FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LL LIQUOR, INC., DBA Lolo Liquor,

Plaintiff-Appellant,

v.

STATE OF MONTANA; STEVE 

BULLOCK, in his official capacity as 

the Governor of Montana; MONTANA 

DEPARTMENT OF REVENUE; MIKE 

KADAS, in his official capacity as the 

Director of the Montana Department 

of Revenue; JOHN DOES, 1 through 

10,

Defendants-Appellees.

No. 17-35405

D.C. No.

6:15-cv-00071-

SEH

OPINION

Appeal from the United States District Court

for the District of Montana

Sam E. Haddon, Senior District Judge, Presiding

Argued and Submitted May 15, 2018

Seattle, Washington

Filed December 28, 2018
2 LL LIQUOR V. STATE OF MONTANA

Before: Marsha S. Berzon, Stephanie Dawn Thacker,*

and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Berzon

SUMMARY**

Civil Rights

The panel affirmed the district court’s summary 

judgment in favor of the State of Montana with respect to LL 

Liquor’s claim that that Montana’s Senate Bill 193, which 

restructured the formula for calculating the rate at which 

state-approved agency franchise stores could purchase 

liquor from the state, impaired LL Liquor’s contract to 

purchase liquor with the Montana Department of Revenue, 

in violation of the Contracts Clause.

The panel held Montana did not impair its contractual 

obligation to LL Liquor within the meaning of the Contracts 

Clause because it did not eliminate LL Liquor’s remedy for 

breach of its contract with the state. The panel addressed LL 

Liquor’s breach-of-contract claim in a memorandum 

disposition filed concurrently with the panel’s opinion.

 * The Honorable Stephanie Dawn Thacker, United States Circuit 

Judge for the U.S. Court of Appeals for the Fourth Circuit, sitting by 

designation.

** This summary constitutes no part of the opinion of the court. It 

has been prepared by court staff for the convenience of the reader.
LL LIQUOR V. STATE OF MONTANA 3

COUNSEL

Jesse C. Kodadek (argued) and Ronald A. Bender, Worden 

Thane P.C., Missoula, Montana, for Plaintiff-Appellant.

Christopher Thayne Sweeney (argued) and W. Anderson 

Forsythe, Moulton Bellingham PC, Billings, Montana, for 

Defendants-Appellees.

OPINION

BERZON, Circuit Judge:

The sale of liquor in Montana is heavily regulated. 

Montana maintains a monopoly on the distribution of liquor 

within the state through the Montana Department of 

Revenue (DOR). See Duane C. Kohoutek, Inc. v. State Dep’t 

of Revenue, 417 P.3d 1105, 1107–08 (Mont. 2018). The 

DOR controls the supply of liquor and provides liquor to 

state-approved “agency franchise stores,” which are 

privately owned. See id. With narrow exceptions, agency 

franchise stores must purchase their liquor directly from the 

DOR. See Mont. Code Ann. § 16-2-101 (2017). The stores 

may then sell the liquor either wholesale, to bars and 

restaurants, or retail, to individual consumers. LL Liquor, 

Inc., which does business as “Lolo Liquor,” is one of ninetysix liquor stores in the state.

Until 2016, the DOR did not use a uniform pricing 

scheme for agency franchise stores. Instead, the price of 

liquor varied based on discount rates set forth in each store’s 

“agency franchise agreement,” a contract between the DOR 

and the individual store. A higher discount rate meant 

cheaper liquor. These discount rates—known as 
4 LL LIQUOR V. STATE OF MONTANA

“commission rates”—were negotiated between the DOR and 

each store.

Two years into the term of Lolo Liquor’s contract, 

Montana changed the rules, applying a uniform commission 

structure to all franchise stores in the state. The principal 

question before us is whether this change gives rise to a 

Contracts Clause claim by Lolo Liquor against the state. We 

conclude that it does not.1

I

A

In March 2013, Lolo Liquor entered into a ten-year 

franchise agreement with the DOR to operate an agency 

franchise store based in Lolo, Montana, a town about ten 

miles outside Missoula. Three sections of that agreement are 

particularly relevant here.

