Amicus Curiae Brief — Granholm v. Heald

Supreme Court, U.S.

FILED

(4) JUL 29 2004

No. 03-1116 OFFICE OF THE CLERK

In The Supreme Court Of The United States

JENNIFER M. GRANHOLM, GOVERNOR, et al..,

Petitioners,

Vv.

ELEANOR HEALD, et al.,

Respondents.

ON WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

’ BRIEF OF OHIO AND 32 OTHER STATES AS

AMICI CURIAE SUPPORTING PETITIONERS

JIM PETRO

Attorney General of Ohio

DOUGLAS R. COLE*

State Solicitor

*Counsel of Record

STEPHEN P. CARNEY

Senior Deputy Solicitor

PETER M. THOMAS

Assistant Solicitor

30 East Broad Street, 17th Floor

Columbus, Ohio 43215

614-466-8980

614-466-5087 fax

Counsel for Amici States

TROY KING

Attorney General

State of Alabama

MIKE BEEBE

Attorney General

State of Arkansas

RICHARD BLUMENTHAL

Attorney General

State of Connecticut

M. JANE BRADY

Attorney General

State of Delaware

ROBERT J. SPAGNOLETTI

Attorney General

District ot Columbia

CHARLIE CRIST

Attorney General

State of Florida

THURBERT E. BAKER

Attorney General

State of Georgia

Mark J. BENNETI

Attorney General

State of Hawai

LISA MADIGAN

Attorney General

State of Illinois

STEVE CARTER

Attorney General

State of Indiana

PHILL KLINE

Attorney General

State of Kansas

GREGORY D. STUMBO

Attorney General

Commonwealth of

Kentucky

CHARLES C. Fort, JR.

Attorney General

State of Loutsiana

G. STEVEN ROWE

Attorney General

State of Maine

J. JOSEPH CURRAN, JR.

Attorney General

State of Maryland

THOMAS F. REILLY

Attorney General

Commonwealth of

Massachusetts

MIKE HATCH

Attorney General

State of Minnesota

JiM Hoop

Attorney General

State of Mississippi

JEREMIAH W. (JAY) NIXON

Attorney General

State of Missouri

MIKE MCGRATH

Attorney General

State of Montana

JON BRUNING

Attorney General

State of Nebraska

BRIAN SANDOVAL

Attorney General

State of Nevada

PETER C, HARVEY

Attorney General

State of New Jersey

WAYNE STENEHJEM

Attorney General

State of North Dakota

GERALD J. PAPPERT

Attorney General

Commonwealth of

Pennsylvania

PATRICK LYNCH

Attorney General

State of Rhode Island

LAWRENCE E, LONG

Attorney General

State of South Dakota

PAUL G. SUMMERS

Attorney General

State of Tennessee

GREG ABBOTT

Attorney General

State of Texas

MARK L. SHURTLEFF

Attorney General

State of Utah

WILLIAM H., SORRELL

Attorney General

State of Vermont

PEGGY A,

LAUTENSCHLAGER

Attorney General

State of Wisconsin

QUESTION PRESENTED

Does a State's regulatory scheme that permits in-state

wineries directly to ship alcohol to consumers but restricts

the ability of out-of-state wineries to do so violate the

dormant Commerce Clause in light of Sec. 2 of the Twenty-

first Amendment?

TABLE OF CONTENTS

Page

SUES CCPC CREED cxescsccesecscsssesnssssensssnesscesmensenessenents i

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INTEREST OF THE AMICT STATES ...........:ccscesseesseressvesees l

DURERARY GF ATIUIGEII © ccccccevcscecscccscssevecsvscssessnsecsssvecs 2

Tn 3

lL. The dormant Commerce Clause does not bar State

regulations designed to restrict the importation of

alcohol for use within its borders ..................ccccccceeeeeeeee 3

A. The Court’s precedents have reaffirmed that

States have broad power to regulate alcohol

SONPOTES FOF I-GERES WBE ...cccccceccccerccrecccssccsscsssoosoeees 4

B. Bacchus was wrongly decided and should be

UCT cxneccsccsessecsasessmnscsensssccassneomncnssscosseasnesss 10

C. The restrictions here fall within both the

express language and the “core purposes” of

the Twenty-first Amendment and, therefore,

are unquestionably Valid..............cccsceeeeeeeeeeeeees 12

Il. The Webb-Kenyon Act also authorizes States to

regulate the flow of alcohol for use within their

territories, so the dormant Commerce Clause does

not bar these State regulations...............cccceeeeeeeeeeeees 17

iii

Page

Ill. The regulations here fall well within the States’

