Opposition Brief — Stawski Distributing Co. v. Browary Zywiec S. A.

Supreme Court, US.

2 FILED

a} MAR 2 2 2004

No. 03-1192 “=

IN THE

Supreme Court of the United States

STAWSKI DISTRIBUTING CO., INC.,

Petitioner,

V.

BROWARY ZY WIEC 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

BRIEF IN OPPOSITION

—=

“omen

STEVEN A. ROACH

Counsel of Record

Larry J. SAYLOR

DEBORAH L. BENEDICT

MILLER, CANFIELD, PADDOCK & STONE

150 W. Jefferson Avenue, Ste. 2500

Detroit, MI 48226

(313) 963-6420

Attorneys for Respondent

g

@ BEST AVAILABLE COPY

186496

i

QUESTION PRESENTED

Respondent objects. to the question presented in the

Petition as nonconforming to Rule 14(1)(a). Respondent

submits the following:

Whether the Federal Arbitration Act and New York

Convention preempt an Illinois state law limiting arbitration

of disputes between brewers and wholesalers.

Il

STATEMENT PURSUANT TO RULE 29.6

Zywiec Browary S.A. makes the following disclosures:

a) Zywiec Browary S.A. is publicly traded on the Warsaw

Stock Exchange.

b) Heineken International B.V., seated in Amsterdam owns

61.78% of the stock of Zywiec Browary S.A. and is publicly

traded on the Luxembourg Bourse, Euronext Amsterdam

and Euronext Brussels.

c) Harbin B.V. owns 30.82% of the stock of Zywiec Browary

S.A. and is not publicly traded.

ill

TABLE OF CONTENTS

Page

Question Presented .......................5.. 1

Statement Pursuant To Rule 29.6 ............... 11

Table Of Conte@ts .....................0.00. 11

Table Of Cited Authorities .................... Vv

Statement Of The Case ....................... l

Proceedings Below .....................-.. ]

Counter-Statement Of Facts ................... +

Summary Of Reasons For Denying The Petition .. 6

a 9

I. The Petition For Certiorari Should Be Denied

Because The Seventh Circuit’s Holding

Below Correctly Interprets The Reach Of § 2

Of The Twenty-first Amendment According

To Supreme Court Precedent. ............ 9

A. State Law Enacted Pursuant To the

Twenty-first Amendment Does Not

Always Trump Federal Law To the

ais ova s cd oe Choa Gea oss 9

B.

Il. The

lv

Contents

Illinois Does Not Have the Power Under

the Twenty-first Amendment to

Disregard the Federal Arbitration Act

and International Treaty. ............

The Seventh Circuit Followed the

Analysis Established By the Supreme

Court In Reaching Its Conclusion That

the Anti-Arbitration Provisions Were

Not Within Illinois’ Core Power Under

the Twenty-first Amendment. ........

Seventh Circuit Decision Followed

Supreme Court Precedent That The

Arbitration Clause Is Separable From The

Choice Of Law Clause. .................

A.

Conclusion

The Forum Selection Clause and Choice-

of-Law Clause are Separate. .........

The Anti-Arbitration Provisions of the

Illinois Beer Industry Fair Dealing Act

Must Be Considered Separately from the

Illinois Statutory Scheme for Liquor. . .

The Parties Have Agreed to Apply the

Illinois Beer Industry Fair Dealing Act

in the Polish Arbitration. ............

BS OSS OPS, S Rae (SB OR Me OE ae de ah ee ae, OR We a ee

Page

1]

13

14

14

18

TABLE OF CITED AUTHORITIES

Page

Cases:

Bacchus Imports Ltd. v. Dias, 468 U.S. 263 (1984)

California Retail Liquor Dealers Ass'n v. Midcal

Aluminum, Inc., 445 U.S. 97 (1980) .......... 3, 10

Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691

Sn er wees! akan! Ge ine passim

44 Liquormart Inc. v. Rhode Island, 517 U.S. 484

PROD 3 os ee ee ea ee eee passim

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

OTF UB. FAO CIID oo nce ccc sacceecvevers 7

In re G. Heileman, 128 B.R. 876 (Bankr. S.D.N.Y.

| Ee eee TET ng te Ae ee 1]

Kendall-Jackson Winery Ltd. v. Branson, 82 F. Supp.

