Court Opinion

ID: 3162278
Source: CourtListenerOpinion
Date Created: 2015-12-14 21:00:59.365266+00
Date Added: 2024-06-11T12:24:01.575080
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 14-2559
INDIANA PETROLEUM MARKETERS AND
CONVENIENCE STORE ASSOCIATION, et al.,
                                               Plaintiffs-Appellants,

                                 v.

DAVID COOK, in his official capacity
as Chairman of the Indiana Alcohol
and Tobacco Commission,
                                                Defendant-Appellee.
                     ____________________

             Appeal from the United States District Court
     for the Southern District of Indiana, Indianapolis Division.
    No. 1:13-cv-00784-RLY-DML — Richard L. Young, Chief Judge.
                     ____________________

  ARGUED JANUARY 7, 2015 — DECIDED DECEMBER 14, 2015
               ____________________

   Before RIPPLE, WILLIAMS, and SYKES, Circuit Judges.
    SYKES, Circuit Judge. An association of Indiana conven-
ience stores filed this lawsuit seeking to invalidate a state
law that restricts the sale of cold packaged beer. The suit
claims the law violates the Equal Protection Clause because
some kinds of stores may sell cold beer but grocery and
2                                                    No. 14-2559

convenience stores may not. The district court upheld the
law and entered judgment for Indiana.
    We affirm. A threshold question is the extent to which the
Twenty-first Amendment affects this case. Indiana argues it
has “nearly absolute” authority to regulate alcohol sales
under the Twenty-first Amendment and no further analysis
is necessary. That’s not correct. But the district court was
right to uphold the law. Indiana’s cold-beer statute is subject
to rational-basis review and survives that lenient standard.
                         I. Background
    The Indiana Petroleum Marketers and Convenience Store
Association is a trade association that serves the interests of
gas stations and convenience stores located in the state. The
Association, together with three of its members and an
individual consumer, filed suit in federal court challenging
the constitutionality of section 7.1-5-10-11 of the Indiana
Code, which prohibits holders of a beer dealer’s permit from
selling cooled packaged beer. The suit contends that the
statute substantially reduces the beer sales of the Associa-
tion’s members and diverts those sales elsewhere.
    The defendants named in the complaint are the chairman
of the Indiana Alcohol and Tobacco Commission, sued in his
official capacity; the Commission itself; and the State of
Indiana. The Commission and Indiana were dropped from
the suit by stipulation, so the Commission chairman is the
sole remaining defendant. 1 Because he is sued in his official

1We’ve changed the case caption to reflect the name of the current
Commission chairman.
No. 14-2559                                                    3

capacity, we’ll refer to the defendant as “Indiana.” We’ll refer
to the plaintiffs collectively as “the Association.”
    The complaint alleges that the cold-beer statute violates
the Commerce Clause, the Equal Protection and Due Process
Clauses of the Fourteenth Amendment, and parallel provi-
sions in the Indiana Constitution. The equal-protection claim
rests on two separate theories. First, the Association con-
tends that the Indiana statutory scheme permits cold-beer
sales by grocery and convenience stores located in unincorpo-
rated towns but prohibits the sale of cold beer at like stores in
incorporated municipalities. Second, the Association contends
that the statutory scheme impermissibly discriminates
between package liquor stores, which are permitted to sell
cold beer, and grocery and convenience stores, which are
not.
    The district judge resolved the case on cross-motions for
summary judgment. He rejected the first equal-protection
theory because the statutory scheme does not actually allow
grocery and convenience stores in unincorporated towns to
sell cold beer, as the Association contended. On the second
equal-protection theory, the judge held that Indiana has a
rational basis for prohibiting grocery and convenience stores
from selling cold beer. The judge also considered and reject-
ed the other constitutional challenges and granted Indiana’s
motion for summary judgment in its entirety. By separate
order the judge denied the Association’s motion and entered
final judgment for Indiana.
   The Association appealed, focusing solely on the equal-
protection claim.
4                                                 No. 14-2559