police power, as they impose only minor limitations

on imports that are entirely justified by the dangers

that unrestricted alcohol shipments present................. 19

A. The regulations here do not prevent access to

State markets or State consumers, and

wineries have no right to demand specific

methods of access, such as internet sales and

GEES GRITS ccccccecnscnssessenssessssemesssessememenens 20

B. The growth of the internet and e-commerce

threatens the States’ ability to enforce their

liquor laws and preserve a safe and orderly

SERETRIGR GE GRDTINGS cccecccsassecscnsccsesesscsesszsnsnsesnesseseses 22

1. Unrestricted out-of-state shipment

directly to consumers would impede

States’ efforts to prevent minors from

CRIED GRBTEE, cccccccrecnssecssnsssscssenessessssseee 23

t'

Direct’ shipment interferes with the

States’ ability to collect legitimate sales

and excise taxes, which are significant

sources of State revenue ..................cse0eeeee- 24

IV. If this Court determines that, notwithstanding the

express text of the Twenty-first Amendment, the

dormant Commerce Clause applies to State

regulations governing-+mportation of alcohol into

the State, then the Court should use a rational basis

test for its Commerce Clause analysis..............00000 27

CFU UR AAIUEIOY conscsccnssccenncssnensnsessnensscnsnsnennsesnnensncsncsenscesentons 30

APPENDIX A

APPENDIX B

APPENDIX C

iv

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Vv

TABLE OF AUTHORITIES

Page

Cases

44 Liquormart, Inc. v. Rhode Island,

Fee Gk Ge COD srtnntcetmnnennintinienis 9,11

324 Liquor Corp. v. Duffy,

Ge BO AON? ecsinieine 8

Bacchus Imports v. Dias,

Ie ei GP ED verinniienrneinieiinisanicdtiniineninel passim

Bridenbaugh v. Freeman-Wilson,

Bee Fe ee Ce es Be ercictinanitniniinnientiiatiinnnen 16, 27

Brown-Forman Distillers Corp. v

New York State Liquor Auth.,

es: a CD cataiccisenisscetiashstnicntiebseiitiptiaiuiiiaiiinianmnlidtain 7.8

Brown & Williamson v. Pataki,

320 F.3d 200 (2nd Cir. 2003)........c.ccccccccssseeees 24, 29, 28

California Retail Liquor Dealers Ass'n. v.

Midcal Aluminium,

ee ae Ce sinipseinenietisnieisnciinrecsinninnitbeiiensniiipiaininsibeeanadaiiahs 8

California v. LaRue,

i (Te ea 19

Capital Cities Cable v. Crisp,

Se Gras Gre CD ensemannnnenimeioiiin 8.9.11

Craig v. Boren,

Ss Se EE cacrcncntensciciemaenmanseninnenibbminniiiniia 9

vi

Page

Dept. of Revenue v. James B. Beam Distilling Co.,

PEE ls Oe COTE vitiitentanintensassenninaininiinaseeentin 7.9

Exxon v. Maryland,

Ge ac OE CE ceienetintninectanimnnmiiiiiiiaiisiidaiinnienies 22

FCC v. Beach Communications, Inc..,

SS I, att lata aaaal 29

Healy v. The Beer Institute,

GS UB. Fae Ce crnctecneseretneememmnnen 7, 8, 16

Heublein, Inc. v. South Carolina,

a ee icici haiciiisieaientiidiiiiniihaaiiitiattiniailabiiiaeaiial 15

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

FEE Wate FOe CTO ED cxnennsnssnntnsenecensscesnsemnésinsnssenenent passim

Indianapolis Brewing Co. v.