2d 844 (N.D. Ill. 2000) ........000000.000... 19

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614 (1985) .............. 00055 15

M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1

EEO TSE 8x0 0-59-4 eee ee 17

Mt. Hood Beverage Company v. Constellation

Brands, Inc., 63 P.3d 779 (Wash. Sup. Ct. 2003)

eee eee ETT ER TT eer ere Ore ee 19

VI

Cited Authorities

Page

North Dakota vy. United States, 495 U.S. 423

eae AeA Senay seer a Nein 11,19

in iVe Pe 650 yA woe Rwe oar pee Ck eae 15

United States Constitution:

Wm. Comer. art. VI, 6b 2 os coco s cc ae ccancsccn. 4

U.S. Const. amend. XXI ... oo... ccc ccc n cess passim

Statutes:

Ae owe Se ena 4

FA. OG ROU goin xs va nnnseednwck 6

Federal Arbitration Act and New York Convention,

28 USL. S5UT CUSTODY ow. ov hcevekccckce ne, passim

Illinois Beer Industry Fair Dealing Act, 815 IL. Comp.

re passim

Illinois Liquor Control Act of 1934, 235 IL. Comp.

Pat OO, POD cco cio va cciys cae 5

Rule:

]

STATEMENT OF THE CASE

The Petition filed by Stawski Distributing Co. misstates

and misrepresents the facts, the opinion of ihe Seventh

Circuit, and opinions of this Court, and should be denied.

As set forth below, the very first factual statement contained

in the Petition is misleading. More importantly, the Seventh

Circuit followed and applied the controlling authority of this

Court, including the most recent opinion on the relevant issue,

being 44 Liquormart Inc. v. Rhode Island, 517 U.S. 484

(1996), an opinion that Petitioner tellingly fails to cite, let

alone to discuss. Indeed, the Seventh Circuit examined the

offending state statutory section, which is contained in

protectionist legislation, and found that it violates not only

the Federal Arbitration Act, but also the New York

Convention. The Seventh Circuit then examined whether the

Twenty-first Amendment, U.S. Const. amend. XXI, § 2,

saved the statutory section, and held that the offending section

was “some distance from the language of § 2 [of the Twenty-

first Amendment]”. The Seventh Circuit properly reversed

the District Court. Despite Petitioner’s efforts to mislead this

Court, the Seventh Circuit applied controlling Supreme Court

authority, correctly applied that authority, and reached the

correct conclusion. Therefore, Respondent respectfully

requests this Honorable Court to deny the Petition.

Proceedings Below

Browary Zywiec S.A. (“Zywiec”)', a Polish beer

manufacturer, had a contractual relationship with Stawski

Distributing Company, Inc. (“Stawski”), an importer and

1. Zywiec was improperly referred to in the caption of the

Complaint as Zywiec Breweries LLC. Zywiec’s corporate name is

Browary Zywiec S.A.

2

master distributor of wine, spirits, beer and mineral water,

for the importation and distribution of Zywiec beer products

in seven states of the United States, including Illinois. Zywiec

was dissatisfied with Stawski’s performance, and terminated

Stawski in accordance with the termination clause in the

agreement. On December 2, 2002, Stawski filed a Complaint

against Zywiec in United States District Court, Northenr

District of Illinois. Plaintiff’s Complaint alleges claims of

wrongful termination under the Illinois Beer Industry Fair

Dealing Act, 815 IL. Comp. Stat. ANN. 720 (2003) (the “Act’),

and under equitable and common law theories, as well as a

breach of the Import Agreement between the parties.

On February 19, 2003 Zywiec was served in Poland pursuant

to the Hague Convention. Zywiec filed a Motion to Stay and

Compel Arbitration on March 11, 2003. On April 10, 2003,

Stawski filed a Cross-Motion to Stay Arbitration and in

Opposition to Defendant’s Motion to Proceedings and

Compel Arbitration. Stawski argued that Section 9(b) of the

Act invalidated the arbitration clause in the Import

Agreement. On May 22, 2003, the District Court entered an

Opinion and Order denying Zywiec’s Motion to Stay and to

Compel Arbitration, and granting Stawski’s Cross-Motion

to Stay Arbitration Proceedings, by enforcing the Act’s

anti-arbitration provision. (Memorandum Opinion and Order)

(hereinafter “D. Ct. Op.”).

