and Submitted May 15, 2018
from the United States District Court for the District of
Montana Sam E. Haddon, Senior District Judge, Presiding No.
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
Before: Marsha S. Berzon, Stephanie Dawn Thacker, [*] and Andrew D.
Hurwitz, Circuit Judges.
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.
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.
BERZON, CIRCUIT JUDGE
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 ninety-six liquor stores in the
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 "commission
rates"-were negotiated between the DOR and each store.
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.
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
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 .
. . 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).
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.
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