Liquor Control Comm'n,

Fe Gee FOO CURD cercsesresniasscsecesnnscseesenimmmmannnnmncenene 5

James B. Beam Distilling Co. v. Georgia,

ee Sk eC cineientitnicnrnmncininmtinacneinasunininiainns 8

Kronheim v. District of Columbia, —

Oe ce ee is Ce CU csnceciecniclensibicnnissininaii 15, 16

Maine v Taylor,

STE Gabe OF8 CIGD ccccsccnnsscnnecesscnnmnnnsanseneqnenenae 14, 15, 22

Midcal Aluminum, Inc..,

ee Ter Cae eceiiciretdtisenistecsninnicnimneaibanicinniieeniiniainitiindinndiuneeiul 9

Vii

Page

North Dakota v. United States,

A as SP AG htiiccrsnsctecstnsitinsctcnnercnsceenepenst passim

Pike v. Bruce Church Inc.,

Fe Cee: SOF CO ED citensnneninitecinnntnecintiinannnnianeniaiiin 28

Quill Corp. v. North Dakota,

TE

Rice v. Rehner,

A es. FOG PID vcntcsicrnniscinciensanineimininsiaiinineainadiinntes 19

Seagram & Sons, Inc. v. Hostetter,

Fe Ae. SP CD nicteinntiinvonnineanisiniinsienienmmtinniiiinaniatn 7

South-Central Timber Development, Inc. v. Wunnicke,

BE 18

State Board of Equalization v. Young's Market Co.,

BE Cees PO CRD cenciectnnninieninnienaninineiannnee 5

Swedenburg v. Kelly,

Foe Fe £0 CRO CR, BRO O cecscccneninsesemmesmnnns 15, 16

United States v. Mississippi Tax Commission,

SES Us Fe COG ae crcnstremcsennemunmnmemimennsmnnies 8

United States v. Mississippi Tax Commission,

EO Gas DE GOP TD ctcietericninteintecnneeiinmninnininnsinnemanees 8

Western & Southern Life Insurance Co. v.

State Board of Equalization,

Pe us ee AD eccrine 18

Wisconsin v. Constantineau,

RD | 9

Vili

Ziffrin, Inc. v. Reeves,

Ps Ce OE wrinniennnenentnienntiilidaaiiniatiiiinial 6, 16

Statutes

oe es SEE cardieaientaenenienieniiominapinnnieitaindiandaneniie 2,17

Ala. Admin. Code r. 20-X-8.04 (1) ........c.ccsrscssessecesseseosscseses 13

i eC RE 13

AGE. COGB Raat. § S- T= OBGGI 8) sscccescesesecescssecescescsevnsenscamseniee 13

Rs Seay Te creneniciseenshisisiniieticiiiitciniiaiaciiia tices 21

rs eee Ca Sis i OF ee ircneinrecicertisinstiietiticnalipaiiinie sete 13

es ae eI: i SO OT idiiisensicinhicicninctiiiiiniaaaial lea: 21

Pes Ms GI: FP Tse a icecicrinisiivisieicutacipiiniaiecinniiahalingiii aati 13

Fh Ses Uae Ainncieniicinasenicenniniisaisianabiaiipnicienlvibiniaiaass ea 21

Fh Oe aiciceicisdeeesiiciiidotianiisicttidilaniapiiaapatiiaits 13

hs Ere SRA OUT csisvsitcnciinsilionstaninsteeleinipiiinnbiinieigaieidaieaaaal 21

IE 13

SF 8 aren 21

ST Ee Oe See PT wnscnsivcicicensiaieeneietienntiiianteiininancidemaiiatiiiacioia 13

Ss GI © For cersnsconrresicarnsenmpiienatbinnmeinsssiiaaiiiiimaatiats 13

as EE FPO em, snsiliisaieneasnntitenncabiinaniauiaiinnine 13,21

iX

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Se, TORE. ARG. © Go a ccncecesessenennssnsescccscnnionstnnnmennnenemigtinis 13

a, SRR. RGR, B SG TD a iecenertcertsvensnscncsnnsnassentocmsemnsnes 13

Se: Ge. RG. LAGU, GH OO PP recensesesesscencsntntonennnemennenaens 13

Me. Rev. Stat. Ann. tit. 28A, § 207°7.............c.cccccsseessoees 13,21

FF eee passim

ees FRR, GE GR. Zs & GING cccctnccsnstarnencvscnntnnicnnniniaisiin 13

Mich. Comp. Laws Ann. § 436.1203.7 ..............sscccccsssreesees 21

eh, Se FRI, Pe cceciicitinicccesvcntininliesnnenimntincemnsiatininiins 13

UE. Ce Ra. & BDAC ccccicnssensneccssnsnnnsastnaesonnasnnamnens 13

ee Ge Fam, © DIS ccenseennsenessnmseratenenenstneninisiniansecies 21

Se, Ge FORD, BDI cetrcntticnnncscnccscestinstinensinianicenssnns 21

eas: el SOIR, © FCB AI ccasenentansnicnitineneininneitineninaniiananasiae 13,21

Pl. SE: Ge Gi. G, Fi I ccrennntnenenscsntinsnninieniantoninns 21

Pan: GERM, RMB, G TEP Bi crnccscecesenesensesennsnsmeninsesesmmentanvecsas 2)

