscerate the
protections Illinois hoped to provide by passage of the
IBIFDA. If any arbitration clause were looked at as outside
of the Act in this analysis, such clauses could easily be
inserted into contracts and the IBIFDA would not apply in
the very situations where the Act attempts to level a playing
field Illinois public policy already considers slanted. It would
also inhibit Illinois’s ability to structure its liquor distribution
system because the Act could be avoided (or bargained away)
by simply placing a forum selection or arbitration clause in
the contract, thereby restricting Illinois’s ability to structure
its three-tiered liquor distribution system. Without such
restrictions the IBIFDA and the protections it attempts to
impose would be rendered meaningless.”
Because the court concludes that a conflict exists
between the provisions of the IBIFDA and the FAA and
5. The court finds unpersuasive Zywiec’s claim that if Illinois
could regulate arbitration disputes under the Twenty-first Amendment
it could regulate any method of dispute resolution and “abolish due
process.” Instead, when dealing with other sources of federal power
outside of the Commerce Clause, “the reach of the Twenty-first
Amendment is far more limited.” Kendall-Jackson Winery, Ltd. v.
Branson, 82 F. Supp. 2d 844, 874 (N.D. Ill. 2000). See also, 44
Liquormart, Inc. Vv. Rhode Island, 517 U.S. 484, 516 (1996)
(“[A]lthough the Twenty-first Amendment limits the effect of the
dormant Commerce Clause on a State’s regulatory power over the
delivery or use of intoxicating beverages within its borders, the
Amendment does not license the State to ignore their obligations
under other provisions of the Constitution.”).
24a
Appendix B
because the IBIFDA implicates issues sufficiently related to
the core concerns reserved to states under the Twenty- first
Amendment, the interests under the IBIFDA trump the
requirements under the FAA in this case. Accordingly,
Stawski’s motion to stay the arbitration scheduled for June
3, 2003 is granted while Zywiec’s motion to stay this case
and compel arbitration is denied.
CONCLUSION
For the reasons stated above, Zywiec’s motion for a stay
of this case and to compel arbitration is denied [# 7] while
Stawski’s motion to stay arbitration is granted [# 12]. The
court orders the arbitration between the parties scheduled
for June 3, 2003 in Warsaw, Poland stayed pending resolution
of this case. This case will be called for status on June 10,
2003 at 9:30 a.m. In the meantime, the parties are directed to
meet in a sincere effort to resolve this case.
ENTER:
JOAN HUMPHREY LEFKOW
United States District Judge
Dated: May 22, 2003
25a
APPENDIX C — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE SEVENTH CIRCUIT
DENYING PETITION FOR REHEARING DATED
DECEMBER 11, 2003
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
CHICAGO, ILLINOIS 60604
December 11, 2003
Before
Hon. Joet M. FLaum, Chief Judge
Hon. FRANK H. EASTERBROOK, Circuit Judge
Hon. Micuae- S. KANNne, Circuit Judge
No. 03-2553
STAWSKI DISTRIBUTING Co., INC.,
Plaintiff-Appellee,
V.
Browary ZywiEc S.A., doing business as
Zywiec Breweries, LLC,
Defendant-Appellant.
26a
Appendix C
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division .
No. 02 C 8708
Joan Humphrey Lefkow, Judge.
Order
Plaintiff-appellee filed a petition for rehearing on
December 4, 2003. All of the judges on the panel have voted
to deny rehearing. The petition for rehearing is therefore
DENIED.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.