Section 2, titled “Agency Franchise Agreement,” 

provided that the “Agreement must be renewed every ten 

years if the requirements of [the] Agreement have been 

satisfactorily performed,” with the caveat that “[s]ubsequent 

changes to the law by the legislature may require terms to 

change in future renewals.” This provision referenced 

section 16-2-101(5)(a) of the Montana Code, which, at the 

time the agreement was made, stated that an agency 

franchise agreement “must be renewed at the existing 

commission rate for additional 10-year periods.” Mont. 

Code Ann. § 16-2-101(5)(a) (2013). Section 2 also stated 

that, “[d]uring the term of [the] Agreement, the commission

 1 In a concurrently filed memorandum disposition, we conclude that 

Lolo Liquor is entitled to relief on its remaining claim for breach of 

contract under state law.
LL LIQUOR V. STATE OF MONTANA 5

. . . rate may be reviewed every three years, as provided by 

law.” This clause included a reference to section 16-2-101(6) 

of the Montana Code, which at that time provided that the 

commission rate “may be reviewed every 3 years at the 

request of either party” but that the rate would only be 

adjusted “[i]f the [the franchise store] concurs.” Id. § 16-2-

101(6).

Section 5, titled “Agent’s Discount Rates,” set forth how 

the commission rate of 16.144% was calculated. That 

commission rate comprised three separate discount rates: the 

“commission percentage discount rate” (11.400%), the 

“weighted average discount percentage rate” (3.869%), and 

the “volume of sales discount rate” (0.875%). The 

commission percentage discount rate was the part of the 

commission rate subject to negotiation; the remaining two 

discount rates were set by statute. This section also noted 

that Lolo Liquor’s commission rate “may be reviewed and 

adjusted in accordance with Montana law.” Notably, the 

commission rate was the only financial term found in the 

agreement.

Finally, section 11, titled “Modification, Merger, and 

Definitions,” provided that “[t]he parties agree that the 

[DOR] may amend or modify [the] Agreement to conform 

to changes in state or federal laws.” Additionally, Section 11 

included a merger clause, which stated that the agreement 

would “not be enlarged, modified or altered except in writing 

signed by all parties,” with one important caveat—“that any 

change required by a change in Montana law shall be 

effective immediately upon the effective date of such change 

in law, notwithstanding the failure of a party to agree in 

writing to such change.” Section 11 also required that the 

parties “make reasonable efforts to promptly reduce to 
6 LL LIQUOR V. STATE OF MONTANA

writing the specific changes to the provision of this 

Agreement that may be required by such change in law.”

B

In 2014, Lolo Liquor was purchased by its current 

owners, Josh and Leigh Paffhausen. The Paffhausens 

maintain that, around the time of the purchase, they were 

given assurances by the DOR that their commission rate 

“could never be lowered” during the term of the agreement. 

Soon after purchasing Lolo Liquor, the Paffhausens began 

an aggressive expansion into the wholesale market, both 

around the town of Lolo and beyond. The expansion was 

quite successful—in three years, Lolo Liquor was buying 

more than ten times as much liquor from the DOR as it had 

before the Paffhausens’ purchase. The Paffhausens 

attributed their success to innovation and customer service, 

while their competitors maintained that Lolo Liquor’s 

success was due its higher commission rate, which enabled 

Lolo Liquor to provide services that others could not.

Around the time Lolo Liquor was expanding, the Liquor 

Store Owners Association of Montana, an industry group, 

proposed changes to the commission structure for agency 

franchise stores. This proposal was eventually introduced in 

the Montana Senate as Senate Bill (SB) 193. In 2015, the 

Montana Legislature passed SB 193, and the bill was signed 

into law. See 2015 Mont. Laws ch. 362.

SB 193 restructured the way in which commission rates 

are calculated. Under SB 193, the commission rates would 

no longer be determined by negotiations between the DOR 

and each store. Instead, the rates would be based on a preset 

schedule reflecting each store’s total liquor purchases from 

the DOR during the previous calendar year. The less a store 

purchased in the last year, the higher its commission rate 
LL LIQUOR V. STATE OF MONTANA 7

would be. See Mont. Code Ann. § 16-2-101(4)(b) 

to -101(4)(c) (2017). Because the amount purchased by each 

store is largely based on the store’s sales, this change meant 

that stores selling less liquor would receive higher 

commission rates—and thus cheaper liquor—from the DOR. 

See id. These new rates did not take effect immediately; they 

were gradually phased in over the course of two years, 

beginning in February 2016. Id. § 16-2-101(4)(a).

