Stawski Distributing Co., Inc. v. Browary Zywiec S.A., Doing Business as Zywiec Breweries, LLC

Citations: 349 F.3d 1023; 2003 WL 22724674Docket: 03-2553

Court: Court of Appeals for the Seventh Circuit; December 11, 2003; Federal Appellate Court

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The case involves Stawski Distributing Co., Inc. (Plaintiff-Appellee) versus Browary Zywiec S.A. (Defendant-Appellant), concerning a dispute over a contract stipulating arbitration in Poland under Polish law. Stawski filed a federal lawsuit after Zywiec planned to sell beer in Illinois through another distributor, claiming this action violated the Illinois Beer Industry Fair Dealing Act. Stawski sought an injunction to compel Zywiec to continue supplying beer, while Zywiec requested a stay of litigation to enforce the arbitration agreement. The district court favored Stawski, asserting that the Twenty-First Amendment allows states to override both national and international arbitration laws in the liquor industry context. Zywiec appealed, citing entitlement under federal law to challenge the decision.

Stawski acknowledged the arbitration agreement's enforceability in non-liquor business contexts but highlighted that Illinois law necessitates arbitration to be presented as a separate choice, whereas Zywiec included it in a standard-form contract. Federal law, however, prohibits states from imposing unique arbitration rules that do not apply universally to contracts, thus supporting the enforceability of Stawski's arbitration agreement in Poland.

Regarding choice of law, the Federal Arbitration Act and the New York Convention do not protect agreements that contradict state prohibitions against opting out of specific substantive norms. The Supreme Court's rulings in Mitsubishi Motors Corp. and Scherk v. Alberto-Culver clarified that while arbitration affects venue, it does not alter substantive legal obligations. Concerns about foreign arbitrators failing to apply U.S. securities laws were deemed insufficient to preclude arbitration, reinforcing the position that arbitration agreements are valid even when they involve international contexts.

International arbitrators are required to apply U.S. law to transactions that may hinder competition in the U.S., as established in Mitsubishi, with judicial review under the New York Convention ensuring compliance. In Baxter International, Inc. v. Abbott Laboratories, the review process is aimed at confirming that relevant issues have been addressed rather than conducting an independent assessment of merits. Arbitration involving statutory issues has become standard practice, even when substantive rights cannot be waived.

The choice-of-law clause in the Stawski-Zywiec contract is deemed invalid under Illinois law, which mandates the application of Illinois law to local distributorships. Zywiec does not argue that the Treaty of Friendship, Commerce, and Navigation with Poland allows it to apply Polish law instead. However, the necessity of applying domestic law does not preclude international arbitration, paralleling the situation in Mitsubishi.

The question arises whether the twenty-first amendment permits states to override contracts to arbitrate, the Federal Arbitration Act, and international treaty obligations. The district judge's affirmative stance is unprecedented. Historically, courts have ruled that the twenty-first amendment does not permit states to disregard federal statutes in the liquor industry, a position affirmed by the Supreme Court in cases like California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc. and Capital Cities Cable, Inc. v. Crisp.

Section 2 of the twenty-first amendment allows states to restrict imports of intoxicating liquors but does not extend this authority more broadly. The Supreme Court has consistently held that this amendment does not undermine the Supremacy Clause. Illinois does not seek to limit beer imports from Poland; Stawski claims Illinois law mandates that a Polish brewer continue supplying it, which does not conflict with Section 2's provisions and does not exempt Illinois from adhering to federal law and treaties.

If Illinois had mandated that disputes under the Beer Industry Fair Dealing Act be litigated in state court, such a statute would not prevent Zywiec from removing the case to federal court under 28 U.S.C. 1441(a) due to complete diversity of citizenship, as supported by Breuer v. Jim's Concrete of Brevard, Inc. A federal court represents a different forum than that specified by Illinois law, similar to arbitration. If federal removal is valid, then federal arbitration must also be permissible. The Supremacy Clause prioritizes federal rules over state preferences, thus making the contract's forum-selection clause enforceable, while its choice-of-law clause may not be. Zywiec's counsel initially argued that the forum and law choices were inseparable, but later distanced from this view. The court leaves the determination of whether choice of law can be separated from choice of forum to the parties and the district court upon remand. The district court's judgment is vacated, and the case is remanded for further proceedings consistent with this opinion.