On November 30, 2003, the Seventh Circuit Court of

Appeals vacated the District Court’s order to stay arbitration

and remanded. (Seventh Circuit Opinion and Judgment,

published as Stawski Distrib. Co. v. Browary Zywiec S.A.,

349 F.3d 1023 (2003)) (hereinafter “7 Cir. Op.”).

On December 11, 2003, the Seventh Circuit denied

Petitioner’s motion for rehearing en banc. In its petition to

this Court, Petitioner asks for a review of the Seventh

3

Circuit’s vacation of the Order to Stay Arbitration as contrary

to established Supreme Court precedent addressing instances

of conflict between state laws enacted pursuant to the Twenty-

first Amendment and federal law or international treaty.

In the Court of Appeals, Petitioner argued that the

anti-arbitration provisions are necessary to the Illinois Beer

Industry Fair Dealing Act’s alleged purpose of promoting

long-term beer distributors, and as such, further Illinois’

power under the Twenty-first Amendment. Petitioner urged

the Court of Appeals to affirm the District Court’s decision

that the anti-arbitration provisions of the Illinois state law

should prevail over conflicting federal law and treaty, because

the Act as a whole was enacted pursuant to the Twenty-first

Amendment, and therefore furthered a core concern within

the exclusive power of Illinois.

Rejecting the District Court’s opinion, and Petitioner’s

arguments in support, the Court of Appeals correctly found

that the anti-arbitration provisions of the Illinois Beer

Industry Fair Dealing Act were not within IIlinois’ Twenty-

first Amendment powers, noting that the anti-arbitration

provisions of the Act are “some distance from the language

of Section 2, which does not relieve Illinois of its obligation

to respect federal statutes and treaties, ‘the Supreme Law of

the Land.’” 7" Cir. Op. at 5. The Court of Appeals concluded

that the Act’s anti-arbitration provisions were not protected

under the Twenty-first Amendment.

The Court of Appeals relied specifically on the analysis

in this Court’s precedents as stated in California Retail

Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97

(1980) (holding federal antitrust laws trumped California law

resale price maintenance policies), and Capital Cities Cable,

4

Inc. v. Crisp, 467 U.S. 691 (1984) (holding the federal

communications laws prevailed over an Oklahoma state law

prohibiting certain liquor advertisements) and the Supremacy

Clause (U.S. Const. art. VI, cl. 2). The Court of Appeals

concluded that Illinois could not use the cover of the Twenty-

first Amendment to ignore the mandate of the Federal

Arbitration Act. 9 U.S.C.A. §§ 1-16 (West 1999).

The Seventh Circuit relied on and followed Supreme Court

precedent in reaching that conclusion. The Court of Appeals

also noted that had Illinois attempted to require all disputes

arising out of the Act to be litigated in state court, the law

would have similarly been preempted under federal law.

For the reasons stated herein, this Court should deny the

petition for certiorari as lacking in merit.

COUNTER-STATEMENT OF FACTS

Contrary to Petitioner’s assertion, from 1959 to 1992,

Stawski contracted with the Polish Government to import

Zywiec products into the United States. Stawski and Zywiec

did not enter into their first contract with one another

until 1992. That initial contract had a term of five years.

At Stawski’s initiative, just prior to expiration of the 1992

Agreement, Zywiec and Stawski negotiated the 1997 Import

Agreement. The Import Agreement provided that either party

could terminate at will by giving twelve months notice to

the other party. Although Petitioner implies otherwise, the

parties expressly agreed that any claims relating to the

Agreement should be arbitrated in Poland. In particular, the

Import Agreement states under the heading “Termination and

Arbitration”, “7.2 Any dispute arising out of this Agreement

which can not be settled amicably between the parties shall

be settled by the Arbitration Court of the Polish Chamber of

5

Foreign Trade in Warsaw. The parties undertake to execute

its decision voluntarily.” The Agreement also contained a

choice of Polish law.