Under the new enactment, most agency franchise stores 

received a modest increase in their commission rates. Lolo 

Liquor, however, saw a reduction. The Paffhausens, 

understandably unhappy with the change, refused to sign an 

addendum sent by the DOR informing them of the revised 

commission structure. The DOR continued to sell liquor to 

Lolo Liquor but, in February 2016, unilaterally implemented 

the new commission structure in accordance with SB 193, 

over the Paffhausens’ objections.

C

Shortly after SB 193 was enacted, Lolo Liquor sued in 

state court for, among other claims, breach of contract and 

violations of the Contracts Clause of the U.S. Constitution

and its state counterpart. Lolo Liquor’s complaint sought 

damages and declaratory and injunctive relief. According to 

the complaint, section 2 of the agreement promised that the 

commission rate would not change without Lolo Liquor’s 

consent during the ten-year term of the agreement. 

Montana’s unilateral change of the commission structure, 

the complaint alleged, either breached the agreement or 

impaired a contractual obligation in violation of the 

Contracts Clause.

Montana removed the case to federal district court, after 

which Lolo Liquor moved for a preliminary injunction based 
8 LL LIQUOR V. STATE OF MONTANA

on its Contracts Clause claims. In response, Montana argued 

that Lolo Liquor was unlikely to prevail on its Contracts 

Clause claims because, under section 11 of the agency 

franchise agreement, the parties had expressly agreed that 

“any change required by a change in Montana law shall be 

effective immediately upon the effective date of such change 

in law, notwithstanding the failure of a party to agree in 

writing to such change.” The district court agreed with the 

state and denied Lolo Liquor’s request for a preliminary 

injunction. On appeal, a panel of this court affirmed in a 

memorandum disposition. LL Liquor, Inc. v. Montana, 

649 F. App’x 627 (9th Cir. 2016) (unpublished decision).

Back in the district court, Montana moved for summary 

judgment on all claims, and Lolo Liquor cross-moved for 

partial summary judgment on its Contracts Clause claims. 

The district court granted summary judgment to Montana. 

LL Liquor, Inc. v. Montana, No. CV 15-71-H-SEH, 2017 

WL 1497872 (D. Mont. Apr. 25, 2017). This appeal 

followed.

II

The Contracts Clause provides that “[n]o state shall . . . 

pass any . . . Law impairing the Obligation of Contracts,” 

U.S. Const. art. I, § 10, cl. 1, thereby “restrict[ing] the power 

of States to disrupt contractual arrangements,” Sveen v. 

Melin, 138 S. Ct. 1815, 1821 (2018).2 But not all state 

 2 The Supreme Court has bounced between using the plural 

“Contracts” and the singular “Contract” when referring to this Clause. 

Compare, e.g., Sveen, 138 S. Ct. at 1821 (plural), with Evenwel v. Abbott, 

136 S. Ct. 1120, 1138 (2016) (singular). Other federal courts have been 

similarly inconsistent. Compare, e.g., Allen v. Cuomo, 100 F.3d 253, 256 

(2d Cir. 1996) (plural), with RUI One Corp. v. City of Berkeley, 371 F.3d 

1137, 1141 (9th Cir. 2004) (singular). Because the text of the Clause uses 
LL LIQUOR V. STATE OF MONTANA 9

regulation of contracts gives rise to a Contracts Clause claim. 

Instead, “[t]he threshold issue is whether the state law has 

‘operated as a substantial impairment of a contractual 

relationship.’” Id. at 1821–22 (quoting Allied Structural 

Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978)). “This 

inquiry has three components: whether there is a contractual 

relationship, whether a change in law impairs that 

contractual relationship, and whether the impairment is 

substantial.” Gen. Motors Corp. v. Romein, 503 U.S. 181, 

186 (1992).3

Here, no one disputes that the agency franchise 

agreement at issue is a cognizable contractual relationship 

under the Contracts Clause. We turn, then, to whether 

Montana impaired a contractual relationship within the 

meaning of the Contracts Clause.

A

The Supreme Court has long rejected the notion that an 

interpretive disagreement over a contract—even if that 

contract is with a state or municipality—can, on its own, 

implicate the Contracts Clause. That argument, the Court has 

noted, “reduces itself at once to the proposition that 

wherever it is asserted on the one hand that a municipality is 

bound by a contract to perform a particular act and the 

 

the plural, so do we. See U.S. Const. art. I, § 10, cl. 1; see also Crosby v. 