                         II. Discussion
A. Twenty-first Amendment
   Indiana argues that the plaintiffs’ equal-protection chal-
lenge is “doomed” because state authority to regulate how
alcoholic beverages are sold is “nearly absolute” under the
Twenty-first Amendment. That’s a considerable overstate-
ment.
    The Twenty-first Amendment ended Prohibition and re-
stored the regulatory authority of the States over the trans-
portation and importation of alcoholic beverages within
their borders. More specifically, § 2 of the Amendment
provides: “The transportation or importation into any State,
Territory, or possession of the United States for delivery or
use therein of intoxicating liquors, in violation of the laws
thereof, is hereby prohibited.” U.S. CONST. amend. XXI § 2
(emphasis added). As the Supreme Court has explained, § 2
of the Twenty-first Amendment restored state regulatory
authority as it existed prior to the ratification of the Eight-
eenth Amendment, but it did not immunize state alcohol
laws from challenge under other parts of the Constitution.
Granholm v. Heald, 544 U.S. 460, 484–88 (2005).
    Granholm was a Commerce Clause challenge to laws in
Michigan and New York prohibiting out-of-state wineries
from selling directly to consumers in those states. Id. at 465–
66. The Court invalidated the two laws, holding that the
dormant Commerce Clause “does not allow States to ban, or
severely limit, the direct shipment of out-of-state wine while
simultaneously authorizing direct shipment by in-state
producers.” Id. at 493.
No. 14-2559                                                    5

    Along the way to this holding, the Court explained that
“state laws that violate other provisions of the Constitution
are not saved by the Twenty-first Amendment.” Id. at 486. To
illustrate the point, the Court cited several of its cases apply-
ing other constitutional provisions to state alcohol regula-
tion, including challenges under the First Amendment, the
Establishment Clause, the Equal Protection Clause, the Due
Process Clause, the Import-Export Clause, Congress’s Com-
merce Power, and the dormant Commerce Clause. Id. at 486–
87.
    Indiana points to other language in Granholm that in its
view supports expansive state power to regulate alcohol
without the usual constitutional limits. The Court said that
“[t]he Twenty-first Amendment grants the States virtually
complete control over whether to permit importation or sale
of liquor and how to structure the liquor distribution sys-
tem.” Id. at 488 (quoting Cal. Retail Liquor Dealers Ass’n v.
Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980)). This passage
cannot be read in isolation. What comes next in the opinion
clarifies the Court’s point: “A State which chooses to ban the
sale and consumption of alcohol altogether could bar its
importation; and, as our history shows, it would have to do
so to make its laws effective.” Id. at 488–89. In other words,
the States have the power under the Twenty-first Amend-
ment to ban the importation of alcohol, but to avoid trans-
gressing the limits of the dormant Commerce Clause, they
may do so only if they also ban the intrastate sale and con-
sumption of alcohol.
   The Court also said that the three-tier distribution alcohol
system in use in many states—a system that requires the
separation of producers, distributors/wholesalers, and
6                                                 No. 14-2559

retailers—is “unquestionably legitimate” as state policy. Id.
at 489. This statement, too, must be understood in context.
The Court explained that “[s]tate policies [like the three-tier
distribution system] are protected under the Twenty-first
Amendment when they treat liquor produced out of state
the same as its domestic equivalent.” Id. That is, the dormant
Commerce Clause isn’t violated by a three-tier distribution
system that treats all alcohol sales equivalently regardless of
origin.
    These passages from Granholm make it clear that the reg-
ulatory power of the States under the Twenty-first Amend-
ment remains subject to other constitutional limits, including
the limits imposed by the Equal Protection Clause. See Craig
v. Boren, 429 U.S. 190, 209 (1976) (holding that “the Twenty-
first Amendment does not alter the application of equal
protection standards that otherwise govern this case” and
striking down a law that permitted women aged 18–21 to
buy beer while denying men the same right). That the States
have broad authority under the Twenty-first Amendment to
design their regulatory systems for the transportation,
importation, and distribution of alcohol doesn’t mean they
can ignore the rest of the Constitution. In short, the Twenty-
first Amendment doesn’t immunize Indiana’s cold-beer
statute from equal-protection challenge.
B. Equal Protection
   Moving to the merits, because the cold-beer statute
doesn’t involve a suspect classification, rational-basis review
applies. FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 313 (1993).
This is a heavy legal lift for the challengers. Under rational-
basis review, a statutory classification comes to court bearing
“a strong presumption of validity,” and the challenger must
No. 14-2559                                                     7