On July 10, 2002, Respondent notified Stawski in writing

that the Import Agreement would be terminated, effective

twelve months thereafter. The notice of termination was

accompanied by a cover letter of the same date, which did in

fact provide the specific reasons for the termination, despite

Petitioner’s claim that it did not. Although the termination

comported with the parties’ agreement as expressed in their

Import Agreement — including the twelve month termination

notice — Stawski now alleges that the termination violates

the Illinois Beer Industry Fair Dealing Act.

The Act is an Illinois statute whose purpose is to restrict

; the ability of importers and brewers to terminate Illinois

; distributors. Petitioner asserts that the Act is a necessary

/ component to the Illinois three-tier liquor distribution system,

which is codified in the Illinois Liquor Control Act of 1934,

235 It. Comp. Stat. ANN. 5 (2003). There is no basis for such

an assertion by Petitioner. Petitioner’s further assertion that

approximately forty states have enacted statutes similar to

the Act establishing a three-tier liquor distribution system

and redressing imbalances between powerful brewers and

their distributors is simply not true. While it may be true

that forty states currently have a three-tier liquor distribution

system (although Petitioner does not offer citations), areview

2 of the law of the fifty states regarding the relationships

between liquor distributors and liquor manufacturers reveals

that only a handful have anti-arbitration provisions similar

to the Act.

Le re So iat

eras OS eee en ee

6

On October 1, 2003 Zywiec issued a second termination

letter to Stawski which also complied with the Illinois Beer

Industry Fair Dealing Act. Although the termination was to

become effective on January 15, 2004, the termination was

not implemented because the District Court entered an Order

Granting Preliminary Injunction dated November 26, 2003

enjoining the parties to continue their course of performance

under the Import Agreement.

Upon remand, Zywiec agreed to stipulate to the

application of Illinois law in the Polish arbitration. Thereafter,

on February 11, 2004, the District Court entered an Order

Compelling Arbitration. The District ordered Stawski to file

a claim for arbitration in Poland to arbitrate all disputes

arising from either termination, or any other dispute under

the Agreement. Stawski has done so.

SUMMARY OF REASONS FOR

DENYING THE PETITION

This case involves the enforceability of an arbitration

clause under the Federal Arbitration Act and New York

Convention, 21 U.S.T. 2517 (1970), implemented by9 U.S.C.

§§ 201-08, in conflict with an Illinois state law which

purports to regulate pursuant to the Twenty-first Amendment.

Section 2 of the Twenty-first Amendment conveys upon states

the power to regulate the transportation or importation of

intoxicating liquors, and “permits the state to restrict imports

without regard to the ‘dormant commerce clause’”.

(7" Cir. Op., at 5). The Seventh Circuit, relying on this

Court’s decision in 44 Liguormart Inc. v. Rhode Island,

jos ety

7

517 U.S. 484 (1996),? and the balancing test articulated in

Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324

(1964), and Capital Cities Cable, Inc. y, Crisp, 467 U.S. 691

(1984), concluded that the anti-arbitration provisions were

not within Illinois’ powers under the Twenty-first Amendment

and were therefore pre-empted by the Supremacy Clause of

the Constitution. In doing so the Court of Appeals noted that

the anti-arbitration provisions were “some distance” from

the power reserved to states under § 2 of the Twenty-first

Amendment.

Petitioner contends that certiorari of the Seventh Circuit’s

opinion is necessary because the Seventh Circuit decision

conflicts with relevant decisions of this Court. See Sup. Cr.

R. 10(c). Throughout its Petition, Petitioner blatantly

misrepresents the Seventh Circuit opinion to assert a conflict

with Supreme Court precedent. There is no conflict.

The Seventh Circuit explicitly followed Supreme Court

precedent in rejecting Petitioner’s argument that the

anti-arbitration provisions of the Illinois Beer Industry

Fair Dealing Act should pre-empt federal law and

international treaty.

Petitioner would lead this Court to believe that the

Seventh Circuit ruled that “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.” The Seventh

Circuit did nothing that extreme. It simply noted that, in the

most recent instances that the issue has been presented, this

2. Despite the fact that the Seventh Circuit cites to

44 Liquormart, and that it is this Court’s most recent relevant

authority on the subject, Stawski completely ignores 44 Liqguormart

in its Petition.

8

Court has concluded that the federal law took precedence

over the state law enacted pursuant to the Twenty-first

Amendment.