City of Gastonia, 635 F.3d 634, 638 n.2 (4th Cir. 2011).

3 To be sure, courts do not always proceed methodically from the 

first two questions (i.e., whether there was a contractual relationship and 

whether that relationship was impaired) to the third (i.e., whether that 

impairment was substantial). That is because “[n]ormally, the first two 

are unproblematic, and we need address only the third.” Romein, 

503 U.S. at 186. As we explain below, this case is different.
10 LL LIQUOR V. STATE OF MONTANA

municipality denies that it is liable under the contract to do 

so, thereby an impairment of the obligations of the contract 

arises in violation of the Constitution of the United States.” 

St. Paul Gaslight Co. v. City of St. Paul, 181 U.S. 142, 149 

(1901). And, as St. Paul Gaslight explained, that proposition 

“amounts only to the contention that every case involving a 

controversy concerning a [governmental] contract is one of 

Federal cognizance, determinable ultimately in this court.” 

Id.

Consistently with St. Paul Gaslight, we have been 

careful to distinguish between situations in which the state 

“has ‘impaired the obligation’ of its contract” and those in 

which it “has simply breached its contract with the private 

party.” Pure Wafer Inc. v. City of Prescott, 845 F.3d 943, 

951 (9th Cir. 2017); accord Univ. of Haw. Prof’l Assembly 

v. Cayetano, 183 F.3d 1096, 1102–03 (9th Cir. 1999). Pure 

Wafer reiterated that “conflating the two concepts would risk 

making a federal constitutional case out of even the most 

garden variety public contract dispute, transforming the 

Contract Clause into a font of state contract law.” 845 F.3d 

at 951; see also Horwitz-Matthews, Inc. v. City of Chicago, 

78 F.3d 1248, 1250 (7th Cir. 1996). Implementing this 

distinction, Pure Wafer concluded that state action does not 

“impair” a contractual obligation within the meaning of the 

Contracts Clause “so long as it leaves both parties free to 

obtain a court-ordered remedy (typically damages) in the 

event that either of them fails to perform as promised.” 

845 F.3d at 951. But where state action “not only adversely 

affects [a party’s] contractual expectations, but . . . slams the 

door on any effective remedy,” the Contracts Clause is 

implicated. Cayetano, 183 F.3d at 1104; see also Romein, 

503 U.S. at 189 (“[C]hanges in the laws that make a contract 

legally enforceable may trigger Contract Clause scrutiny if 
LL LIQUOR V. STATE OF MONTANA 11

they impair the obligation of pre-existing contracts, even if 

they do not alter any of the contracts’ bargained-for terms.”).

As an example, consider Cayetano. That case considered 

a law allowing the state to postpone the dates on which state 

employees were paid, despite a prior collective bargaining 

agreement providing that those employees would be paid 

semimonthly. Cayetano, 183 F.3d at 1102, 1104. That 

change in law left the plaintiffs with no remedy under 

contract law, as state law did not provide a cause of action 

for breach of a labor agreement with the state, and any other 

remedies (such as arbitration or a complaint to a state 

agency) would be “more theoretical than real.” Id. at 1104. 

Because the state had “not merely relieved itself of a 

contractual obligation” but “eliminated any avenues of 

redress,” we concluded that the state had “impaired” its 

contractual obligation within the meaning of the Contracts 

Clause. Id.

By contrast, Pure Wafer held the Contracts Clause not 

implicated by a city ordinance limiting the amount of 

pollutants industrial users were permitted to discharge into 

the city’s sewer lines, notwithstanding a preexisting contract 

with a plaintiff company authorizing the company to 

discharge a certain concentration of pollutant. 845 F.3d at 

947–49, 952. There, “the City . . . never asserted the 

Ordinance as a defense that would have the legal effect of 

discharging the City’s duty to perform.” Id. at 952. Instead, 

“the thrust of [the city’s] argument” was that the company 

had “‘agreed to comply with environmental regulations,’ and 

that the ‘cost of regulatory compliance [was] not a term that 

was bargained for.’” Id. at 953 (second alteration in 

original). Thus, the city attempted only “to refute the 

company’s claimed rights under the Agreement,” not “to 

render such rights legally unenforceable.” Id. Accordingly, 
12 LL LIQUOR V. STATE OF MONTANA

“the City [did] not impair[] the obligation of its contract.” Id.

at 952.

