Mountain Crest originally sued Anheuser-Busch InBev and Molson Coors, two major heavyweights in the beer industry, for conspiring together to keep Mountain Crest out of the LCBO, the Ontario provincial government-operated liquor store system. Mountain Crest’s claim was centered around the premise that two beer company defendants worked together in a conspiracy to block Mountain Crest from selling any of its beer to the Ontario consumer market, or at least in large amounts. The only businesses the LBCO that would provide to customers in packages of more than six bottles (i.e. 12-packs or 24-bottle cases) were to be Anheuser-Busch or Molson Coors products. The Canadian district court, however, did not agree with the claim under the act of state doctrine and dismissed the case.
The logic of the district court was then appealed by Mountain Crest. The original plaintiff in the case argued that the court could in fact act without running afoul of the act of state doctrine as originally decided at the district level. Mountain Crest tried two appeal arguments formally. The first was that the regulatory six-bottle rule blocking their increases sales in the LCBO stores was an overt abuse of the act of state doctrine and illegal, basically an equity argument. The second, which was an alternate approach, posited that the court could reverse Ontario’s LCBO six-bottle limit rule and still maintain the act of state doctrine without affecting the Ontario government’s ability to create provincial government regulations in general.
The appellate court panel viewed Ontario’s provincial government, the entity running the LCBOs, as a foreign state. Because of this status, the country’s act of state doctrine then protected the LCBO’s decisions, essentially functioning as an extension office of the Ontario provincial government. Thus, while the court actually agreed that the LCBO was giving Anheuser-Busch and Molson Coors a market monopoly, it was an act allowable under Canadian federal law. The court could not discern or separate the issue of the six-bottle cap from the bigger issue of the LCBO being part of the Ontario government. The regulatory decision and the entities are one and the same, and in this regard, the act of state doctrine was intended to protect the legislative power of the provincial government. Therefore the six-bottle rule could not be severed as an exception.
