INDIANA FINE WINE & SPIRITS, LLC, Plaintiff, v. DAVID COOK, Chairman, Indiana Alcohol and Tobacco Commission, JOHN KRAUSS, Vice Chairman, Indiana Alcohol and Tobacco Commission, DALE GRUBB, Commissioner, Indiana Alcohol and Tobacco Commission, and MARJORIE MAGINN, Commissioner, Indiana Alcohol and Tobacco Commission, Defendants.
Case No. 1:20-cv-00741-TWP-MJD
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION
May 11, 2020
This matter is before the Court on a Motion for Preliminary Injunction filed pursuant to
I. LEGAL STANDARD
“A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 24 (2008). “In each
To obtain a preliminary injunction, a plaintiff must establish that it has some likelihood of success on the merits; that it has no adequate remedy at law; that without relief it will suffer irreparable harm. If the plaintiff fails to meet any of these threshold requirements, the court must deny the injunction. However, if the plaintiff passes that threshold, the court must weigh the harm that the plaintiff will suffer absent an injunction against the harm to the defendant from an injunction, and consider whether an injunction is in the public interest.
GEFT Outdoors, LLC v. City of Westfield, 922 F.3d 357, 364 (7th Cir. 2019) (citations and quotation marks omitted). “The court weighs the balance of potential harms on a ‘sliding scale’ against the movant‘s likelihood of success: the more likely he is to win, the less the balance of harms must weigh in his favor; the less likely he is to win, the more it must weigh in his favor.” Turnell v. CentiMark Corp., 796 F.3d 656, 662 (7th Cir. 2015). “The sliding scale approach is not mathematical in nature, rather it is more properly characterized as subjective and intuitive, one which permits district courts to weigh the competing considerations and mold appropriate relief.” Stuller, Inc. v. Steak N Shake Enterprises, Inc., 695 F.3d 676, 678 (7th Cir. 2012) (citation and internal quotation marks omitted). “Stated another way, the district court ‘sit[s] as would a chancellor in equity’ and weighs all the factors, ‘seeking at all times to minimize the costs of being mistaken.‘” Id. (quoting Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 12 (7th Cir. 1992)).
II. FINDINGS OF FACT
Plaintiff IFWS is an Indiana limited liability company with an Indiana resident agent and a principal place of business in Bethesda, Maryland. IFWS is owned by David Trone and Robert Trone--who are Maryland residents--and five trusts held for the benefit of their children. They are United States citizens, but none are residents of Indiana. The individual owners of IFWS have experience in operating retail alcoholic beverage stores through common ownership with other entities. Collectively, they own and operate more than two hundred alcoholic beverage stores in twenty-four states other than Indiana, all trading under the name Total Wine & More (“Total Wine“). Stores operating under the Total Wine name are committed to offering the nation‘s best selection of alcoholic beverages and having the lowest prices on wine, spirits, and beer. IFWS wants to bring the Total Wine concept to Indiana consumers (Filing No. 1 at 1, 3-4).
Under Indiana law, a permit from the ATC is required to sell alcoholic beverages in the state of Indiana. IFWS has entered into a purchase agreement (the “Purchase Agreement“) with MH Nora HG, LLC, for the purchase and transfer of an Indiana Beer, Wine, and Liquor Package Store Dealer Permit (the “Package Store Permit“). IFWS has paid into escrow for the benefit of the seller the full purchase price of the Package Store Permit (Filing No. 1 at 2; Filing No. 14-1 at 4).
The Package Store Permit authorizes operation of a 26,000 square foot retail package store in the Nora Corners Shopping Center (“Nora Corners“) at 1460 East 86th Street in Indianapolis, Indiana pursuant
Anticipating the transfer of the Package Store Permit to IFWS, and to ensure that IFWS is able to open its planned package store in time for the upcoming holiday season (November 2020 through early January 2021), IFWS has incurred approximately $40,000.00 in costs to design the site for a retail package store. IFWS also has incurred substantial, unrecoverable administrative and legal costs in excess of $60,000.00 in contemplation of the transfer of the Package Store Permit (Filing No. 1 at 3; Filing No. 14-1 at 5).
IFWS presents evidence of the time-intensive and costly process that Total Wine incurred to find a suitable location to open a business, especially in a state that is new to Total Wine. Employees of entities affiliated with IFWS have devoted hundreds of hours over the last twelve months studying the laws applicable to retail package store businesses in Indiana, evaluating the needs and desires of the residents in Indiana, identifying suitable real estate for its first flagship store, negotiating a lease, and acquiring a license that will allow IFWS to operate its proposed package store business. IFWS‘s efforts led them to the Nora Corners shopping center in Indianapolis. The Nora Corners location is optimal for a Total Wine store because this site has outstanding road visibility, ample parking, easy ingress and egress and an adequate co-tenant mix of businesses that are likely to make contributions to the overall health and success of the center. (Filing No. 14-1 at 4.) The Nora Corners site selection is critical to IFWS‘s business model and there currently are no other comparable sites in Indianapolis (Filing No. 1 at 4; Filing No. 14-1 at 2-6).