B

Our question, then, as to whether the Contracts Clause is 

implicated is whether, following the enactment of SB 153, 

Lolo Liquor would have a remedy under state law against 

Montana for breach of contract, if it can establish such a 

breach. If Montana would provide a state law remedy, then 

its alteration of the commission structure was not an 

“impairment” within the meaning of the Contracts Clause. If 

it does not so provide, then our inquiry under the Contracts 

Clause continues. In making this determination, we look to 

what remedies would in fact be available under state law. See

Cayetano, 183 F.3d at 1104.

More specifically, Lolo Liquor maintains here that 

Montana promised in the agency franchise agreement that 

the commission rate would not change during the ten-year 

term of the agreement unless Lolo Liquor consented, but 

then breached that promise by lowering the rate in 

accordance with SB 193. If Lolo Liquor retains the ability to 

recover for this alleged breach under state law, then it does 

not have a Contracts Clause claim. See Pure Wafer, 845 F.3d 

at 951. We must therefore consider Montana’s defenses to 

liability for the alleged breach. Particularly relevant to our 

analysis is whether Montana is attempting only “to refute

[Lolo Liquor’s] claimed rights” under the agreement, or 

whether the state is trying “to render such rights legally 

unenforceable.” Id. at 953.

Here, Montana provides two related reasons why Lolo 

Liquor cannot recover for a breach of contract. First, 

Montana argues that the parties expressly acknowledged in 

section 11 that any provision of the agreement—including 
LL LIQUOR V. STATE OF MONTANA 13

the established commission rate—was subject to 

modification by state law. Thus, Montana contends, its 

adjustment of the commission rates was fully consistent with 

the terms of the agreement. Second, Montana asserts that 

“when a state, exercising its sovereign power, enters into a 

franchise agreement,” as Montana did here, “the sovereign 

may retain the right to unilaterally modify the terms of the 

agreement.” Montana therefore suggests that, without regard 

to section 11, the state was permitted to adjust the 

commission rates without Lolo Liquor’s consent.

Montana’s first argument does not implicate the 

Contracts Clause. With that contention, Montana is 

responding to a contractual—not a constitutional—argument 

made by Lolo Liquor. Lolo Liquor interprets the agreement 

to provide a right to a fixed commission rate during the 

agreement’s duration; Montana disagrees.

That one of the provisions at issue—section 11—could 

permit Montana unilaterally to modify the agreement does 

not compel a different conclusion. If the parties agreed that 

the commission rate would not change, then Montana 

breached the agreement by changing the commission rate. If 

the parties agreed that the commission rate was subject to 

unilateral modification, then no breach occurred. At bottom, 

the parties’ arguments amount to dueling interpretations 

between the parties over the proper meaning of their 

agreement. As in Pure Wafer, to the extent Montana’s 

defense is grounded in the meaning of the contract, the state 

has not “attempted to render such [a] right[] legally 

unenforceable” but has instead “attempted to refute” the 

existence of that right. Id. at 953. Such an attempt does not 

trigger Contracts Clause scrutiny.

Our decision in Southern California Gas Co. v. City of 

Santa Monica, 336 F.3d 885 (9th Cir. 2003), does not 
14 LL LIQUOR V. STATE OF MONTANA

suggest otherwise. There, the asserted “contract” was a city 

ordinance that gave rights to a gas company to construct and 

maintain “pipes and appurtenances” under the city’s streets. 

Id. at 887. Several decades later, the city passed another 

ordinance that effectively eliminated those rights. Id. at 888. 

In response to a Contracts Clause claim brought by the gas 

company, the city argued that the new ordinance did not 

substantially impair the contract, because the original 

ordinance “subject[ed] the Gas Company’s rights to all 

ordinances ‘heretofore or hereafter adopted . . . in the 

exercise of [the city’s] police powers.’” Id. at 893 (omission 

in original). By agreeing to operate under the ordinance, the 

city argued, the company had “expressly acknowledged that 

its rights under the [contract] could be altered by future 

police power ordinances.” Id. We rejected that argument, 

recognizing that the city could not “avoid Contract Clause 

analysis merely by establishing that the . . . ordinance [was] 

an otherwise legitimate exercise of police power.” Id. We 

therefore declined to read the contract “in a way that 

reserve[d] to [the city] the power to unilaterally alter the 

terms of the agreement.” Id.