“negative every conceivable basis which might support it.”
Id. at 314–15 (quotation marks omitted). “To uphold a legis-
lative choice, we need only find a ‘reasonably conceivable
state of facts that could provide a rational basis’ for the
classification.” Goodpaster v. City of Indianapolis, 736 F.3d
1060, 1072 (7th Cir. 2013) (quoting Heller v. Doe, 509 U.S. 312,
320 (1993)).
    To carry its burden, the Association must establish that
Indiana’s cold-beer regulatory scheme treats its members
differently than others similarly situated and the difference
in treatment is not rationally related to a legitimate state
interest. Srail v. Village of Lisle, 588 F.3d 940, 943 (7th Cir.
2009). As we’ve noted, the Association claims that the Indi-
ana law treats grocery and convenience stores differently in
two respects: (1) it permits grocery and convenience stores to
sell cold beer if they’re located in unincorporated towns but
not if they’re located in incorporated municipalities; and (2) it
permits package liquor stores to sell cold beer but not gro-
cery and convenience stores. We’ll address each argument in
turn. Before we do, however, a more complete explanation of
the regulatory scheme is necessary.
   1. Indiana’s Permitting Statutes for Beer Sales
    As relevant here, Indiana issues two types of permits au-
thorizing the sale of beer. The first is a “beer dealer’s” per-
mit, which may be issued “to a person who desires to sell
beer to customers for consumption only off the licensed
premises.” IND. CODE § 7.1-3-5-1 (emphasis added). The
holder of this kind of permit “may not sell beer by the drink
nor for consumption on the licensed premises nor shall a
beer dealer allow it to be consumed on the licensed premis-
es.” Id. § 7.1-3-5-3(c). A beer dealer’s permit is available “only
8                                                   No. 14-2559

to an applicant who is the proprietor of a drug store, grocery
store, or package liquor store.” Id. § 7.1-3-5-2(a). Conven-
ience stores are included within the definition of grocery
stores as long as alcohol sales represent no more than 25% of
their annual gross sales. Id. § 7.1-1-3-18.5.
    With one notable exception, holders of a beer dealer’s
permit cannot sell “beer that was iced or cooled by the
permittee before or at the time of the sale.” Id. § 7.1-5-10-
11(a). The exception is for package liquor stores, which are
allowed “to sell and deliver warm or cold beer for carry-out.”
Id. § 7.1-3-5-3(d) (emphasis added). We’ll return to package
liquor stores in greater detail later.
     The second type of permit is a “beer retailer’s” permit,
which may be issued “to a person who desires to sell beer to
customers for consumption on the licensed premises.” Id. § 7.1-3-
4-1 (emphasis added). A beer retailer’s permit may not be
issued to “[a] person who is not the proprietor of a restau-
rant … , or of a hotel, or of a club.” Id. § 7.1-3-4-2(a)(13)
(emphasis added). Beer retailers may serve beer for con-
sumption on the licensed premises and sell packaged beer
(warm or cold) for consumption elsewhere. Id. § 7.1-3-4-6(a),
(c).
    2. Incorporated vs. Unincorporated Towns
    The Association’s first equal-protection argument is that
grocery and convenience stores in unincorporated towns are
permitted to sell cold beer but grocery and convenience
stores in incorporated municipalities are prohibited from
doing the same. This difference in treatment, the Association
argues, lacks a rational basis because none of the reasons for
restricting sales of cold beer are any stronger in unincorpo-
No. 14-2559                                                     9

