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E.F. Transit, Inc. v. Indiana Alcohol and Tobacco Commission

United States District Court, S.D. Indiana, Indianapolis Division

September 13, 2016

E. F. TRANSIT, INC., Plaintiff,
v.
INDIANA ALCOHOL AND TOBACCO COMMISSION, Defendant. E. F. TRANSIT, INC., Plaintiff,
v.
DAVID COOK, in his official capacity as Chairman of the Indiana Alcohol and Tobacco Commission; DAVID COLEMAN, in his official capacity as Vice Chairman of the Indiana Alcohol and Tobacco Commission; DALE GRUBB, in his official capacity as Commissioner of the Indiana Alcohol and Tobacco Commission; and MARJORIE MAGINN, in her official capacity as Commissioner of the Indiana Alcohol and Tobacco Commission, Defendants.

          ENTRY ON PENDING MOTIONS

          RICHARD L. YOUNG, CHIEF JUDGE

         Plaintiff, E. F. Transit, Inc. (“Plaintiff” or “EFT”), is a federally licensed motor carrier engaged in transporting goods primarily for the alcoholic beverage industry. Its largest customer, Monarch Beverage Company, is a beer and wine wholesaler owned by the same shareholders as EFT. EFT wishes to provide transportation services to Indiana Wholesale Wine and Liquor Company, but claims the Defendants, the Indiana Alcohol and Tobacco Commission (“ATC” or “Commission”) and its Commissioners, have blocked it from doing so pursuant to state statutes that prohibit a beer wholesaler from having an interest in a liquor wholesaler's permit. See Indiana Code §§ 7.1-5-9-3, 7.1-5-9-4(2) and 7.1-5-9-6 (the “Prohibited Interest Statutes”).

         In this action, EFT seeks declaratory and injunctive relief under the Federal Aviation Administration Authorization Act (“FAAAA”) to prevent Defendants from invoking Indiana's Prohibited Interest Statutes to bar it from providing transportation services to liquor wholesalers. Presently, there are six motions before the court: (1) Plaintiff's Motion for Summary Judgment; (2) Plaintiff's Motion for Oral Argument on Motion for Summary Judgment; (3) Defendants' Cross-Motion for Summary Judgment; (4) Indiana Beverage Alliance's Motion for Leave to Appear as Amicus Curiae and to File Brief in Support of the State; (5) Wine & Spirits' Motion for Leave to File Amicus Curiae Brief in Support of Defendants' Cross-Motion for Summary Judgment and in Opposition to Plaintiff's Motion for Summary Judgment; and (6) Plaintiff's Motion for Leave to Supplement Designations of Evidence in Support of Motion for Summary Judgment and in Opposition to Defendants' Cross-Motion for Summary Judgment. For the reasons explained below, the court (1) GRANTS Plaintiff's Motion for Leave to Supplement Designations of Evidence; (2) DENIES as MOOT Plaintiff's Motion for Oral Argument; (3) DENIES the Plaintiff's Motion for Summary Judgment; (4)

         GRANTS the Defendants' Cross-Motion for Summary Judgment; (5) DENIES as MOOT Indiana Beverage Alliance's Motion for Leave to Appear as Amicus Curiae and to File Brief in Support of the State; and (6) DENIES as MOOT Wine & Spirits' Motion for Leave to File Amicus Curiae Brief in Support of Defendants' Cross-Motion for Summary Judgment.

         I. Motion for Leave to Supplement

         Before addressing the facts relevant to the present motion, the court will first address EFT's motion for leave to supplement its designations of evidence with Exhibit 65, which is an excerpt of a footnote in a brief filed by the ATC in a judicial review state proceeding on April 26, 2016, after the summary-judgment briefing in this case was completed. According to EFT, Exhibit 65 shows that the Commission actually “made a determination” that EFT's proposed relationship with Indiana Wholesale would violate the Prohibited Interest Statutes. In pertinent part, the footnote reads:

This same type of evidence on ‘formal corporate separateness' was presented by EFT in prior matters before the Commission and was not considered material to the Commission's determination that there would be prohibited interests in the proposed arrangements.

(Filing No. 177-1, ATC's brief in Spirited Sales, LLC v. Ind. Alcohol and Tobacco Comm., Cause No. 49D01-1502-PL-005220, Marion Super. Ct. April 26, 2016, at 15 n. 25). Defendants do not dispute the admissibility of the footnote, but maintain the argument contained in the brief “speaks for itself.” The court will therefore GRANT Plaintiff's motion for leave.