In Southern California Gas, however, the gas company 

did not bring a breach-of-contract claim; indeed, it is unclear 

whether the company could have brought such a claim, given 

that the asserted “contract” was another city ordinance. See

id. at 887.4 Moreover, we specifically noted that “the parties 

 4 In earlier decisions, the Supreme Court suggested that “the word 

‘contracts’ in section 10 of article 1 of the Constitution is used in its usual 

or popular sense as signifying an agreement of two or more minds, upon 

sufficient consideration, to do or not to do certain acts.” Crane v. Hahlo, 

258 U.S. 142, 146 (1922). Later, however, the Court clarified that the 

question whether there is a contractual relationship for purposes of the 

Contracts Clause is distinct from whether there is a contract under state 

law. See Gen. Motors Corp., 503 U.S. at 187 (“The question whether a 
LL LIQUOR V. STATE OF MONTANA 15

agree[d] . . . that the Gas Company’s claim [was] properly 

analyzed under the Contract Clause, rather than as a common 

breach of contract.” Id. at 889 (citing Cayetano, 183 F.3d at 

1102–04). Thus, Southern California Gas had no 

opportunity to conclude—as we do here—that dueling 

contractual interpretations give rise to only a breach-ofcontract claim, not a Contracts Clause claim. See Estate of 

Magnin v. Comm’r, 184 F.3d 1074, 1077 (9th Cir. 1999) 

(“When a case assumes a point without discussion, the case 

does not bind future panels.”).

Lolo Liquor also relies on the Montana Supreme Court’s 

decision in Seven Up Pete Venture v. State, 114 P.3d 1009 

(Mont. 2005), to argue that differing contractual 

interpretations can give rise to a Contracts Clause claim. 

Seven Up Pete, too, is consistent with our approach here.5

In Seven Up Pete, Montana passed a statute that banned 

a certain technique for gold and silver mining. Id. at 1015. A 

 

contract was made is a federal question for purposes of Contract Clause 

analysis, and ‘whether it turns on issues of general or purely local law, 

we can not surrender the duty to exercise our own judgment.’” (citation 

omitted) (quoting Appleby v. City of New York, 271 U.S. 364, 380 

(1926))); see also San Diego Police Officers’ Ass’n v. San Diego City 

Emps.’ Ret. Sys., 568 F.3d 725, 737 (9th Cir. 2009). Thus, under the 

Contracts Clause, the Court has recognized that “a statute is itself treated 

as a contract when the language and circumstances evince a legislative 

intent to create private rights of a contractual nature enforceable against 

the State.” U.S. Tr. Co. of N.Y. v. New Jersey, 431 U.S. 1, 17 n.14 (1977). 

Whether that statute also constitutes a contract under state law and so 

gives rise to a cause of action for breach of contract is a separate inquiry.

5 Of course, were Seven Up Pete inconsistent with our analysis, we 

would not be bound by it, as the issue here is the reach of the federal 

Constitution. See Taylor v. San Diego County, 800 F.3d 1164, 1171 (9th 

Cir. 2015).
16 LL LIQUOR V. STATE OF MONTANA

mining company that had previously received a state-issued 

mining lease challenged enforcement of the statute, alleging 

that it violated the Contracts Clause by impairing the mining 

lease. See id. In response, Montana argued that the mining 

lease was not substantially impaired because the lease 

expressly stated that the company “agreed to ‘fully comply 

with all applicable state and federal laws, rules and 

regulations.’” Id. at 1022. Seven Up Pete rejected this 

position, reasoning that the provision could not “reasonably 

be construed to contemplate a . . . ban of the one mining 

method admittedly contemplated by the parties,” and 

ultimately concluded that the ban substantially impaired the 

mining company’s contractual relationship with Montana. 

Id.

Importantly, the mining lease in Seven Up Pete did not 

in terms provide that the company would be permitted to use 

the mining technique at issue. Instead, the lease was “based 

on the assumption, held by all parties, that the [mining 

technique] would be used.” Id. (emphasis added). Indeed, 

Seven Up Pete confirmed that the mining company “lacked 

a . . . contract right to use” the specified mining technique. 

Id. Given that the mining company could not successfully 

challenge the mining technique ban as a breach of contract, 

Seven Up Pete’s conclusion that the company could bring a 

Contracts Clause claim is in accord with our reasoning here. 