Ohio Admin. Code § 4301: 1-1-22...........cscccccccssssscscssscsssseees 13

Ohio Admin. Code § 4301:1-1-23 0.0... eeeeseeeeeeeeeeseeeeeeees 21

RF _ REE eee ee er Oe 13

Page

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ee: Us FN GER, BP Del cccnccsecnscccstncsstinninennntsennsemnanasiis 13

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Fes RR, GAM, GR, SF g BOG scevnessesmnsnccsevcnnasessnsenenemnensitnsesn 13

ics See SO Fae ercicrvinnntitscionintncianininensineennensien 13

re SN Sp aD csenstnnsecsererecnnennnnntnctinnsenitinsaaiiies 21

Ss CI EG FO ircsecccccnscicsnscnnsnntntsnessstnncnsesions 13

es Cy OE © FT vectcncnsctcnnssctsienienecnnmnininensan 13

ees CGS E.G © BPE TAB ecererccconencssecnssesscsenssttomsmsennss 21

Se FA © ee ctcenccccenniiinicntecnenintniiancinvinias 21

A, SI Fs FF rcctecsinetinsiincsssncisenininnimmnineiei 13

Tex. Alco. Bev. Code Ann. § 107.05 ............csscccssrcssssceseeeees 13

Tex. Alco. Bev. Code Ant, § 107.07 ....ccccccccccccsseoscrecsseecssones 21

See BD, © FS ceterteretntinntineennsintintinnrnninianienion 13

Ue GED FAD, © FPS cccrccesccesncesteenemecmmctnennmemnsniins 13

es GR FRI. 6G Beet cccennstncnmnnensntcctensenenmunsenniaitindemmnanats 13

eh Ge A Fr 6 Gal R crrenniccscntiniteiccnctinteimimanionnen 21

Ve, RUD. FATT. GR, Fe F Gb cceccressenessevsscsccnsnsnsensnenseanecensemnmeansnaeis 21

XI

Page

Wyo. Stat. Ann. § 12-2-203 ..............0crccrccsssssrssessescsssssesssees 13

Wyo. Stat. Ann. § 12-3-101 ............ccccccccorcssccesseescssesssosssesees 13

Other Authorities

Vijay Shankar, Note, Alcohol Direct Shipment Laws,

the Commerce Clause, and the Twenty-first

Amendment, 85 Va. L. Rev. 353, 356-57, n.20, 22, 24

(FDP PP nccacsssosteccsscscccsscensonsssesecenmnsenensssssecnoninnneenmmeeneinnantis A-2

INTEREST OF THE AMICI STATES

The ability to regulate the flow of alcohol into their

borders is an issue of paramount concern to the States. This

is particularly so in light of the growth of the Internet and

electronic commerce—tools that have dramatically increased

shipments from out-of-state sources directly to consumers’

doorsteps. These evolving technologies threaten the States’

ability to maintain control over alcohol distribution and to

ensure that alcohol does not end up in the hands of children.

These same technologies also threaten the States’ ability to

collect legitimate taxes on these consumer products.

The States file this amicus brief to assert the importance

of their roles in controlling the importing of liquor into their

borders. To be sure, some States distinguish between in-state

and out-of-state wineries with regard to the ability to ship

directly to consumers. But this distinction falls squarely

within the Twenty-first Amendment's grant of power to the

States to regulate alcohol imports. Equally important,

distinguishing between in-state and out-of-state producers is

rationally related to the States’ legitimate concerns about

enforcing and monitoring their liquor distribution systems.

The regulatory system used by most States, the three-

tier system, allows the States to address these concerns by

requiring all alcohol shipments to enter and arrive to the

consumer through a licensed entity with a localized presence.

By prohibiting out-of-state wineries from directly shipping to

consumers, States are thus doing nothing more than requiring

that all liquor sold for use in the State be purchased from a

licensed entity that is subject to the enforcement and tax

authority of the State.