IFWS applied to the ATC to transfer the Package Store Permit to IFWS. The application included all the information required by Indiana law for approval of the transfer. The ATC assigned the transfer application to the local board to conduct a public hearing and recommend approval or denial. Importantly, the local board‘s duties are advisory, with the ultimate authority to approve the transfer remaining with the ATC (Filing No. 1 at 3).
The ATC considered IFWS‘s application during an open hearing on March 3, 2020. All four individual Defendants voted to deny IFWS‘s transfer application on the basis that IFWS‘s owners do not satisfy the “in-state residency” requirements of
Three days after the ATC‘s decision to deny the transfer application, IFWS filed the instant Complaint for injunctive and
The challenged statute declares,
The commission shall not issue an alcoholic beverage dealer‘s permit of any type for the premises of a package liquor store to a limited liability company unless:
(1) at least sixty percent (60%) of the outstanding membership interest in the limited liability company is owned by persons who have been continuous and bona fide residents of Indiana for five (5) years; and
(2) the membership interest described in subdivision (1) constitutes a controlling interest in the limited liability company.
III. DISCUSSION
As previously stated, to obtain a preliminary injunction, IFWS must establish the following factors as to the statute it seeks to enjoin: (1) that it is likely to succeed on the merits, (2) that it has no adequate remedy at law, (3) that it is likely to suffer irreparable harm in the absence of preliminary relief, (4) that the balance of equities tips in its favor, and (5) issuing the injunction is in the public interest. Geft, 922 F.3d at 364. The first two factors are threshold determinations; “[i]f the moving party meets these threshold requirements, the district court ‘must consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied.‘” Stuller, 695 F.3d at 678 (quoting Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir. 2001)). The Court will address the threshold factors before addressing the remaining factors.
A. Likelihood of Success on the Merits and Adequate Remedy at Law
The Commerce Clause gives Congress authority “to regulate Commerce ... among the several States.”
IFWS argues it is entitled to preliminary injunctive relief because it is highly likely that it will prevail on its claim that the in-state residency requirements of Section 5.4(b) are unconstitutional because they facially violate the dormant Commerce Clause of the United States Constitution. See
In this case,
In the alcoholic beverage context, courts must also consider whether the powers reserved to the states under the Twenty-First Amendment modify the prohibitions on in-state protectionism mandated by the dormant Commerce Clause. See
IFWS asserts,
In Granholm, the Court struck down state laws that allowed in-state wineries to sell directly to in-state consumers but required out-of-state wineries to sell to in-state wholesalers before their products could be distributed to consumers. The Court held that these laws discriminated on their face against out-of-state interests and therefore violated the dormant Commerce Clause, and that they were not saved by the Twenty-First Amendment because the states could not sustain a “legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” 544 U.S. at 488-89 (citations and internal quotations omitted). The primary justifications offered -- keeping minors from obtaining alcohol and facilitating tax collection -- were easily addressed by other nondiscriminatory measures. Id. at 490-91. By itself, the Granholm decision should be sufficient to invalidate Indiana Code § 5.4(b).
(Filing No. 14 at 8.)
IFWS directs the Court‘s attention to an 2016 advisory letter from then-Indiana Attorney General Greg Zoeller to the ATC, wherein Attorney General Zoeller advised that the statute requiring in-state residency for corporations to receive an alcoholic beverages permit is, on its face, violative of the dormant Commerce Clause (Filing No. 1-1). Relying on the Granholm decision, Attorney General Zoeller opined that the statute did not serve a legitimate local purpose that could not be adequately
Concerning Tennessee Wine, IFWS asserts that this decision reaffirmed that in-state residency requirements for retail liquor licenses are subject to the non-discrimination principle of the dormant Commerce Clause. In Tennessee Wine, the United States Supreme Court explained that, when a state liquor law is facially discriminatory, courts consider “whether the challenged requirement can be justified as a public health or safety measure or on some other legitimate nonprotectionist ground.” 139 S. Ct. at 2474. States cannot meet this test with “mere speculation” or “unsupported assertions,” and “[w]here the predominant effect of a law is protectionism, not the protection of public health or safety, it is not shielded by §2” of the Twenty-First Amendment. Id.