See id.; cf. Cayetano, 183 F.3d at 1104.6

 6 As noted above, whether a contractual relationship exists for 

purposes of the Contracts Clause is separate from whether a contract 

exists under state law. See supra note 4. It is therefore possible for a 

plaintiff to state a claim under the Contracts Clause but not under state 

contract law. We express no view on the correctness of Seven Up Pete’s 

ultimate holdings with respect to either the Contracts Clause or state 

contract law.
LL LIQUOR V. STATE OF MONTANA 17

Montana’s second argument—that the state was 

permitted within its sovereign power to modify the 

commission rate whether or not doing so breached the 

contract—raises the specter of a Contracts Clause problem. 

An assertion that the state always has the unilateral authority 

to modify the provisions of a contract is inconsistent with the 

requirements of the Contracts Clause, which prohibits a state 

from “simply walk[ing] away from its financial obligations.” 

Energy Reserves Grp., Inc. v. Kan. Power & Light Co., 

459 U.S. 400, 413 n.14 (1983).7 Not surprisingly, no such 

authority exists.

The cases on which Montana relies establish that a state 

does not give up its sovereign power by contracting with 

others. See U.S. Tr. Co., 431 U.S. at 23–24; see also Ft. 

Smith Light & Traction Co. v. Bd. of Imp. of Paving Dist. 

No. 16, 274 U.S. 387, 390 (1927). It is an entirely different 

question whether a state may avoid financial liability when 

future exercises of the state’s sovereign power breach a 

contract and result in financial harm. As we noted in Pure 

Wafer, it is commonplace for states and municipalities to 

promise regulatory stability and pay damages if, for 

whatever reason, the promise is ultimately not kept. See

845 F.3d at 955–96. The Supreme Court, too, has recognized 

that such arrangements are permissible. See United States v. 

 7 We do not understand Montana’s argument to rest on state law 

concerning its sovereign prerogatives. All the case authority cited by the 

state is federal. Again, if state law did allow Montana unilaterally to 

modify contracts between itself and others without providing a damages 

remedy, then the federal Contracts Clause would be squarely implicated. 

But we have been provided no basis for so construing Montana law. To 

the contrary, the Montana Supreme Court has recognized that the state 

has affirmatively waived sovereign immunity for claims relating to 

express contracts. See Peretti v. State, 777 P.2d 329, 333 (Mont. 1989); 

see also Mont. Code Ann. § 18-1-404(1)(a) (2017).
18 LL LIQUOR V. STATE OF MONTANA

Winstar Corp., 518 U.S. 839, 871 (1996) (plurality opinion). 

These types of contracts do not “bind [the government] to 

ossify the law in conformity to the contracts.” Id. Instead, 

under these contracts, “the Government assume[s] the risk 

that subsequent changes in the law might prevent it from 

performing, and agree[s] to pay damages in the event that 

such failure to perform cause[s] financial injury.” Id.

If Montana did promise to maintain Lolo Liquor’s 

commission rate regardless of future changes in the law, it 

still retained its sovereign power to change the law. That 

Lolo Liquor, as the recipient of that promise, is entitled to 

recover for damages resulting Montana’s breach does not 

detract from that conclusion.

Because this alternative argument is baseless, Montana 

cannot rely on it to avoid Lolo Liquor’s claim for breach of 

contract. Thus, this argument too does not “render [Lolo 

Liquor’s] rights legally unenforceable,” and so does not 

implicate the Contracts Clause. Pure Wafer, 845 F.3d at 953.

C

As Lolo Liquor’s ability to recover under state law 

remains intact, we conclude that Montana’s passage of 

SB 153 did not impair a contractual obligation under the 

Contracts Clause. Lolo Liquor therefore has no claim under 

the Contracts Clause, and the district court did not err in 

granting summary judgment to Montana on this claim.

III

In sum, we hold that Montana did not impair its 

contractual obligation to Lolo Liquor within the meaning of 

the Contracts Clause, because it did not eliminate Lolo 

Liquor’s remedy for breach of its contract with the state. 
LL LIQUOR V. STATE OF MONTANA 19

Accordingly, we affirm the district court’s grant of summary 

judgment to Montana on Lolo Liquor’s Contracts Clause 

claim. We address Lolo Liquor’s breach-of-contract claim in 

a memorandum disposition filed concurrently with this 

opinion.

AFFIRMED.