rated, unpoliced towns than in incorporated, policed munic-
ipalities. Indiana responds that the Association has misun-
derstood the statutory scheme: grocery and convenience
stores located in unincorporated towns are not allowed to
sell cold beer, so there’s no difference in treatment in the first
place.
    We agree with Indiana: The Association’s argument rests
on a misreading of the regulatory system. As we’ve ex-
plained, a grocery or convenience store holding a beer
dealer’s permit is not allowed to sell cold beer regardless of
where the store is located. The Association’s argument relies
on a provision in the statute governing the issuance of a beer
retailer’s permit:
       Premises Outside Corporate Limits: Persons
       Eligible. The commission may issue a beer re-
       tailer’s permit as authorized by IC 1971, 7.1-3-
       4-3, only to an applicant who is the proprietor
       of a drug store, grocery store, confectionery, or
       of a store in good repute which, in the judg-
       ment of the commission, deals in other mer-
       chandise that is not incompatible with the sale
       of beer.
IND. CODE § 7.1-3-4-4. The cross-referenced provision, sec-
tion 7.1-3-4-3, allows the Commission to issue a beer retail-
er’s permit “within, or in immediate proximity to, an unin-
corporated town,” provided that certain criteria are met. As
noted above, however, another statute imposes an important
restriction on the issuance of a beer retailer’s permit, one that
has special relevance here: “[E]xcept as otherwise authorized
in this title,” the Commission may not issue a beer retailer’s
10                                                         No. 14-2559

permit to anyone who “is not the proprietor of a restau-
rant[,] … hotel, or … club.” § 7.1-3-4-2(a)(13).
    The Association seizes on the “except as otherwise au-
thorized” language and points to sections 7.1-3-4-3 and 7.1-
3-4-4, mentioned above, which authorize the Commission to
issue a beer retailer’s permit to grocery and convenience
stores in unincorporated towns, at least in theory. But this
theoretical possibility is difficult to square with the general
provision limiting beer retailers’ permits to “person[s] who
desire[] to sell beer to customers for consumption on the
licensed premises,” § 7.1-3-4-1 (emphasis added), which
obviously doesn’t describe grocery and convenience stores. 2
    We don’t need to untangle this statutory thicket to re-
solve this case. As a practical matter, grocery and conven-
ience stores can only sell beer under a beer dealer’s permit;
their business model would have to shift considerably to
secure a retailer’s permit. For starters, to be eligible for a
retailer’s permit, a grocery or convenience store would need
to alter its operations to serve alcohol to customers inside the
store. Id. Self-service selection of beer from the shelf or cooler
would be prohibited. 905 IND. ADMIN. CODE 1-29-2 (“Package
alcoholic beverages shall be sold by a retail permittee only in
… the room where alcoholic beverages are stored, prepared,

2 Other provisions in the statutory scheme also suggest that entities
serving alcohol in-house are expected to hold a beer retailer’s permit and
those selling alcohol for consumption elsewhere—like grocery and
convenience stores—are expected to hold a beer dealer’s permit. To take
one example, the term “alcohol servers” is defined to mean managers,
bartenders, and waiters and waitresses for purposes of beer retailers, but
for beer dealers the same term is defined to mean managers and sales
clerks. See IND. CODE § 7.1-3-1.5-1.
No. 14-2559                                                    11