Petitioner secondly contends that review is necessary

because the Seventh Circuit relied on the Supremacy Clause

in limiting the scope of the Twenty-first Amendment to a

State’s power to regulate liquor without concern of violating

the dormant commerce clause. The Seventh Circuit was

following Supreme Court precedent, in which this Court

observed that “the Twenty-first Amendment does not in any

way diminish the force of the Supremacy Clause”, citing

44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 516

(1996). Indeed, this Court also noted that: “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...” Ibid.

Finally, Petitioner asserts that the Seventh Circuit has

failed to apply the balancing test as required under Supreme

Court precedent. This Court has previously held in instances

where there is a conflict between a state law directly

implicated by the Twenty-first Amendment and a federal law

or treaty, the Court must balance the competing laws. Capital

Cities, 467 U.S. at 714. In this instance, the Court of Appeals

concluded that the anti-arbitration provisions in question ~

were clearly not within the state’s power under the Twenty-

first Amendment; therefore there was no need to engage in a

detailed analysis of the purpose of the state law in conflict

with the Federal Arbitration Act and international treaty.

Petitioner’s blatant misrepresentation of the Seventh

Circuit opinion robs the Petition of any intellectual merit.

First, Petitioner repeatedly claims that the Seventh Circuit

a

RPE tee . daw

9

held that the Federal Arbitration Act pre-empts Illinois’ state

liquor laws, when, in fact, the Court of Appeals determined

that the Federal Arbitration Act pre-empted only the

anti-arbitration provisions of the Act. Notably, Petitioner

neglects to mention that the Court of Appeals also upheld

the Act’s requirement that Illinois law apply to any dispute

arising between a brewer and its distributor. In addition,

Petitioner submits to this Court a question which assumes

that Illinois is exercising a core power under the Twenty-

first Amendment, when, in fact, the Seventh Circuit decision

rejects this very notion.

The Petition does not meet the standards justifying

review on certiorari. Sup. Cr. R. 10. The Petition should be

denied.

ARGUMENT

I. THE PETITION FOR CERTIORARI SHOULD BE

DENIED BECAUSE THE SEVENTH CIRCUIT’S

HOLDING BELOW CORRECTLY INTERPRETS

THE REACH OF § 2 OF THE TWENTY-FIRST

AMENDMENT ACCORDING TO SUPREME

COURT PRECEDENT.

A. State Law Enacted Pursuant To the Twenty-first

Amendment Does Not Always Trump Federal

Law To the Contrary.

The Seventh Circuit held that the arbitration limitation

in the Illinois Beer Industry Fair Dealing Act was not within

illinois’ power under the Twenty-first Amendment and

therefore was pre-empted by the Federal Arbitration Act and

international treaty. Contrary to Petitioner’s contention, the

10

Seventh Circuit did not hold “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.” Petition,

p. 1. The Seventh Circuit recognized that the States do have

broad powers under the Twenty-first Amendment:

“The Twenty-first amendment gives states the power to

restrict imports without regard to the dormant commerce

clause.” (7" Cir. Op. 5). See also 44 Liquormart, Inc. v. Rhode

Island, 517 U.S. 484, 516 (1996).

In asserting that the Court of Appeals applied “a per se

rule against any state liquor regulation conflicting with

federal policy” (Petition, p. 14), Petitioner gressly

misrepresents the Court of Appeals’ ruling. Petitioner turns

on its head the Seventh Circuit’s ruling — that State law

enacted pursuant to the Twenty-first amendment does not

always trump conflicting federal law. The Seventh Circuit

properly concluded that the Twenty-first Amendment does

not give states the power to disregard important federal laws

in conflict with state laws regarding issues not directly related

to the State’s power to regulate liquor within its borders.

This is consistent with this Court’s decisions in recent years

that state law indirectly related to the state’s powers under

the Twenty-first Amendment does not pre-empt federal law.

See California Retail Liquor Dealers Ass'n vy. Midcal

Aluminum, Inc. 445 U.S.97 (1 980), with respect to the federal

antitrust laws and a conflicting state law creating liquor

pricing policies, and Capital Cities Cable, Inc. v. Crisp,

467 U.S. 691 (1984), with respect to the federal

telecommunications laws in conflict with a state law

restarting liquor advertising.