         II. Background

         A. Indiana's Alcohol Regulation System

         Indiana regulates the production, sale, and distribution of alcoholic beverages through its Alcoholic Beverages Law, found at Title 7.1 of the Indiana Code. The ATC, through the Commissioners, is charged with enforcing the law. See Ind. Code §§ 7.1-2-3-2, 7.1-2-1-11.

         Like most other states, Indiana adopted a three-tier system for regulating the production, distribution, and sale of alcohol. The first tier consists of brewers, vitners, and distillers who manufacture alcoholic products. See Id. §§ 7.1-3-2-7, 7.1-3-7-7, 7.1-3-12-2. The second tier is composed of wholesalers who purchase alcoholic products from the manufacturers and sell them to the retailers and dealers. See Id. §§ 7.1-3-3-5, 7.1-3-8-3, 7.1-3-13-3. The third tier is composed of retailers and dealers who sell alcoholic products directly to consumers. See Id. §§ 7.1-3-4-6, 7.1-3-10-7, 7.1-3-15-3. Except in certain specified circumstances, no business may operate in more than one tier, see Id. §§ 7.1-5-9-9, 7.1-5-9-10(a), and a state-issued permit is required for every business at any tier-whether as a manufacturer, wholesaler, or retailer of alcohol, id. § 7.1-3 et seq.

         This case focuses on the second tier: the wholesalers. At the wholesale level, the Commission issues three types of permits: a beer wholesaler's permit, see Id. § 7.1-3-3-1; a wine wholesaler's permit, see Id. § 7.1-3-13-1; and a liquor wholesaler's permit, see Id. § 7.1-3-8-1. Under Indiana's Prohibited Interest Statutes, a wholesaler may possess (1) either a beer, wine, or liquor permit, (2) a beer and wine permit, or (3) a wine and liquor permit. A wholesaler may not, however, hold both a beer and a liquor permit. Id. §§ 7.1- 3-3-19, 7.1-3-13-1, 7.1-5-9-4. Thus, the holder of a beer wholesaler permit cannot hold a direct or indirect interest in a liquor wholesaler permit and vice versa. Id. §§ 7.1-5-9-3, 7.1-5-9-4(a)(2), 7.1-5-9-6, 7.1-1-2-5 (“[W]henever a person is prohibited from doing a certain act or holding a certain interest directly, he shall be prohibited from doing that act or holding that interest indirectly.”). A beer wholesaler found to be in violation of the Prohibited Interest Statutes faces mandatory revocation of its permit. Id. § 7.1-3-23-23.

         The ATC also regulates the warehousing facilities used by wholesalers. Indiana prohibits beer and liquor wholesalers from maintaining any warehouse other than the one described in their permits. See Id. § 7.1-5-9-12. Thus, if a wholesaler wishes to change the location of its warehouse, it must apply to the Commission. In addition, wine and liquor wholesalers may house their alcohol products in the same warehouse so long as they have different addresses-even if that means only different suites or rooms in the building-and maintain physical separation of their products. (See Filing No. 163-1, Deposition of Scott Bedwell (“Bedwell Dep.”) at 119-20; Filing No. 163-2, Deposition of Brian Stewart (“Stewart Dep.”) at 77-78; Filling No. 167-6, Deposition of David Cook (“Cook Dep.”) at 110).

         Lastly, Indiana regulates motor carriers engaged in the transportation and delivery of alcoholic beverages. Any motor carrier that wishes to “haul, convey, transport, or import alcoholic beverages” on state highways must obtain a carrier's permit. See Ind. Code § 7.1-3-18-3. A carrier's permit enables a motor carrier to transport all three types of alcoholic beverages. See Id. § 7.1-3-18-2; (Bedwell Dep. at 127-28; Cook Dep. at 100). Motor carriers may transport alcohol products for more than one manufacturer or wholesaler. (Filing No. 163-3, Deposition of Robin Poindexter (“Poindexter Dep.”) at 25-26).

         B. EFT

         EFT is a trucking company licensed by the ATC to transport beer, wine, and liquor. (Filing No. 163-10, Deposition of Phillip Terry (“Terry Dep.”) at 11, 25; Filing No. 163-15, Carrier's Permit). EFT has been in business since 1996 and employs approximately 380 people. (Terry Dep. at 11, 24). EFT also operates a 500, 000-square-foot warehouse at 9347 Pendleton Pike in Indianapolis. (Filing No. 163-53, Declaration of Phillip A. Terry ¶¶ 4-5). It subleases space in its warehouse to Monarch Beverage, a beer and wine wholesaler, for which it also provides delivery services. (Terry Dep. at 23).