The amici States have a strong interest in maintaining

appropriate control over the distribution of alcohol within

2

their borders. Accordingly, we are an important voice in any

conversation regarding the appropriate scope of the Twenty-

first Amendment. We raise that voice here to ask the Court

to reverse the decision below and hold that States may

restrict out-of-state wineries from shipping directly into the

State’s borders, while at the same time allowing in-state

wineries to ship directly to that State's residents.

SUMMARY OF ARGUMENT

The dormant Commerce Clause is a judicially-created

doctrine meant to protect Congress’s exclusive right to

control interstate commerce. The Twenty-first Amendment,

however, expressly grants the States the power to regulate

one form of interstate commerce—namely, alcohol imported

for in-state use. In exercising this power, the States remain

subject to other constitutional provisions, such as the First

Amendment. But, for those state regulations that lie directly

within the Twenty-first Amendment's express grant of power

to the States, the dormant Commerce Clause simply does not

apply. The only case to even suggest otherwise is Bacchus

Imports v. Dias, 468 U.S. 263 (1984), and, to the extent it

does so, the amici States respectfully urge that it should be

overturned. At the very least, Bacchus should apply only

where, unlike the case here, the state regulation amounts to

pure economic protectionism, unconnected to any liquor-

control interest at all.

Further confirming the inapplicability of the dormant

Commerce Clause, Congress has expressly authorized state

regulation of alcohol imports. See 27 U.S.C. § 122 (the

“Webb-Kenyon Act”). In light of this congressional

allocation of power to the States, however, the key

assumption underlying the dormant Commerce Clause—the

need to protect Congress’s exclusive control over interstate

commerce—is not met. To the contrary, Congress has

expressly spoken on the side of state regulation, and that

3

express use of Congress’s Commerce power surely trumps

any implications of the dormant Commerce Clause.

The practical realities of alcohol distribution, and in

particular the growth of electronic commerce, demonstrate

the importance of giving full breadth to the States’ power

under the Twenty-first Amendment. While no State bans

alcohol imports entirely, nearly all States recognize the need

to monitor those imports closely in order to ensure that

alcohol flows only to adults. Moreover, the Twenty-first

Amendment also recognizes that States have an important

interest in maintaining their ability to collect appropriate

excise and sales taxes on alcohol imports, an interest that is

threatened by direct shipping to in-state consumers.

In short, dormant Commerce Clause principles simply

do not apply at all to regulations, such as those here, that lie

at the heart of the Twenty-first Amendment. If the Court

finds otherwise, however, the amici States respectfully urge

that the Court should, at the very least, modify the traditional

dormant Commerce Clause test. By expressly assigning the

States regulatory authority, the Twenty-first Amendment

makes alcohol a constitutionally-unique product. The Court

should adopt a more deferential dormant Commerce Clause

test that recognizes this shared regulatory authority. In

particular, even facially discriminatory statutes, at least so

long as they do not reflect pure protectionism, should be

subject only to rational basis review.

ARGUMENT

Il. The dormant Commerce Clause does not bar State

regulations designed to restrict the importation of

alcohol for use within its borders.

This case does not lie at the intersection of the

Commerce Clause and the Twenty-first Amendment.

4

Instead, it involves a straightforward application of the latter,

which expressly allocates to States the power to control the

importation of alcohol for in-state use. The statutes at issue

here fall squarely within this text, and the case should end

there. Indeed, as shown below, the Court's precedents have

been remarkably consistent in reaffirming that regulations

falling within the Amendment's textual grant are immune

from dormant Commerce Clause challenges.

The only possible deviation from this principle was

Bacchus, in which the Court appeared to measure the States’

regulatory power by reference to the Twenty-first

Amendment's “core concerns,” rather than its text. If

Bacchus did so, however, the amici States urge that it was

wrongly decided and should be overruled. In the alternative,

Bacchus should be limited to cases, like Bacchus itself, that

involve pure economic protectionism. Limits on alcohol

shipping like those at issue here, however, are an integral part

of any “comprehensive system for the distribution of liquor”

that pursues the legitimate aims of “promoting temperance,

ensuring orderly market conditions, and raising revenue.”

North Dakota v. United States, 495 U.S 423, 432 (1990).

Distinguishing between in-state and out-of-state wineries

does not make these regulations illegitimate, for such

distinctions merely reflect the need to have an accountable

licensee within the State.

A. The Court’s precedents have reaffirmed that

States have broad power to regulate alcohol

imports for in-state use.

The Court has consistently confirmed the States’ power

to control alcohol imports destined for in-state use. That

pattern is reflected in several stages of the Court's |

jurisprudence.