In Tennessee Wine, the Supreme Court struck down Tennessee‘s two-year residency requirement while rejecting the argument that the in-state residency requirement “ensures that retailers are ‘amenable to the direct process of state courts.‘” Id. at 2475. The court explained that this objective could “easily be achieved by ready alternatives, such as requiring a nonresident to designate an agent to receive process or to consent to suit in the Tennessee courts.” Id. Here, IFWS explains, that it has already designated an in-state resident to receive process.
The Supreme Court also rejected the other proffered reasons for the two-year residency requirement: “a better opportunity to determine an applicant‘s fitness to sell alcohol,” guarding against “undesirable nonresidents” from moving into Tennessee to operate a liquor store, ensuring that “only law-abiding and responsible applicants receive licenses,” maintaining oversight of liquor store operators, and promoting “responsible alcohol consumption” because in-state retailers will be “familiar with the communities served by their stores.” Id. Thus, IFWS argues, many authorities “have all implied or expressly held that Indiana could not constitutionally mandate that 60 percent of the business owners of an Indiana liquor permit be Indiana residents for five years.” (Filing No. 14 at 9.) “Because Section 5.4(b) openly and intentionally discriminates against out-of-state interests, it plainly violates the dormant Commerce Clause.” Id. at 10.
ATC resists this conclusion on multiple bases. First, the ATC argues that IFWS “filed its lawsuit prematurely in federal court while the administrative review of its application should have been proceeding,” and “the Supreme Court has recognized that, even with questions of the constitutionality of a challenged statute, it is often desirable for state courts to have the first opportunity to consider the statute.” (Filing No. 39 at 1.)
The ATC argues IFWS has an adequate remedy at law because the denial of IFWS‘s transfer application was not the end of the administrative and state court review process. They explain that IFWS should have utilized that administrative and state court judicial review process before filing this suit. IFWS could have objected to the ATC‘s denial and requested an appeal hearing before the ATC. If the ATC again denied the application, IFWS could have then sought judicial review in the state courts. Moreover, “[b]ecause judicial review is available for permit denials, and because state courts may declare state statutes unconstitutional and unenforceable, IFWS has an adequate remedy at law that should preclude this Court
IFWS could have pursued the administrative appeals process available following the permit denial and sought judicial review if the Commission affirmed the denial on appeal. Had IFWS sought judicial review, a state court could have reviewed the challenged statute, and, in effect, have provided the same relief to IFWS as it seeks in moving for a preliminary injunction in this Court.
(Filing No. 39 at 5-6.)
Pointing to the Supreme Court‘s decision in D.C. Court of Appeals v. Feldman, the ATC emphasizes the “desirability of giving the state court the first opportunity to consider a state statute or rule in light of federal constitutional arguments” as a “state court may give the statute a saving construction in response to those arguments.” 460 U.S. 462, 482 n.16 (1983). The ATC argues that, while Tennessee Wine foreclosed durational residency requirements that require all officers, directors, and capital stock owners to meet the durational residency requirement,
ATC briefly argues that IFWS is not likely to succeed on the merits because its claim is not yet ripe as the state administrative review process was not pursued. It argues that the statute serves important, non-protectionist purposes because “residency requirements increase the likelihood that the license holders would be able to effectively curtail alcohol abuse and prevent underage drinking, and that tax revenue collection may be easier.” (Filing No. 39 at 9). In sum, ATC contends residency requirements provide better oversight of the State over liquor store operators. Id. That said, ATC acknowledges that the Supreme Court held that Tennessee‘s residency requirements were not needed to enable oversight, and thus these rationales provided were insufficient to overcome challenge under the dormant Commerce Clause. Id. Tennessee Wine at 2475.
As noted by IFWS, the difficulty with ATC‘s position is that if the true purpose of the statute is to protect the public health, then Indiana has other non-discriminatory alternatives to serve that purpose such as limiting the number of retail licenses and limiting the amount of alcohol that can be sold to an individual. Indiana also can mandate training for managers and employees or monitor the practices of retailers and take action against those that violate the law. Moreover, if protecting the public health is the real purpose of the statute, then that purpose is undermined by the long list of exceptions to the in-state residency requirement for permittees. Indiana does not require residency for those operating drug stores, dining cars, boats, grocery stores, hotels, airplanes, gaming sites, horse tracks, satellite facilities, and certain large restaurants. See
Replying to the ATC‘s assertion that the claim here is not ripe, IFWS explains that the claim clearly is ripe; it sought a permit
IFWS further replies that the availability of state judicial review is not a “remedy at law” for an action seeking declaratory and injunctive relief under
IFWS asserts that the ATC‘s reliance on Scales and Wisconsin Central Limited for the proposition that judicial review itself is an adequate remedy at law does not apply in the context of this case. Scales involved a medical care provider seeking increased reimbursement from the state Medicaid program, and an adequate remedy at law existed in the form of monetary damages from the state agency that administered the Medicaid program. 593 N.E.2d 1283. Wisconsin Central Limited considered whether a state-court procedure for compensating a government taking of private property was an adequate remedy at law. There, the court noted that the federal Takings Clause was unusual among federal rights in that it permitted the taking of private property but required the state to pay just compensation. Thus, injunctive relief in federal court was not appropriate when the Constitution itself established monetary damages as the appropriate remedy. 95 F.3d 1359, 1369.