1]

The case of North Dakota vy. United States, 495 U.S. 423

(1990), relied on by Petitioner, is no exception. In North

Dakota, the state law was directly related to the state’s power

under the Twenty-first Amendment, and the federal law was

only indirectly in conflict. Petitioner also relies on

In re G. Heileman, 128 B.R. 876 (Bankr. S.D.N.Y. 1991),

a New York Bankruptcy Court decision interpreting Oregon

law, where the Court held that a bankruptcy code provision

allowing discretion could be trumped by a state law

prohibiting such discretion. Because the bankruptcy code

statute in question was discretionary, it could be disregarded

even in the absence of a contrary state law.

The Seventh Circuit ruling that it is not true that

“the Twenty-first amendment allow[s] states to foreclose the

application of federal statutes to the liquor business”

is consistent with this Court’s precedent, albeit contrary to

the outcome Petitioner had hoped for.

B. Illinois Does Not Have the Power Under the

Twenty-first Amendment to Disregard the

Federal Arbitration Act and International Treaty.

The Seventh Circuit noted the routine with which

arbitration agreements are now enforced under the Federal

Arbitration Act. 7" Cir. Op. at 3-4. After considering the scope

of Section 2 of the Twenty-first Amendment, the Court of

Appeals rejected Stawski’s argument that Illinois was acting

to further the transport and import of liquor by limiting

arbitration of claims between brewer and distributor.

The Court of Appeals relied on this Court’s prior decisions

in concluding that the Federal Arbitration Act and an

international treaty pre-empt Illinois’ arbitration limitations

under the Act.

12

The last time this issue was before this Court, the Court

observed:

Although 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 States to

ignore their obligations under other provisions of

the Constitution.” Capital Cities Cable, Inc. y.

Crisp, 467 U.S. 691, 712, 104 S.Ct. 2694, 2707,

81 L.Ed.2d 580 ( 1984). That general conclusion

reflects our specific holdings that the Twenty-first

Amendment does not in any way diminish the

force of the Supremacy Clause, the Establishment

Clause, or the Equal Protection Clause.

44 Liquormart, 517 U.S. at 516 (citations omitted).

This quote is repeated almost verbatim by the Court of

Appeals in support of its decision that the Supremacy Clause

trumped Illinois’ attempt to restrict arbitration in violation

of the Federal Arbitration Act and international treaty.

Petitioner ignores this decision, without even so much as a

mention in its Petition.

The scope of the state’s power pursuant to the Twenty-

first Amendment to regulate liquor “without regard to the

dormant commerce clause” does not allow Illinois to

disregard Congress’ exercise of its Commerce Clause powers.

The Seventh Circuit rightly held that because the

anti-arbitration provisions in the Illinois Beer Industry Fair

Dealing Act are not sufficiently related to the “transportation

or importation into any State, Territory, or Possession of the

United Statics for deliver or use therein of intoxicating liquors,

13

in violation of the laws thereof,” they do not prevail over the

important federal policies embodied in the Federal

Arbitration Act and the New York Convention,

an international treaty. Contrary to Petitioner’s assertions,

the Seventh Circuit did not hold that Illinois’ “liquor laws”

were pre-empted by the Federal Arbitration Act and

international treaty — only that the arbitration restriction

contained in the Illinois Beer Industry Fair Dealing Act was

pre-empted. Therefore, federal law which is supreme to state

law in the absence of constitutional protection, must prevail.

C. The Seventh Circuit Followed the Analysis

Established By the Supreme Court In Reaching

Its Conclusion That the Anti-Arbitration

Provisions Were Not Within Illinois’ Core Power

Under the Twenty-first Amendment.

Petitioner contends the Seventh Circuit’s decision is

fundamentally flawed because the Court, “[dJiscard[ed],

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”. As observed above, the

Seventh Circuit closely followed this Court’s most recent

articulation of the standard of review, set forth in

44 Liquormart. In addition, the Seventh Circuit did consider

“whether the interests implicated by [the] 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,” Capital Cities Cable, Inc v. Crisp,

467 U.S. at 714, when the Seventh Circuit concluded:

Illinois has not set out to curtail beer imports from

Poland; Stawski argues, to the contrary, that

14

Illinois law compels a Polish brewer to continue

providing it with supplies. That is some distance

from the language of Section 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).