5

With the Eighteenth Amendment, when Prohibition

became the law of the land, federal attempts to regulate

alcohol reached their pinnacle. The Eighteenth Amendment

broadly prohibited manufacture, sale, and use of alcohol on a

national level. But, within fourteen years, Congress

acknowledged the failure of this “Grand Experiment.” The

adoption of the Twenty-first Amendment in 1933 both

repealed Prohibition and granted States the power to regulate

alcohol:

Section |. The eighteenth article of amendment

to the Constitution of the United States is hereby

repealed.

Section 2. The transportation or importation

into any State, Territory, or possession of the

United States for delivery or use therein of

intoxicating liquors, in violation of the laws

thereof, is hereby prohibited.

At first, the Court held that this Amendment gave the

States virtually unrestricted power over all aspects of liquor

control. Of particular importance here, the Court said that

Section 2 exempted alcohol regulation from normal

Commerce Clause protections:

The amendment which “prohibited” the

“transportation or importation” of intoxicating

liquors into any state in violation.of the laws

thereof, abrogated the right to import free, so far

as concerns intoxicating liquors. The words used

are apt to confer upon the State the power to

forbid all importations that do not comply with

the conditions that it prescribes.

State Board of Equalization v. Young's Market Co., 299 U.S.

59, 62 (1936). See also Indianapolis Brewing Co. v. Liquor

6

Control Comm'n, 305 U.S. 391, 394 (1939) (State’s right to

prohibit or regulate liquor importation is not limited by the

Commerce Clause); Ziffrin, Inc. v. Reeves, 308 U.S. 132

(1939) (Twenty-first Amendment gives the State power to

forbid all imports that do not comply with prescribed

conditions). Thus, in this early stage, the Court seemed to

suggest that the Amendment trumped the Commerce Clause

entirely, not just the “dormant” portion.

The Court's turning point, which established the rule

that we seek to reaffirm today, was Hostetter v. ldlew ‘d Bon

Vovage Liquor Corp., 377 U.S. 324 (1964). In Idlewild, the

Court invalidated a New York statute that sought to regulate

shipments of alcohol that merely passed through John F.

Kennedy Airport, as the alcohol was sold to those headed out

of the country. /d. at 325. The Customs Service had

approved the sales, pursuant to the federal Tariff Act of 1930,

but the New York statutes forbade the sales because the

dealer was not licensed by the State. /d.

The Court held that the Twenty-first Amendment did

not save the New York law for at least two reasons. First, the

law did not govern importation for “use” in the State, as the

alcohol was merely passing through, and thus the law fell

outside the Amendment's text. /d. at 333. Second, the Court

noted that the transactions at issue were “carried on under the

aegis of a law passed by Congress” under its express

Commerce Clause power. /d. at 334.

But even in striking the law, the Court strongly

reaffirmed that a “State is totally unconfined by traditional

Commerce Clause limitations when it restricts the

importation of intoxicants destined for use, distribution, or

consumption within its borders.” /d. at 330. That is, import

restrictions tied to in-state use are expressly a matier of State

concern, at least as long as Congress has not spoken to the

contrary, so the dormant Commerce Clause yields fully there.

The Court in /dlewild left open the separate

possibility—confirmed in a decision issued that same day,

Dept. of Revenue v. James B. Beam Distilling Co. 377 U.S.

341 (1964)—that the Twenty-first Amendment did not have

the same effect where other constitutional provisions were

involved. That is, while the Twenty-first Amendment grants

the State power to act, thereby overcoming any dormant

Commerce Clause concerns, the States must still act in a

manner consistent with other constitutional constraints on the

exercise of governmental power, such as the First

Amendment.

In the decades since /dlewild, the Court has reaffirmed,

not undermined, those principles. At first blush, it may seem

that those cases somehow “further eroded” the State’s strong

power over liquor control, as the Court’s decisions repeatedly

struck down State laws. Indeed, some laws that were initially

upheld were later struck down. See Seagram & Sons, Inc. v.

Hostetter, 384 U.S. 35 (1966) (upholding New York price

affirmation statute), overruled by Brown-Forman Distillers

Corp. v. New York State Liquor Auth., 476 U.S. 573 (1986)

(invalidating same law), and Healy v. The Beer Institute, 49|

U.S. 324 (1989). But in truth, all of those cases—save

Bacchus, discussed separately below—fit comfortably

within, and built upon, /dlewild’s principles. In those cases,

State laws were invalidated either because the challenged

regulation fell outside the constitutional text (e.g., because it

attempted to regulate alcohol other than that destined for in-

state consumption), or because the regulation ran afoul of a

constitutional constraint other than the dormant Commerce

Clause.