With respect to the ATC‘s reliance of a footnote in D.C. Court of Appeals v. Feldman, IFWS notes that while the footnote mentions the “desirability of giving the state court the first opportunity to consider a state statute or rule in light of federal constitutional arguments,” 460 U.S. at 482 n.16, that “legions of federal courts have enjoined or otherwise invalidated plainly unconstitutional state laws without awaiting state adjudications, and in cases far more comparable than Feldman.” (Filing No. 40 at 5.) IFWS distinguishes Feldman from this case:
In Feldman, the plaintiffs sought and obtained rulings from the District of Columbia Court of Appeals, and then rather than seeking review on certiorari in the Supreme Court filed their challenge to the bar admission rules through an action in the federal District Court, effectively seeking a form of appellate review of a state court ruling by a federal trial court. Id. at 468, 472. As the context of the case makes clear, when a party has litigated a claim in state court to judgment, a federal district court has no jurisdiction to second-guess the state court‘s judgment. Federal review in that circumstance is achieved through the
Supreme Court‘s certiorari jurisdiction, and the plaintiff must raise relevant constitutional arguments in state court to preserve them for Supreme Court review. The dictum in Feldman about the desirability of state court review simply does not apply when the plaintiff has never invoked state court jurisdiction.
(Filing No. 40 at 5–6.)
The Court is not persuaded by the ATC‘s assertion that state administrative and judicial procedures should have been pursued before IFWS brought its constitutional challenge in this Court.
The general rule is that plaintiffs may bring constitutional claims under §1983 without first bringing any sort of state lawsuit, even when state court actions addressing the underlying behavior are available. . . . Williamson County effectively established an exhaustion requirement for §1983 takings claims when it held that a property owner must pursue state procedures for obtaining compensation before bringing a federal suit. But the Court did not phrase its holding in those terms; if it had, its error would have been clear.
Knick, 139 S. Ct. at 2172–73 (internal citations and quotation marks omitted).
A review of the plain language of the challenged statute, the undisputed facts in this case, and the arguments of the parties leads to the conclusion that a preliminary injunction in favor of IFWS is appropriate. IFWS‘s claims are ripe; it expended resources to pursue real estate and an alcohol permit and then applied to the ATC for the necessary permit. The ATC unequivocally denied the permit application on the sole basis that IFWS did not meet the in-state residency requirement of
IFWS is highly likely to succeed on the merits of its claims. As described above, the Supreme Court‘s recent decisions in Granholm and Tennessee Wine make it clear that the Twenty-First Amendment does not affect the basic non-discrimination principle of the dormant Commerce Clause, and residency requirements for alcoholic beverage licenses are subject to that principle. Where a statute on its face discriminates against out-of-state interests in violation of the dormant Commerce Clause, the statute can only be saved by the Twenty-First Amendment if there is a “legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” Granholm, 544 U.S. at 489; see also Tennessee Wine, 139 S. Ct. at 2474–75. On its face,
B. Irreparable Harm
Having determined that IFWS has shown likelihood of success on the merits and that it has no adequate remedy at law, the district court “must consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied.” Grace Schools v. Burwell, 801 F.3d 788, 795 (7th Cir. 2015).
In response, the ATC asserts that IFWS has not demonstrated an irreparable harm because “IFWS may not suffer from irreparable harm if it were merely to continue with the application review process established by Indiana law.” (Filing No. 39 at 7.) The ATC argues that any delay in the application process is created by this federal action, and that harm could be alleviated if IFWS allowed the state administrative and judicial process to run its course.
