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E.F. Transit, Inc. v. Cook

United States Court of Appeals, Seventh Circuit

January 2, 2018

E.F. Transit, Inc., Plaintiff-Appellant,
David Cook, et al., Defendants-Appellees.

          Argued April 10, 2017

         Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. l:13-cv-01927-RLY-MJD - Richard L. Young, Judge.

          Before Easterbrook, Rovner, and Sykes, Circuit Judges.

          Sykes, Circuit Judge.

         E.F. Transit, Inc., is a motor carrier licensed in the state of Indiana to transport beer, wine, and liquor. In an effort to expand its business, E.F. Transit entered into talks with Indiana Wholesale Wine & Liquor Company, a liquor and wine wholesaler, to deliver its wares. Twice the parties sought a regulatory green light from the Indiana Alcohol and Tobacco Commission, the agency tasked with enforcing Indiana's alcoholic beverage laws. Twice the Commission noted concerns with the arrangement under Indiana's prohibited-interest laws, which require strict separation of beer and liquor wholesaling. The obstacle was that E.F. Transit shares the same ownership and management as Monarch Beverage Company, Inc., a licensed beer and wine wholesaler. Based on the overlap, E.F. Transit might be deemed to hold an interest in Monarch's beer wholesaling permit, which might in turn block its venture with Indiana Wholesale.

         The Commission never definitively ruled on the proposed arrangement, but the regulatory cloud scuttled the budding business relationship. E.F. Transit and Indiana Wholesale broke off their plan. E.F. Transit then brought this suit for declaratory judgment and injunctive relief, arguing that enforcement of Indiana's prohibited-interest statutes is preempted by federal law. The district court dismissed the claim as unripe based on the aborted business relationship and regulatory uncertainty. E.F. Transit appealed.

         In the meantime, separate litigation moving through the state courts was poised to resolve the predicate state-law question: In light of their shared ownership and management, does E.F. Transit hold an interest in Monarch's beer wholesaling permit under Indiana's prohibited-interest laws? While this appeal has been underway, the Indiana Supreme Court delivered an affirmative answer, holding that E.F. Transit and Monarch are "not just ... two separate entities conducting close business transactions" but are "practically one in the same" under the prohibited-interest laws. Ind. Alcohol & Tobacco Comm'n v. Spirited Sales, LLC, 79 N.E.3d 371, 379 (Ind. 2017).

          That ruling-and the standing threat of prosecution-are enough to remove any ripeness barrier to this suit. E.F. Transit need not violate the law and expose itself to punishment to raise its preemption claim. We reverse and remand for further proceedings.

         I. Background

         Indiana regulates alcohol distribution "along two dimension: three tiers of the distribution chain (producers, wholesalers, and retailers) and three kinds of alcohol (beer, liquor, and wine)." Monarch Beverage Co. v. Cook, 861 F.3d 678, 680 (7th Cir. 2017). The state regulatory scheme generally prohibits permit holders in one tier of the distribution chain from holding an interest in a permit in another tier. Id. And state law also limits the issuance of permits within the distribution tier by type of alcohol. Id. As relevant here, Indiana's prohibited-interest laws require the separation of beer and liquor wholesaling by prohibiting the holder of an interest in a beer permit from acquiring an interest in a liquor permit and vice versa. IND. Code §§ 7.1-5-9-3(b), -6(a). A violation is punishable as a Class B misdemeanor. Id. §§ 7.1-5-9-3(c), -6(b).

         E.F. Transit is an Indiana motor carrier engaged in the business of warehousing and transporting beer, wine, and liquor. Its largest customer is Monarch Beverage, a licensed Indiana beer and wine wholesaler. E.F. Transit and Monarch are closely related corporations: they have the same owners, directors, CEO, address (Monarch leases warehouse space from E.F. Transit), and even (for the most part) the same workforce. But they are legally distinct as a matter of Indiana corporate law.

          In 2009 E.F. Transit entered into a tentative agreement to provide transportation, warehouse, and delivery services for Indiana Wholesale, a wine and liquor wholesaler. Under the arrangement E.F. Transit would obtain alcohol products from Indiana Wholesaler's suppliers, transport the products to its warehouse for storage and sorting, and package and deliver the products to retailers and dealers-sometimes in tandem with its Monarch deliveries if the destinations were the same.

         In furtherance of the new venture, Indiana Wholesale applied to the Commission to transfer its permit warehouse location to E.F. Transit's location, a regulatory prerequisite. A staff attorney had preliminarily reviewed the proposal; her quick-look assessment was positive, but the Commission did not immediately approve the arrangement. After a delay of six months, the Commission ordered a full investigation and eventually issued a report identifying a possible violation of the state's prohibited-interest laws. Specifically, the Commission noted E.F. Transit's common ownership with Monarch and observed that although E.F. Transit was not itself a beer wholesaler, it had an indirect interest in Monarch's beer wholesaling permit. That in turn could be an impediment to the proposed relationship between E.F. Transit and Indiana Wholesale. In light of the regulatory skepticism, in 2010 Indiana Wholesale withdrew its application without waiting for a formal decision from the Commission.

         In 2012 E.F. Transit and Indiana Wholesale tried again. This time they proposed a narrower agreement. E.F. Transit would transport and deliver products for Indiana Wholesale in exchange for a flat, per-case fee. Unlike the previous agreement, E.F. Transit would not lease warehouse space to Indiana Wholesale, though Monarch's products would be commingled with Indiana Wholesale's on the warehouse floor and in E.F. Transit's delivery trucks. Although this ...

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