In one category, the Court has continued to follow

Idlewild in finding a State’s power limited when a State seeks

to regulate imports that are not intended for in-state use.

Thus, just as shipments destined abroad were different, see

8

Idlewild, so too were shipments sent to a federal enclave,

which was not part of the “State.” North Dakota, 495 U.S at

431. See also United States v. Mississippi Tax Commission,

412 U.S. 363 (1973) (holding State may not regulate

importation of alcohol into territory over which the United

States exercises exclusive jurisdiction); United States y.

Mississippi Tax Commission, 421 U.S. 599 (1975) (holding

State may not regulate importation of alcohol into territory

where State and United States exercise concurrent

jurisdiction). Similarly, the Court has invalidated statutes

that attempted to regulate aicohol outside State borders. See

Brown-Forman Distillers Corp. v. New York State Liquor

Auth., 476 U.S. 573, 585 (1986) (Twenty-first Amendment

“gives New York only the authority to control sales of liquor

in New York,-and confers no authority to control sales in

other States.”); Healy v. The Beer Institute, 491 U.S. 324

(1989) (invalidating statute regulating beyond State borders).

In another category, several cases involved State

regulations that conflicted with Commerce Clause legislation

enacted by Congress. See California Retail Liquor Dealers

Ass'n. v. Midcal Aluminium, 445 U.S. 97 (1980), Capital

Cities Cable v. Crisp, 467 U.S. 691 (1984); 324 Liquor Corp.

v. Duffy, 479 U.S. 335 (1987). As noted above, /dlewild was

also such a case. And, as in /dlewild, such cases do not

involve the dormant Commerce Clause. Rather, when

Congress speaks, the question is one of pre-emption under

the Supremacy Clause. See James B. Beam Distilling Co. v.

Georgia, 501 U.S. 529, 555-56 (1991) (O’Connor, J.

dissenting). Thus, this group is merely part of the larger

category of cases involving constitutional constraints other

than the dormant Commerce Clause. '

' Further, here, not only has Congress not spoken on the side of the

would-be direct shippers, to the contrary, as discussed in Part II below,

Congress has expressly spoken to affirm the State's power.

9

In that broader category, the Court has repeatedly

reaffirmed that State alcohol regulations, while freed from

the dormant Commerce Clause, must still comport with other

constitutional limitations. See 44 Liguormart, Inc. v. Rhode

Island, 517 U.S. 484, 516 (First Amendment); Craig vy.

Boren, 429 U.S. 190 (1976) (Equal Protection Clause);

Wisconsin v. Constantineau, 400 U.S. 433 (1971) (procedural

due process); Dept. of Revenue v. James B. Beam Distilling

Co., 377 U.S. 341 (1964) (Export-Import Clause).

Notably, all of these cases, even while invalidating

State laws that regulated beyond the core areas identified in

the constitutional text, continued to affirm that State power

remained virtually unchecked where core import-control was

concerned, and to affirm that the dormant Commerce Clause

gave way in the face of such regulations. “[T]he States have

virtually complete control over whether to permit importation

or sale of liquor and how to structure the liquor distribution

system.” Midcal Aluminum, Inc., 445 U.S. 97 (1980). See

also Idlewild, 377 U.S. at 330 (“[T]he scope of the Twenty-

first Amendment with respect to a State’s power to restrict,

regulate or prevent the traffic and distribution of intoxicants

within its borders has remained unquestioned.”); Capital

Cities Cable v. Crisp, 467 U.S at 712 (“The States enjoy

broad power under § 2 of the Twenty-first Amendment to

regulate the importation and use of intoxicating liquor within

their borders.”). Indeed, as this Court ruled just eight years

ago, “the Twenty-first Amendment limits the effect of the

Dormant Commerce Clause on a State’s regulatory power

over the delivery or use of intoxicating beverages within its

borders.” 44 Liquormart, Inc. v. Rhode Island. 517 U.S. 484,

516 (1996).

