Triple Whammy Dealt|to Anheuser-Busch

CHICAGO (CN) - Anheuser-Busch cannot collect attorneys' fees after its challenge to the Illinois liquor-distribution system backfired and prompted a new law that favors craft brewers.

In March 2010, the Illinois Liquor Control Commission ruled that Anheuser-Busch, the largest brewer in the United States, could not acquire a 100 percent interest in an Illinois distributor, City Beverage.

The Illinois Liquor Control Act prohibits a nonresident dealer from possessing an ownership interest in a licensed Illinois distributor. The commission explained that "preserving Illinois' three-tier distribution system of alcoholic liquor is a fundamental objective of the Liquor Control Act and the Illinois legislature for reasons of public policy."

Anheuser-Busch and City Beverage challenged the commission's ruling in federal court, alleging that it prevented big brewers from "competing on equal footing" with in-state beer producers which may distribute their own products.

In September 2010, the court granted plaintiff's motion for partial summary judgment, ruling that "Defendants' enforcement of the Illinois Liquor Control Act of 1934 violated the Commerce Clause of the United State Constitution insofar as it permits-in-state, but not out-of-state, producers to self-distribute," according to last weeks judgment.

However, the court declined to adopt Anheuser-Busch's proposed remedy in order to allow the Illinois General Assembly to amend the Act.

In June 2011, Gov. Pat Quinn signed SB 754, which created a new "craft brewer's license" for in- and out-of state producers whose annual production is less than 15,000 barrels, and permitted them to self-distribute up to 7,500 barrels in Illinois.

Once this new law was passed, the court dismissed the case as moot, because the law "eliminates the geographically disparate treatment of beer distributors."

Last week, U.S. District Judge Robert Dow Jr. denied Anheuser-Busch's motion for attorneys' fees, noting that this case presents "the interesting question of whether (or how) to award fees to a party that wins on a straightforward, threshold issue, but gains little or nothing (and eventually loses ground) as a result of the litigation."

He said that "plaintiffs contend that they are entitled to all of their reasonable fees because they won a complete victory on the constitutional claim; defendants counter that plaintiffs are entitled to little or no attorneys' fees because they achieved, at best, a very modest (and "Pyrrhic") victory that fell well short of their aim in bringing the litigation."

Anheuser-Busch not only failed to acquire a full ownership interest in City Beverage, but the General Assembly's amendment of the Liquor Control Act "was even less favorable to Plaintiffs than the Court's ruling would have been - the new statute not only barred Plaintiffs from self-distributing (and hence blocked plaintiffs' acquisition of City Beverage), but the General Assembly also extended self-distribution rights to small brewers across the nation, creating more competition for plaintiffs beyond the two small, in-state brewers who self-distributed prior to this lawsuit," Dow said.

The court noted that it "does not wish to minimize the constitutional infirmity created by defendants' interpretation of the prior law, or plaintiffs' role in bringing it to light. But an honest assessment of plaintiffs' complaint and litigation strategy makes clear that they failed to attain the only thing they actually wanted in this litigation-to be able to acquire the remaining interest in City Beverage."

Dow stated, "Plaintiffs aimed to acquire 100percent of a distributor and effectively collapse Illinois' three-tier system, and instead the 30percent interest that they already own is in jeopardy and the marketplace is now more hospitable to their smaller competitors."

He concluded: "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.'"

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