ALERT: Court Rules on A-B / Illinois Distribution Case

FILED SEPTEMBER 3, 2010

Dear Client:

A federal district court in Illinois has ruled that the Illinois law, which allows in-state brewers to self-distribute but does not allow out-of-state brewers the same privilege, is unconstitutional under Granholm. Recall that A-B had sued the Illinois Liquor Board so that it could close on its purchase of City Beverage, one of their distributors in Chicago. The court gave a partial summary judgment in favor of A-B. However, the court's remedy is to level down, ie to disallow in-state brewers from self distributing rather than allow out-of-state brewers to self distribute. The court has also stayed its decision until March 31, 2011 in order to give the legislature time to remedy the "constitutional defect" in Illinois Law.

MORE. While this is technically a legal victory for A-B, the remedy that the Court hands down is decidedly a blow to A-B in practical terms.

The court denies A-B's "request to remedy the unconstitutionality of Illinois system by extending the self-distribution privilege to out-of-state brewers. That remedy would be more disruptive to the existing statutory and regulatory scheme than the alternative remedy of withdrawing the self-distribution privilege from in-state brewers." Plus, the court stayed its decision until March 31, 2011, to give the Illinois General Assembly time to fix the "constitutional defect" of the law. That puts A-B's deal to buy City Beverage on ice for six months.

So everything stays the same for now. However, unless the state legislature acts, all self-distribution by any brewery becomes against the law after March 31. That has to upset a few Illinois craft brewers.

So what does this mean? Well, it means that A-B is in a heck of a pickle. It's option are:

1. To appeal this decision and hope for a better remedy of leveling up instead of leveling down, ie allow out-of-state brewers to own a distributor instead of banning any brewer from doing so.

2. Hire every lobbyist in Springfield that isn't nailed down, and try to get a law passed allowing out-of-state brewers to own a distributorship. This is a risky proposition. For one, distributors are pretty influential in Illinois. For another, MillerCoors is based in Chicago. And then you have the influential Rocky Wirtz who isn't wild about A-B owning a distributorship.

3. Punt on City Beverage and find an alternative buyer or split it up and sell it to the surrounding A-B distributors, and move on. This would be perhaps the cleanest solution.

4. Or move forward all three of the options above simultaneously and see where the chips fall. This seems like the most likely.

Have a great and profitable Labor Day weekend. See you back in your inbox on Tuesday.

Until then, Harry

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