The Court determines that IFWS suffers an irreparable harm because “[t]he existence of a continuing constitutional violation constitutes proof of an irreparable harm, and its remedy certainly would serve the public interest,” Id., Preston, 589 F.2d at 303 n.3; see also Id., Kendall-Jackson Winery, 82 F. Supp. 2d at 878. IFWS also has no adequate remedy at law because it cannot pursue compensatory damages against the state actor Defendants because of sovereign immunity. The Court is not persuaded by the ATC‘s argument that pursuing in state court the same relief sought here provides an adequate remedy at law. The cases of Scales and Wisconsin Central Limited, relied upon by the ATC, involved issues where monetary damages were clearly delineated as the appropriate remedy, so adequate remedies at law existed to thwart injunctive relief. Such is not the case here. Accordingly, IFWS has made the necessary showing that it will suffer some measure of irreparable harm in the absence of injunctive relief.
The Court is persuaded by IFWS‘s argument that the ATC‘s response does nothing to rebut the assertion that Eleventh Amendment sovereign immunity bars monetary damages in federal court, which establishes the absence of an adequate remedy at law. And the ATC never claimed that damages would even be available to IFWS in state court. When state defendants have immunity from compensatory damages in federal court, the preliminary injunction movant has no adequate remedy at law. IFWS further replies that the ATC‘s same argument of available state procedures does not undermine the irreparable harm element for an injunction.
C. Balance of Harms, Public Policy Considerations, and Sliding Scale Analysis
“The district court must also consider the public interest in granting or denying an injunction.” Stuller, 695 F.3d at 678. The Court “weighs the balance of potential
IFWS asserts that the balance of harms and public interest favor IFWS because there is no harm to the Defendants in not being permitted to enforce an unconstitutional statute, and IFWS and the public are served by not having their constitutional rights infringed. IFWS concludes that the public interest also is served by allowing IFWS “to open an efficient and well-managed store in a former Marsh grocery space that has lain dormant in a prominent retail location. Indiana consumers will benefit from Total Wine‘s service, selection, and prices, while other retail tenants will benefit from a shopping center revitalized by a Total Wine store.” (Filing No. 14 at 21.)
In contrast, the ATC asserts that, because it is a political branch of government, public policy and the balance of equities favors the State and upholding the statute. When a party establishes that a state law is depriving it of its constitutional rights, the balance of harms favors injunctive relief. There is no “harm to a [government agency] when it is prevented from enforcing an unconstitutional statute.” Joelner v. Vill. of Wash. Park, 378 F.3d 613, 620 (7th Cir. 2004); see also Does v. City of Indianapolis, 2006 U.S. Dist. LEXIS 72865, at *29 (S.D. Ind. Oct. 5, 2006) (“Defendants will not be harmed by having to conform to constitutional standards and, without an injunction, Plaintiffs will continue to be denied their constitutional rights. The balance of harms therefore favors the issuance of an injunction.“). The ATC has not presented (and the Court cannot think of) any harm that it will suffer by the issuance of a preliminary injunction in this case. On the other hand, if an injunction is not issued, IFWS will continue to suffer from the ATC‘s violation of the dormant Commerce Clause. And “[s]urely, upholding constitutional rights serves the public interest.” Joelner, 378 F.3d at 620. With the foregoing analysis in mind, the Court must weigh the balance of potential harms on a sliding scale against the movant‘s likelihood of success. Having weighed all the factors, IFWS has demonstrated that it is entitled to the injunction it seeks. No bond will be required because monetary damages are not at issue in this case.
IV. CONCLUSION
Because each of the factors for the issuance of a preliminary injunction weighs in favor of Plaintiff Indiana Fine Wine & Spirits, LLC, the Court GRANTS IFWS‘s Motion for Preliminary Injunction (Filing No. 13). Pursuant to
SO ORDERED.
Date: 5/11/2020
TANYA WALTON PRATT, JUDGE
United States District Court
Southern District of Indiana
DISTRIBUTION:
Bryan Harold Babb
BOSE MCKINNEY & EVANS, LLP
bbabb@boselaw.com
John J. Connolly
ZUCKERMAN SPAEDER LLP
jconnolly@zuckerman.com
Bradley M. Dick
BOSE MCKINNEY & EVANS, LLP
bdick@boselaw.com
Alex C. Intermill
BOSE MCKINNEY & EVANS, LLP
aintermill@boselaw.com
William J. Murphy
ZUCKERMAN SPAEDER LLP
wmurphy@zuckerman.com
Courtney Lyn Abshire
INDIANA ATTORNEY GENERAL
courtney.abshire@atg.in.gov
Jefferson S. Garn
INDIANA ATTORNEY GENERAL
Jefferson.Garn@atg.in.gov
Lauren Ashley Jacobsen
INDIANA ATTORNEY GENERAL
lauren.jacobsen@atg.in.gov
Sarah Ann Hurdle Shields
INDIANA ATTORNEY GENERAL
sarah.shields@atg.in.gov