or dispensed … . There may not be a separate cash register
for package sales. There shall be no self-service.”). Instead of
having sales clerks and store managers sell alcohol, only
bartenders, wait staff, and managers would be permitted to
do so, and they would need additional “employees’ permits”
from the Commission. See IND. CODE § 7.1-3-1.5-1 (defining
“alcohol servers”); id. § 7.1-3-18-9(a), (c) (listing when an
employee’s permit is required for alcohol sales). Employees
under 21 years of age would be ineligible to serve or sell
beer. Id. § 7.1-5-7-12, -13(3) (exceptions allowed only for
service “in a dining area or family room of a restaurant or
hotel”).
    This litany of requirements for the issuance of a beer re-
tailer’s permit exposes the fundamental flaw in the Associa-
tion’s argument. Grocery and convenience stores throughout
Indiana—whether in unincorporated towns or incorporated
municipalities—simply don’t operate in the manner required
for a beer retailer’s permit. So it’s no surprise that the Associ-
ation hasn’t found any evidence that a grocery or conven-
ience store located anywhere in Indiana has a beer retailer’s
permit. To the contrary, there is evidence in the record that
officers of the Indiana Excise Police have issued citations to
grocery and convenience stores in unincorporated towns for
unlawfully selling cold beer in violation of the statutes
governing their beer dealers’ permits.
    Indeed, there’s no evidence that the Association and its
members even want a retailer’s permit, which is wholly
inconsistent with the business model of a grocery or conven-
ience store. Instead, the Association’s members want to sell
cold beer within their current business model; that’s why
they’re asking us to invalidate the cold-beer sales restriction
12                                                  No. 14-2559

on the beer dealer’s permit. Id. § 7.1-5-10-11. But the statutory
scheme that governs beer dealers doesn’t distinguish be-
tween grocery and convenience stores in incorporated and
unincorporated areas. All are treated the same.
     3. Grocery Stores, Convenience Stores, and Pharmacies
        vs. Package Liquor Stores
    The Association’s second equal-protection argument is
that package liquor stores are permitted to sell cold pack-
aged beer but grocery and convenience stores are not. See
§§ 7.1-5-10-11, 7.1-3-5-3(d). Indiana defends this distinction
by noting that package liquor stores are subject to stricter
regulations designed to enhance the State’s ability to limit
and control the distribution of alcohol. For instance, no one
under the age of 21 is permitted on the premises of a pack-
age liquor store. Compare IND. CODE § 7.1-5-7-10 with id. § 7.1-
5-7-11(a) (listing exceptions not applicable here). Sales clerks
must be at least 21 years old. See id. § 7.1-5-7-12 (prohibiting
the sale of alcohol by minors); see also id. § 7.1-5-7-13 (estab-
lishing a limited exception for 19- and 20-year-old servers in
restaurants and hotels, provided that they have special
training and are supervised by a trained employee over the
age of 21). Hours and days of operation are restricted. See,
e.g., id. § 7.1-5-10-1 (requiring licensed premises to close
during times that alcohol sales are unlawful “to the extent
that the nature of the business … permits”); id. § 7.1-3-1-14(a)
(providing that alcohol sales are lawful Monday through
Saturday from 7 a.m. to 3 a.m. the following day).
    Indiana explains that the goal of this regulatory scheme
is to curb underage beer consumption by limiting the sale of
immediately consumable cold beer. Restricting the sale of
No. 14-2559                                                  13

cold beer to stores that are more rigorously regulated is
rationally related to that legitimate goal.
    The Association attacks this legislative choice with sever-
al policy arguments: beer is beer, and grocery and conven-
ience stores already sell it, just not cold; grocery and conven-
ience stores are permitted to sell chilled drinks with higher
alcohol content (like wine coolers) so why not chilled beer;
grocery and convenience stores have a better record of
compliance with state alcohol laws than liquor stores; gro-
cery and convenience stores are frequented by police officers
and other adult customers, deterring underage persons from
trying to buy alcohol there; and selling beer in refrigerators
makes it less accessible than selling it warm.
    This mode of argument doesn’t suffice under rational-
basis review. To succeed on its claim, the Association must
“negative every conceivable basis which might support” the
statutory scheme. Armour v. City of Indianapolis, 132 S. Ct.
2073, 2080–81 (2012) (quotation marks omitted). The Associa-
tion’s policy arguments for allowing cold-beer sales by
grocery and convenience stores are matters for the Indiana
legislature, not the federal judiciary.
    For the foregoing reasons, the Association has failed to
carry its burden of demonstrating that Indiana’s cold-beer
statute violates the Equal Protection Clause.
                                                     AFFIRMED.