Court Denies $1.6 Million Claim for Attorneys’ Fees in Granholm-style Commerce Clause Case That Helped Create the Craft Brewer’s License

I’m sure you all remember the Illinois kerfuffle from 2010 and 2011 that had the beer blogging world on edge.  If not, there are a host of sources for rehashing your fears and anticipations in the links we just provided.

Briefly, an Illinois Federal District Court held that Illinois policy under the then Liquor Control Act allowing some in-state distributors the privilege of self-distribution (two of those named were Argus and Big Muddy) while not allowing out-of-state brewers the privilege violated the commerce clause in light of the Granholm decision.  The conclusion from the Court’s opinion read:

“In light of the Supreme Court’s decision in Granholm, Illinois may not permit in-state brewers to distribute their products directly to retailers while withholding that privilege from out-of-state brewers. Without demonstrating the need for such discrimination, Illinois’ system prevents out-of-state brewers from competing on equal terms with in-state brewers. Under the Commerce Clause, Illinois’ policy favoring in-state brewers cannot stand. Therefore, the Court grants Plaintiffs’ motion for partial summary judgment on its Commerce Clause claim. However, the Court denies Plaintiffs’ 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. Finally, in recognition of the General Assembly’s ultimate authority over Illinois public policy, including a remedy for the constitutional defect identified in this legislation, the Court stays the enforcement of its ruling until March 31, 2011, in order to provide the General Assembly with sufficient time to act on this matter. The parties are directed to file a joint status report by March 15, 2011, advising the Court of the status of any legislative efforts to address the constitutional defect identified in this opinion, after which time the Court will determine whether to lift or extend the stay.”

The legislature responded with Senate Bill 754.

Senate Bill 754 turned into Public Act 97-0005 and created the Craft Brewer’s license, gave Craft Brewer’s the right to self-distribute, and also created an exception requiring brewpub owners to have a separate premise for brewing if they wanted to obtain a craft brewer’s license.

Because the legislature created a solution to the problem, that allowed Craft Brewers the right to self-distribute and not “brewers” in general, the State was no longer allegedly violating the mandates of Granholm’s commerce clause restrictions and the appeal that had been pending before the 7th Circuit was dismissed as moot.

One of the remaining issues in the matter was whether the attorneys for the Plaintiffs would be granted their fees in the action.  The fees requested were roughly $1.6 Million.  The brief filed by the Defendants in opposition to the fee request is insightful and has some detail about how these fees break down.

The same Court has now issued the following opinion on the Plaintiffs’ request for attorneys’ fees claiming that they were entitled to the fees as the “prevailing party”.  The request was denied in no small way.  The Court noted that a substantial goal of the Plaintiffs stated case was to obtain the ownership interest in an Illinois wholesaler, which they didn’t accomplish:

“But even if the constitutional victory alone were enough to convey prevailing party status despite Plaintiffs’ failure to (1) secure the remedy they wanted or (2) close their commercial transaction, the nominal success resulting from the constitutional victory amounts to a “Pyrrhic victory.” Plaintiffs aimed to acquire 100% of a distributor and effectively collapse Illinois’ three-tier system, and instead the 30% interest that they already own is in jeopardy and the marketplace is now more hospitable to their smaller competitors. In the Seventh Circuit’s words, Plaintiffs aimed “high and fell far short.”…

“In sum, the Court concludes that this case presents one of those relatively rare instances in which a party “formally prevails” on at least a portion of its lawsuit, but “should receive no attorney’s fees at all.”

The Court also noted that if the Defendants, the Illinois Liquor Control Commission, were taxed with these fees, it would mean that the taxpayers of Illinois would ultimately bear the burden.

Those who take the side of ending the three-tier system may consider a Court’s favorable commerce-clause analysis something more favorable than a “Pyrrhic victory”.  A careful reading of this opinion over fees gives some insight on how to craft the claims for relief requested and how to discuss a parties goals in oral argument and on paper to potentially create a request where fees should be awarded.