Seventh Circuit Allows Beer Conspiracy Allegations One More Shot
On September 5, 2019, Judge Kenneth Ripple, writing for a unanimous panel of the U.S. Court of Appeals for the Seventh Circuit, partially reversed a lower court’s dismissal of antitrust claims alleging that two brewers conspired to restrict a competitor’s exports of beer to Ontario, Canada. Mountain Crest SRL, LLC v. Anheuser-Busch InBev SA/NV, No. 18-2327, 2019 WL 4198809 (7th Cir. Sept. 5, 2019). The Seventh Circuit held that agreements with a Canadian government-controlled entity (the Liquor Control Board of Ontario, or “LCBO”) were immune from antitrust scrutiny under the act of state doctrine. However, the Court held that claims of an alleged conspiracy between competitors to strong-arm the LCBO into entering into the agreements did not implicate the act of state doctrine and were improperly dismissed.
Plaintiff Mountain Crest, an independent brewery in Monroe, Wisconsin, brought claims against Defendants Anheuser-Busch and Molson Coors alleging monopolization and conspiracy in restraint of trade in the market for beer in Ontario, Canada. Plaintiff claimed that Defendants gained control of a cooperative of Ontario brewers that operate the only privately-held beer stores in Ontario through a series of acquisitions, controlling 75% of beer sales in the province. Defendants then allegedly leveraged their market share to instigate a group boycott of the LCBO, an entity controlled by the Ontario government with authority to control the importation and sale of beer, wine, and liquor throughout the province. The alleged boycott was designed to prevent the LCBO, which also operates publicly-owned beer stores, from selling 12- and 24-packs of beer. According to Plaintiff, allowing the LCBO to sell these larger, discount packs would threaten the business of Defendants’ beer stores, and so, acting through the cooperative, Defendants effectively coerced the LCBO to agree to refrain from selling beer in any quantity larger than a six-pack. Plaintiff alleged that the six-pack rule and other anticompetitive aspects of the contracts caused it to lose export sales to Ontario and incur fees associated with selling its beer in stores controlled by Defendants.
The U.S. District Court for the Western District of Wisconsin dismissed Plaintiff’s claims, holding that, in essence, a foreign state was a party to the agreements and any finding that the conduct violated the antitrust laws would require a finding that the government of Ontario also violated the antitrust laws. This, the Court reasoned, is prohibited by the act of state doctrine.
On appeal, the Seventh Circuit invited the U.S. Department of Justice (“DOJ”) to provide its views on the district court’s ruling. DOJ’s amicus brief supported the district court’s dismissal of the six-pack rule claims under the act of state doctrine. But DOJ further argued that Plaintiff’s claims that Defendants conspired to strong-arm the LCBO into adopting the rule should have been separately evaluated because such acts are not shielded by the doctrine.
The Seventh Circuit agreed, holding that the act of state doctrine insulates the acts of a foreign sovereign from antitrust scrutiny under American laws when those acts are lawful under the sovereign’s own laws. The Court articulated a two-pronged standard for applying the act of state doctrine: (1) courts must determine whether the complained-of practice is attributable to a foreign government, and, (2) if so, they must next determine whether a decision in Plaintiff’s favor would invalidate that government’s acts. Here, the Court found that both contracts entered into by the LCBO were official government actions, as the LCBO is wholly owned by the Ontario government, it “exercised considerable control” over the LCBO, and the government of Ontario was a party to the most recent contract. Next, the Court found that condemning the six-pack rule would essentially invalidate the contracts. Thus, Plaintiff’s conspiracy and monopolization claims were properly dismissed, to the extent that those claims sought relief stemming from the six-pack rule.
The Court, however, also found that Plaintiffs’ complaint sufficiently alleged that Defendants violated the antitrust laws by conspiring to cause the Ontario government to implement the six-pack rule. These allegations did not implicate the act of state doctrine because they would not invalidate the six-pack rule. The Court therefore partially reversed and remanded for reconsideration.
The act of state doctrine was one of multiple arguments Defendants made in their motion to dismiss. Because the act of state doctrine applied, the district court did not contemplate the applicability of other defenses. The Seventh Circuit declined to opine on whether another basis—like Noerr-Pennington immunity for government petitioning activity—would merit dismissal, leaving it for the district court to determine this issue.