Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 82 C 4354 -- Brian Barnett Duff, Judge.
Bauer, Chief Judge, Cummings and Cudahy, Circuit Judges.
The Bureau of Alcohol, Tobacco and Firearms (the "Bureau") appeals from a summary judgment holding that distributors of alcoholic beverages may pay to have their products included in newspaper advertisements run by Foremost Sales Promotions, Inc. ("Foremost") without violating section 5 of the Federal Alcohol Administration Act (the "FAA Act"). The suit was prompted by the Bureau's enforcement action against a liquor distributor that paid Foremost to have its products appear in the Foremost ads. The Bureau, which regards Foremost as a representative of the retail liquor stores that are listed in the advertisements, contended that the distributor's payments violated statutory restrictions on commercial relationships between distributors and retailers. The distributor settled the enforcement action by paying $20,000 and agreeing to cease dealing with Foremost. Foremost brought suit to remove the legal threat to its business.
On appeal, the Bureau maintains that Foremost, which cannot be prosecuted directly under the FAA Act, lacks standing to challenge the Bureau's regulation of suppliers and wholesalers. The Bureau also argues that declaratory judgment was inappropriate on the merits because the Bureau's actions were authorized by the "tied house" and "commercial bribery" provisions of the FAA. 27 U.S.C. § 205(b)-(c) (1982).
We find that Foremost has standing. On the merits, we find that the district court, though partially correct in its statement of the governing legal standard, erred in its characterization of the record. Because we are reluctant to analyze the lengthy documentary record in this case without benefit of the parties' views on the application of the legal standard elaborated below, we remand for reconsideration of the summary judgment motions and for any further proceedings that may be appropriate.
Foremost, a closely held Illinois corporation, operates a loosely structured franchise program for independently owned liquor stores in Illinois and Florida, principally in the Chicago and Sarasota areas. In 1982, there were fifty-four Foremost franchisees in Illinois and sixteen in Florida. Foremost has two revenue sources: franchise fees paid by alcoholic beverage retailers and subscription fees paid by suppliers. Franchisees pay an annual fee plus additional charges for each advertisement that Foremost places. In exchange for these payments and the acceptance of certain restrictions on store location and independent advertising, franchisees are listed in Foremost's newspaper advertisements, which publicize weekly specials at all Foremost stores. Franchisees are notified of the weekly specials by newsletter two weeks in advance of the advertisement to enable them to increase stocks of featured items. Franchisees are under no contractual obligation to charge the advertised prices or to stock sufficient quantities of the featured items to meet demand. Foremost also offers a number of optional services to franchisees, primarily consultation on various retail management topics. Distributors pay subscription fees that vary across a range of promotional packages. The principal benefit to a subscribing distributor is a guarantee that its product will be featured in a specified number of advertisements. Products of nonparticipating distributors are sometimes featured, but far less frequently than the competing products of subscribers. Some of the packages that Foremost offers to distributors include in-store promotions with floor stackings, pennants and window displays; other packages include the option to purchase these additional services for set fees. Subscribing suppliers are under no obligation to reduce wholesale prices on featured items. Foremost's financial data for its Chicago-area operations show that during the period from 1979 through 1981 this part of the company would have incurred a substantial loss if it had been unable to collect subscription fees.
The legality of Foremost's subscription program was called into question by an enforcement action initiated in 1979. Responding to a complaint by a nonparticipating distributor, the Bureau conducted a nine-month investigation focusing on Hiram Walker Distributing Company ("Hiram Walker"), a Foremost subscriber with several brands that had appeared regularly in Foremost advertisements. The Bureau concluded that Hiram Walker's payments to Foremost constituted indirect payments to Foremost retailers which induced those retailers to increase their purchases of Hiram Walker products and decrease purchases of competing products. The Bureau found that Hiram Walker's participation in the Foremost program violated the FAA's prohibitions on "tied house" arrangements between suppliers and retailers and on "commercial bribery" of trade buyers. 27 U.S.C. § 205(b)-(c) (1982).*fn1
The tied house provisions prohibit suppliers from "inducing" retailers to purchase their products "to the exclusion in whole or in part" of other suppliers' products by, among other means, "paying or crediting the retailer for any advertising, display, or distribution service." 27 U.S.C. § 205(b)(4) (1982). Section 6.52 of the Bureau's regulations elaborate on the advertising restriction, specifying that "an arrangement in which an industry member [i.e., a producer or distributor] participates with a retailer in paying for an advertisement placed by the retailer constitutes paying the retailer for advertising within the meaning of the Act." 27 C.F.R. § 6.52 (1987). The commercial bribery provisions impose similar restrictions on a broader range of transactions. They prohibit a seller from employing specified means of inducing "trade buyers," a term encompassing wholesalers and retailers, from purchasing the seller's products to the "exclusion in whole or in part" of other sellers' products. Prohibited inducements include "commercial bribery" and the "offering or giving [of] any bonus, premium, or compensation to any officer, or employee, or representative of the trade buyer." 27 U.S.C. § 205(c)(1)-(2) (1982). Section 10.21 of the regulations states that violations may occur even when inducements are not "offered or given for the purpose of directly inducing a trade buyer to purchase from the seller." 27 C.F.R. § 10.21 (1988).
In September 1981, the Bureau advised Hiram Walker that the Bureau had found the company in violation of section 5 of the FAA Act. The Bureau promptly settled the case and resumed processing Hiram Walker's applications for new "basic permits" for its Midwest and Western Regions in return for an offer in settlement of $20,000 and the distributor's promise to cease dealing with Foremost. Foremost then brought suit in district court seeking declaratory and injunctive relief against the Bureau.*fn2
The Bureau first argues that Foremost, as the franchisor and agent of retail liquor stores, lacks standing to challenge the Bureau's enforcement of section 205 against producers and distributors of alcoholic beverages. The Bureau concedes that Foremost meets the requirements of article III standing, that Foremost has suffered an actual injury fairly traceable to the Bureau's determinations that wholesalers' and distributors' participation in cooperative advertising programs violates section 5 of the FAA. See Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 99, 60 L. Ed. 2d 66, 99 S. Ct. 1601 (1979); City of Milwaukee v. Block, 823 F.2d 1158, 1164 (7th Cir. 1987). Standing, however, may also be blocked by court-imposed "prudential" limitations. See Gladstone, Realtors, 441 U.S. at 103 n.9; City of Milwaukee, 823 F.2d at 1164. The Bureau contends that Foremost fails to meet this second aspect of the standing inquiry. The Bureau points out that Congress scrupulously avoided imposing any restrictions on the activities of retailers when it enacted the FAA because the twenty-first amendment had delegated authority to regulate retail sales to the states. It argues that Foremost, which the Bureau characterizes as an agent for various retailers, does not assert a claim within the zone of interests protected by the FAA and that there is no indication that Congress intended for courts to entertain challenges to BATF enforcement actions by plaintiffs like Foremost.*fn3
Defendants rely on an overly restrictive view of the "zone of interest" inquiry. In Clarke v. Securities Industry Association, 479 U.S. 388, 107 S. Ct. 750, 757, 93 L. Ed. 2d 757 (1987), the Supreme Court discussed the principles that govern the prudential aspect of the standing inquiry in cases involving agency actions made "presumptively reviewable" by ...