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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowThe protracted battle between Indiana and E.F. Transit over who can transport beer, wine and liquor spilled, again, into the 7th Circuit Court of Appeals, where the judicial panel heard arguments about when federal law preempts state prohibitions.
E.F. Transit, which shares a CEO, shareholders, board of directors and about 20 employees with Indianapolis beer and wine wholesaler Monarch Beverage, had twice tried to enter into a contract to transport product for Indiana Wholesale Wine & Liquor, a liquor wholesaler.
The Indiana Alcohol & Tobacco Commission never ruled on either agreement but questioned the relationship between E.F. Transit and Monarch. After an investigation, the commission found E.F. Transit’s common ownership with Monarch raised the possibility that an agreement to transport liquor for Indiana Wholesale would violate the state’s prohibited-interest statutes. Under these statutes, which prevent a single wholesaler from having an interest in both a beer and liquor permit, the concern was that through E.F. Transit and its contract with Indiana Wholesale, Monarch would gain an interest in a liquor permit.
E.F. Transit eventually sued the commission and the individual commissioners seeking to block enforcement of the prohibited-interest statutes. The company argued the state law is preempted by the Federal Aviation Administration Authorization Act of 1994. This federal statute overrides state laws governing motor carriers, and E.F. Transit asserted it was providing motor carrier services.
The U.S. District Court for the Southern District of Indiana dismissed on the grounds E.F. Transit’s claim was not ripe. While E.F. Transit was appealing to the 7th Circuit, the Indiana Supreme Court ruled on a separate lawsuit – Ind. Alcohol & Tobacco Comm’n v. Spirited Sales, LLC, 79 N.E.3d 371, 379 (Ind. 2017) – which looked at the relationship between E.F. Transit and Monarch. The justices concluded the two companies as “practically one in the same” under the prohibited-interest statutes.
Consequently, the 7th Circuit reversed in E.F. Transit, Inc., v. David Cook, et al., 16-3641, noting the ripeness barrier to this complaint had been removed.
With the case remanded, the district court turned its attention to the question of preemption.
Again, E.F. Transit argued it is a motor carrier and the FAAAA blocks the prohibited-interest statutes from governing motor carriers. However, the commission countered that the state’s prohibited-interest statutes are protected from preemption by the 21st Amendment, which gives states the power to regulate alcohol within their own borders.
Pointing to the Indiana Supreme Court’s ruling in Spirited Sales, the district court held the state’s interests were protected by the 21st Amendment and outweighed the federal interest advanced by E.F. Transit.
“Because the transportation function is a particularly critical and far-reaching aspect of alcohol supply and distribution in this state, a wholesaler could circumvent Indiana’s three tier system by using a commonly owned motor carrier. And if one wholesaler held a monopoly, the Commission’s ability to regulate that wholesaler would be impeded due to a lack of transparency and industry watchdogs, where one oversized wholesaler could unduly influence regulators through its dominant market share,” Judge Richard Young wrote, citing the deposition from commission chairman David Cook.
E.F. Transit appealed to the 7th Circuit, where the same panel of judges that ruled in the first lawsuit – Judges Frank Easterbrook, Ilana Rovner and Diane Sykes – heard oral arguments Monday. The central question was whether E.F. Transit was a motor carrier or a beer wholesaler.
Rovner pressed E.F. Transit’s attorney, Amy Mason Saharia of Williams & Connolly, on how the FAAAA applied, since Indiana was imposing the restrictions based on the company’s status as a beer wholesaler not as a motor carrier.
“E.F. Transit, because of the commission’s threatened enforcement of state law, cannot provide transportation services that the market demands or would like E.F. Transit to provide,” Saharia said. “And that is precisely at the core of what Congress was attempting to fix when it enacted this preemption provision.”
Rovner replied, “You see, my problem with your argument is that it seems to me is that the prohibited-interest statute is not being applied to E.F. Transit in its status as a motor carrier. As a motor carrier, E.F. Transit would be entitled to conduct all of the activities it seeks to conduct involving beer, wine, liquor. It seems to me that any restriction on E.F. Transit is based on its status as a beer wholesaler, a status that results from its connection with Monarch.”
Aaron Craft, deputy attorney general with the Indiana Attorney General’s office, told the panel Indiana was making a “very narrow disqualification” in light of E.F. Transit’s “overlapping ownership and control with a beer wholesaler.”
Moreover, Craft asserted, “… the federal act lacks a clear statement by Congress to preempt state laws governing the transportation of alcohol.”
Saharia tried to draw a parallel with the U.S. Supreme Court’s decision in Tennessee Wine and Spirits Retailers Association v. Thomas et al., 18-96. She referenced Cook’s testimony about the state’s economic rationale for barring E.F. Transit’s contract with Indiana Wholesalers and, according to Saharia, his speculation that Monarch would obtain monopoly power and abuse retailers.
The Supreme Court ruled in Tennessee Wine “that kind of unsubstantiated speculation simply cannot carry the day when the state is attempting to overcome conflicting federal law by relying on the 21st Amendment,” she said.
Craft countered Tennessee Wine does not alter the E.F. Transit dispute. The Supreme Court case was “an anti-discrimination case under the Commerce Clause,” he said. “The statutes here do not discriminate against out-of-state interests,” he argued. “E.F. Transit is an Indiana Wholesaler.”
The oral arguments took place under unprecedented conditions brought by the need to social distance during coronavirus crisis. Easterbrook was alone in the courtroom while Rovner, Sykes and the attorneys all participated by phone.
“This is a more complicated hookup than the court has ever tried before so there are bound to be some teething problems,” Easterbrook said before the arguments began. “If you find that multiple people are speaking at once, might be a good idea for everybody to be quiet and we will sort this out.”
He acted as a referee, letting the attorneys know when their allotted time to present their case was ending.
No one lost contact and the audio was clear. However, argument was not as lively as when the judges and attorneys are in the same room, exchanging questions and responses. During the E.F. Transit argument, the judges did not ask many questions, giving the attorneys blocks of time to make their points.
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