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STAWSKI DISTRIBUTING CO. v. ZYWIEC BREWERIES PLC

May 22, 2003

STAWSKI DISTRIBUTING CO., INC., PLAINTIFF,
v.
ZYWIEC BREWERIES PLC, DEFENDANT.



The opinion of the court was delivered by: Joan Humphrey Lefkow, United States District Judge.

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 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 rights 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, 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);*fn1 and (3) violated procedural provisions 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).*fn2

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 seq. 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 violations of the IBIFDA 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) ("[I]f 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 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 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 (1st 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, 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. Id. Zywiec disagrees with Stawski's interpretation concerning the absolute right to refuse to arbitrate and argues that pre-dispute arbitration clauses are valid under ...


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