7" Cir. Op. 5 (emphasis in Original).

Because Illinois’ arbitration limitation in the Act was

“some distance” from the scope of Illinois’ powers under

the Twenty-first Amendment, and because the Court of

Appeals had already observed the validity and importance

of the Federal Arbitration Act and New York Convention, it

was not necessary for the Seventh Circuit to engage in any

additional analysis. The Court of Appeals applied the standard

in Capital Cities when it held that because the arbitration

limitation did not further a core power of Illinois under the

Twenty-first Amendment, the limitation was not protected

from pre-emption under the Supremacy Clause.

II. THE SEVENTH CIRCUIT DECISION FOLLOWED

SUPREME COURT PRECEDENT THAT THE

ARBITRATION CLAUSE IS SEPARABLE FROM

THE CHOICE OF LAW CLAUSE.

A. The Forum Selection Clause and Choice-of-Law

Clause are Separate.

The Seventh Circuit held that the ““forum-selection clause

[in the Import Agreement] is enforceable, even though its

choice of law clause is not... .” (7 Cir. Op. at 6). Petitioner

contends that the cases relied on by the Seventh Circuit do

not “support the view that forum selection and choice of law

15

provisions should be independently analyzed and enforced”.

Petitioner does not cite a single case in which any court has

held that the issues of forum and substantive law were

inseparable. Rather, Petitioner asserts that two Supreme Court

decisions, Mitsubishi and Scherk, “merely recognized that

statutory claims can be arbitrated”, without regard to the

choice of law provisions. See Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985)

and Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974).

Contrary to Petitioner’s assertion, both Mitsubishi and Scherk

recognize that choice of law and choice of forum are

separable. In its opinion in this case, the Seventh Circuit made

it clear that as a general rule, the issues of forum and

substantive law can and must be treated separately:

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, 105

S. Ct. 3346, 87 L.Ed.2d 444 (1985), and Scherk

v. Alberto-Culver Co., 417 US. 506, 94 S. Ct.

2449, 41 L. Ed. 2d 270 (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 either 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

16

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.

(7" Cir. Op. at 3.) Petitioner apparently agrees, as it

acknowledges that “the decision as to choice of law ultimately

resides with the arbitrator.” Only if the choice of law and

choice of forum are separable can the choice of law be left

to the decision of the arbitrators.

Petitioner also asserts that “state statutes such as Illinois

Beer Industry Fair Dealing Act providing for both forum and

choice of law” rather than contractual agreements as to choice

of law and choice of forum are the only way to ensure the

certainty necessary to international transactions.

This argument, however, conflicts with the specific language

of the Supreme Court’s opinions and the Seventh Circuit’s

rationale. First, ignoring a valid arbitration clause in an

international agreement is certainly not the kind of

consistency and predictability the Supreme Court had in

mind. Instead, this Court has explained that predictability

would be fostered by the consistent enforcement of valid

arbitration clauses, the very position urged here by

Respondent. —

17

Second, applying the forum provision of a state statute

to an international agreement that-specifically provides for

foreign arbitration provides no predictability whatsoever.

The same foreign defendant could be dragged into a different

forum, with different procedural rules, with respect to each

contract it has with American parties, despite the fact that

the parties had entered into valid arbitration agreements.

The situation is made even more unpredictable because not

all states have a comprehensive statute governing beer

distributorships. Therefore, a foreign defendant could not

know which agreements would be subject to state forum laws

and which would not. This certainly does not foster

predictability as Petitioner would have this Court believe.

In fact, it does the opposite.

Petitioner essentially argues that under the Twenty-first

Amendment, the public policy interest in enforcing the

Illinois Beer Industry Fair Dealing Act outweighs the

agreement to arbitrate. This argument attempts an end-run

around the Supremacy Clause, the New York Convention,

and the Federal Arbitration Act. The Seventh Circuit held

that the Twenty-first Amendment does not allow the Act’s

forum provision to “trump” the Federal Arbitration Act and

international treaty. The Supreme Court has also held that

domestic public policy “considerations are not controlling

in an international agreement.” M/S Bremen v. Zapata

Off-Shore Co., 407 U.S. 1, 16 (1972). It stands to reason that

if the Act does not directly trump the federal and international

laws requiring enforcement of an agreement to arbitrate, it

cannot do so indirectly as a justification for finding the

arbitration and choice-of-law clauses inseparable.