         Phillip Terry is CEO of both E.F. Trucking and Monarch. (Id. at 10-11). Although EFT and Monarch are separate corporate entities, the two companies share the same shareholders, board of directors, and address. (Id. at 17-18, 35-36, 77-78). They also share approximately 20 employees. (Id. at 36).

         C. 2009 Tentative Agreement with Indiana Wholesale

         In 2009, EFT reached a tentative agreement to lease additional space in the warehouse and to provide transportation services to Indiana Wholesale Wine & Liquor Company, an Indiana liquor and wine wholesaler. (Filing No. 163-18, 2009 Lease Agreement; Filing No. 163-19, 2009 Services Agreement). Pursuant to the Services Contract, EFT would obtain product from manufacturers and suppliers and take the product to the warehouse on Pendleton Pike, where it would be placed in storage and then loaded into sorting equipment. (Terry Dep. at 55-56; 2009 Services Agreement). The product would be packaged with Monarch's product that was going to the same retailer or dealer. (Terry Dep. at 92-93).

         On May 22, 2009, Melissa Coxey, Staff Attorney for the ATC, evaluated the proposed agreement. The overlapping ownership of EFT and Monarch was noted as an area of concern: “Would this provide an indirect prohibited interest between Monarch as a beer wholesaler and Indiana Wholesale as a liquor wholesaler? That is a question for the commission.” (Filing No. 163-25, Coxey Email dated May 22, 2009).

         After learning of the proposed Services Agreement, Jim Purucker, executive director of Wine and Spirits Distributors of Indiana, contacted ATC Chairman Thomas Snow to express opposition to the proposed agreement. (Filing No. 163-26, Email from Chairman Snow dated July 2, 2009). At Chairman's Snow's request, Purucker submitted a memorandum, with citations to the Indiana Code, outlining the legal reason why the Services Agreement would contravene the Prohibited Interest Statutes and the public policy of Indiana. (Filing No. 163-28, Purucker Email with attached letter dated July 16, 2009). Apparently after reading the Purucker memorandum, Jessica Norris, the Policy Director for Regulatory & Administrative Affairs for the Office of the Governor, informed the Commission that the Governor's Office was opposed to Commission approval of the proposed agreement. (Bedwell Dep. at 249-52; Deposition of Melissa Coxey (“Coxey Dep.”) at 53-54; Filing No. 163-32, Email from Chairman Snow dated Sept. 16, 2009) (stating “the gov's office is flat out against this happening”)). On September 15, 2009, Chairman Snow informed Norris, “[W]e know with certainty where you folks stand and will honor your position.” (Filing No. 163-27, Email from Chairman Snow dated Sept. 15, 2009).

         On September 22, 2009, Indiana Wholesale submitted an application to transfer its permitted location to the warehouse at 9347 Pendleton Pike as required by Indiana law. (Filing No. 163-33, Indiana Wholesale's Application for Transfer Permit). Excise Officer Alexander Ray conducted an inspection of the area Indiana Wholesale would occupy in the Pendleton Pike warehouse. (Filing No. 163-34, Memo from Master Officer Alexander Ray dated Oct. 9, 2009). In a memorandum to ATC Executive Secretary Edward Dunsmore, Officer Ray described the area Indiana Wholesale would use as their warehouse space, the manner in which the beverages would be placed onto a conveyor and combined with Monarch's beverages for delivery, the manner in which Monarch and Indiana Wholesale would be invoiced, and the location of Indiana Wholesale's office space. (Id.).

         At the ATC's December 1, 2009 meeting, Chairman Snow informed Indiana Wholesale's counsel, Peter Rusthoven, that he “was intending to order an investigation at least after today's proceedings.” (Filing No. 35, Meeting Transcript at 1). A more thorough investigation by Indiana State Excise Officer Richard Swallow, however, did not occur until March 2010-nearly six months after Indiana Wholesale's application was filed. (Filing No. 163-9, Deposition of Richard Swallow (“Swallow Dep.”) at 53-54; Filing No. 163-37, Excise Police Report from Officer Swallow dated March 4, 2010). Officer Swallow was of the opinion that, because Monarch and EFT “operate as one entity, ” the Services Agreement with Indiana Wholesale would violate the Prohibited Interest Statutes. (See generally Excise Police Report). Specifically, he opined:

[I]t is clear that Monarch Beverage and EF Transit operate as one entity even though they have different corporation names. All of the documents state Indiana Wholesale Wine & Liquors is entering into an agreement with EF Transit, but in truth they are entering into an agreement with Monarch Beverage. If this transfer is allowed to occur, Monarch Beverage would have an interest in Indiana Wholesale Wine & Liquor, which is prohibited by IC ...

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