On Friday, May 6th, Anheuser-Busch’s attorney’s filed a motion in federal court asking Judge Robert Dow Jr. to extend the stay on his decision regarding a lawsuit over distribution rights in Illinois. A-B will formally present this motion on May 27th.
You are probably sick of reading the background on this issue, but just in case this is the first you’re hearing of it we’ll recap things again. Last year A-B tried to buy its remaining stake in a Chicago area beer distributor. The Illinois Liquor Control Commission said A-B couldn’t do that because out-of-state breweries aren’t allowed to self-distribute their beer in Illinois. But because breweries in Illinois could self-distribute, A-B sued the ILCC claiming discrimination and the judge agreed. His ruling in the case was to end self-distribution rights for all breweries in Illinois as opposed to extending the right to self-distribute to out-of-state breweries. The judge, though, stayed his decision until March 31st to give the Illinois legislature an opportunity to find a compromise. By mid-March negotiations had hit a wall and no deal was in sight so the judge extended his stay until May 31st, which happens to be the end of the legislative session. A-B’s motion aims to extend the stay while the appeal process shakes out.
Less than a month (October 1st, 2010) after the judge issued his initial ruling A-B filed an appeal. If you aren’t familiar with how the appeals process works in federal court, well, you aren’t alone. We don’t know much either, but judging from A-B’s affidavit the process is not a fast one. A little over three months (January 11th, 2011) after A-B said they would appeal, they filed their opening brief. The defendants, in this case the Illinois Liquor Control Commission (ILCC), have until May 25th (five months later) to respond. A-B then has another 20 days to respond to the ILCC’s response.
A-B’s endgame all along has been to buy out the rest of City Beverage and to self-distribute in Illinois. Obviously, the judges original ruling would prevent that. Speculation is that A-B will appeal the judge’s decision ad nauseam to try and gain self-distribution rights in the state.
But A-B’s motion doesn’t just give us a peek at their strategy. It also shows a few new twists in this issue. The first is that A-B claims that if no bill is passed by the legislature and if the stay is not extended then the ILCC has threatened to force A-B to divest its 30 percent stake in City Beverage OR not renew the distributors license.
The much larger bombshell, though, was news regarding Two Brothers Brewing and Windy City Distribution. A signed affidavit from Jason Ebel, co-founder of Two Brothers Brewing in Warrenville, outlined how the brewery started including the fact that they self-distributed their beer after failing to find a distributor that would take their product. Self-distribution eventually grew to distributing beer from other craft breweries that had the same issues in finding a distributor. According to Ebel, Windy City Distribution “is a separate legal entity from Two Brothers but shares common family ownership.” The ILCC told Ebel at the time that, “a separate legal structure between Windy City and Two Brothers with common family ownership would be legal.”
But that could change.
According to Ebel’s affidavit the chief legal counsel for the ILCC informed him that, “after the law changes in connection with this lawsuit, the ILCC would view the common family ownership relationship between Windy City and Two Brothers as in violation of the Illinois Liquor Control Act and Windy City would have to be sold to an unrelated third party.”
But that only pertains to the judge’s ruling ending self-distribution rights in Illinois.
What A-B is not acknowledging in their motion, and I am sure that is by choice, is Senate Bill 754. The legislation, as it’s written and as we understand it, would not impact the Ebel brothers, Two Brothers or Windy City. It would allow breweries in Illinois to self-distribute up to 7,500 barrels of their own beer. And, it would allow brewpubs to self-distribute, although they would have to have a second location in order to do so. Now, we know that portion of the bill isn’t ideal and completely agree with the ICBG that they should be allowed to self-distribute up to a certain number of gallons or barrels.
Remember our friend Marika who is trying to open a brewpub in southern Illinois and was counting on self-distribution to get people in the door? Well, that makes things tougher on her. But in a recent email exchange she acknowledged, “It would have unquestionably been a step back if the state had either let the issue drop (and by default kept production breweries from self-distributing), or ruled against it entirely. It is a thousand times better that we will have beer from independent craft production breweries, than if those breweries had been forced to close because the law didn’t support them.” SB754 also keeps A-B from self-distributing in Illinois.
Also worth considering is what happens to craft beer in Illinois if the judge extends his stay? Well, right now craft beer growth in Illinois is frozen. A-B’s suit and the subsequent stays by Judge Dow have brought small brewer licensing to a standstill. Rolling Meadows Brewery in Springfield has had their plans put on hold for months. They want to self-distribute but the current law won’t allow them to. The stay in the ruling – essentially one giant legal “pause button” – only allows Big Muddy and Argus to self-distribute. So they sit and wait.
Let’s look at the possible outcomes:
- If SB754 is approved by the Illinois House and signed by the governor then Anheuser-Busch sits on the sidelines and is unable to self-distribute its portfolio of beers while craft beer in the state thrives. Windy City Distribution remains in the Ebel family. Rolling Meadows opens in Springfield and Marika gets her brewpub off the ground in southern Illinois. And that my be just the tip of the craft beer iceberg.
- If Judge Robert Dow Jr. extends the stay on his ruling then the Ebel brothers retain family control of Windy City Distributing. Argus and Big Muddy would also retain the right to self-distribute. But Illinois could become a craft beer Siberia with new production breweries stalled for years.
- If A-B wins its appeal of Judge Dow’s ruling it opens the door for the brewing giant to self-distribute its own beer in Illinois, taking up more valuable shelf space from craft brewers.
- If A-B loses its appeal of Judge Dow’s ruling then the company will likely take its case to a federal appeals court. Another stay will be issued and craft beer growth in Illinois remains stagnant. An appeal of this magnitude could take years.
- If nothing is done? If no bill is passed? If A-B’s appeals are shot down? Well, then the Ebel brothers would be forced to divest themselves of Windy City Distribution. No brewery in Illinois would be able to self-distribute. That’s a game changer for the likes of Rolling Meadows and countless other breweries in the works in Illinois. Some may have to change business plans while others may never sell a single batch of beer.
We will be the first to agree that SB754 is not perfect. But if you look at the alternatives above and the fact that we are now less than three weeks from the end of the legislative session – SB754 looks to be it in terms of beer distribution legislation.
The new law would take effect immediately, as soon as the governor signs it, so one would surmise that the best case scenario now is that the House passes SB754 ASAP and the governor signs it before May 27th. That would end this court case in its tracks. It’s clear that A-B knows what its doing and is not messing around.
BTW, we’d be remiss if we didn’t acknowledge Anheuser-Busch’s acknowledgment of…us. From their motion:
“To date, the proposed legislation has received significant media coverage within Illinois and at least one website is devoted to reporting on these efforts.”
Who do you think they’re talking about? Everyone wave hello, because A-B is watching.