18

B. The Anti-Arbitration Provisions of the Illinois

Beer Industry Fair Dealing Act Must Be

Considered Separately from the Ilinois Statutory

Scheme for Liquor.

The Court of Appeals recognized that, in enacting the

anti-arbitration provisions of the Illinois Beer Industry Fair

Dealing Act, “Illinois has not set out to curtail beer imports

from Poland”. However, Petitioner argues that a “state liquor

statutory scheme should be analyzed as a whole, not in its

individual parts.” The issue before the Seventh Circuit was

whether the arbitration clause in the parties’ Agreement

should be enforced when in conflict with a state restriction

on arbitration, not the entire Illinois three tier distribution

system. The Seventh Circuit recognized the absurdity of

viewing the Illinois regulatory scheme as whole when it

noted:

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. Jim’s 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 law must be proper.

(7" Cir. Op. at 5-6).

19

Contrary to petitioner’s assertion that entire acts must

be examined, this Court has determined whether a state liquor

regulation conflicts with federal law by examining the

regulation in question, not the entire scheme of regulation.

See Bacchus Imports Ltd. v. Dias, 468 U.S. 263, 275-6 (1984)

(holding that the specific tax exemption under the Hawaii

Liquor tax was not within a core concern of the Twenty-first

Amendment because its purpose was to promote a local

- industry); Kendall-Jackson Winery Ltd. v. Branson,

82 F. Supp. 2d 844, 864-65 (N.D. Ill. 2000) (reviewing the

specific discriminatory sections of the Illinois Wine Industry

Fair Dealing Act in evaluating whether the Act was

permissible under the dormant Commerce Clause); see also

Mt. Hood Beverage Company v. Constellation Brands, Inc.,

63 P.3d 779, 789 (Wash. Sup. Ct. 2003) (holding that when a

statute discriminates against interstate commerce in violation

of the commerce clause, the discriminatory clause, not the

statute as a whole, must be justified by core concerns of the

Twenty-first Amendment in order to survive).

Petitioner’s only support for its argument is dicta in

North Dakota v. United States, 495 U.S. 423, 438-39 (1990),

in which the Court recognizes that the regulations at issue

were an important part of the state’s regulatory scheme.

However, the Court in North Dakota examined the purpose

of the specific provisions, and the conflict between those

provisions and the federal regulations, in reaching its

conclusion that the actual conflict between the labeling and

reporting requirements of state law were only indirectly in

conflict with federal law, and therefore the Court let the state

provision, which did further a core Twenty-first Amendment

concern, stand.

20

C. The Parties Have Agreed to Apply the Illinois

Beer Industry Fair Dealing Act in the Polish

Arbitration.

Petitioner contends throughout its Petition that there is

a potential harm in the Seventh Circuit’s decision, in that it

would “empower brewers to avoid state liquor regulations

by compelling arbitration in foreign tribunals under foreign

law.” This is false. The Seventh Circuit considered the choice

of law clause in the parties and concluded, without

compunction, “[c]Jhoice 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 Court

went on to further state, “[t]he 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.” (7 Cir. Op. at 4) (emphasis

added). Finally, the Seventh Circuit remanded this case to

the District Court to consider whether choice of law may be

separated from choice of forum based upon the Seventh

Circuit’s holding that “the contract’s forum selection clause

is enforceable, even though its choice of law clause is not.”

7" Cir. Op. 6. Indeed, Stawski has now filed an arbitration

Claim in Poland.

21

CONCLUSION

) Respondent respectfully requests that this Court deny

the petition for a writ of certiorari.

Respectfully submitted,

STEVEN A. ROACH

Counsel of Record

Larry J. SAYLOR

DEBORAH L. BENEDICT

MILLER, CANFIELD, PADDOCK & STONE

150 W. Jefferson Avenue, Ste. 2500

Detroit, MI 48226

(313) 963-6420

Attorneys for Respondent

Yaad