Thus, the Court need not strike out in new directions to

protect the States’ power here, which is expressed in the

Twenty-first Amendment’s text. - To the contrary, limiting

10

State power within that text would violate the principle,

reaffirmed in the cases above, that such State power remains

“totally unconfined” by the Commerce Clause.

B. Bacchus was wrongly decided and should be

overruled.

The decision in Bacchus Imports v. Dias, 468 U.S. 263

(1984), is the only precedent from this Court addressing the

dormant Commerce Clause’s impact on the States’ power to

regulate alcohol that does not fit comfortably within a textual

reading of the Twenty-first Amendment. As discussed

above, all of this Court’s other precedent leading up to

Bacchus recognized the States’ power under the text of the

Twenty-first Amendment to determine how liquor will be

imported into the State for use therein. Bacchus is the sole

outlier. But it has not improved with age, and should be

overruled.

In Bacchus, Hawaii had imposed a twenty percent

excise tax on sales of liquor at wholesale, but exempted

locally-produced alcoholic beverages. 468 U.S. at 265. The

exemption’s admitted purpose—indeed its sole purpose—

was to bolster the domestic industry. /d. at 267. An importer

challenged the tax on Commerce Clause grounds. /d. at 265.

Although Hawaii had “expressly disclaimed any

reliance upon the Twenty-first Amendment” in the court

below, it raised it in defense of its statute in the Supreme

-Court. /d. at 274 n.12. Although the tax appeared to fit

within the Amendment’s text, five Justices rejected that

defense. They concluded that laws that “constitute mere

economic protectionism are... not entitled to the same

deference as laws enacted to combat the perceived evils of

unrestricted traffic in liquor.” /d. at 276. Because Hawaii’s

law did not fit within any “clear concern of the Twenty-first

Amendment,” the Amendment did not protect them from

normal dormant Commerce Clause scrutiny. /d.

The three Justices’ in dissent, however, noted that this

approach was inconsistent with the Court’s Twenty-first

Amendment jurisprudence. According to the dissent, that

precedent had treated direct regulation of the sale or use of

liquor within the State as a “core § 2 power.” /d. at 285,

quoting Capital Cities Cable, 467 U.S. at 713. With regard

to such regulations, the dissent argued, “the inherent

limitation imposed by the Commerce Clause on the States

[i.e., the dormant Commerce Clause] is removed.” /d. at 279

n.5. The question, they properly concluded, was not whether

the statute fell within the Amendment's “central purposes,”

but rather whether it reflected an “exercise of the power

expressly conferred upon the States by the [Amendment].”

Id. at 287.

The dissent’s reliance on the text of the Twenty-first

Amendment, rather than the Amendment’s purported “central

purposes,” is more faithful not only to the constitutional text,

but also to this Court’s precedent both before and after

Bacchus. Indeed, all of this Court’s precedent in the twenty

years since Bacchus was decided has likewise adhered to a

textual reading of the Amendment. Thus, overruling

Bacchus will not throw out twenty years of jurisprudence.

See North Dakota v. United States, 495 U.S 423, 431 (1990)

(“States have the power te control shipments of liquor during

their passage through their territory and to take appropriate

steps to prevent the unlawful diversion of liquor into their

regulated intrastate markets.”); 44 Liquormart, Inc. v. Rhode

Island, 517 U.S. 484, 516 (1996) (“the Twenty-first

Amendment limits the effect of the Dormant Commerce

* Justice Brennan recused himself, and thus only eight Justices heard the

matter.

Clause on a State’s regulatory power over the delivery or use

of intoxicating beverages within its borders, . . . .”). Nor will

overruling Bacchus toss the States into uncertainty as to how

to regulate liquor importation. As Bacchus stands alone in

this Court’s jurisprudence and cannot be reconciled with the

cases decided before it or after it, the time has come for the

Court to overrule Bacchus.

At the very least, Bacchus should apply only in cases,

such as Bacchus itself, where the regulation at issue was

admittedly and solely protectionist in its purpose. If courts

are faced with State regulations of alcohol that are purely

protectionist, Bacchus may provide some limited guidance.

Absent such circumstances, however, the courts need not

examine incidental protectionist effects that a regulation may

have.

Either way, whether Bacchus is overruled or narrowiy

read, the statute here is constitutional. It is an exercise of the

State’s core power under Section 2, and does not reflect the

pure economic protectionism at issue in Bacchus. Thus, the

dormant Commerce Clause simply does not apply.

C. The restrictions here fall within both the

express language and the “core purposes” of

the Twenty-first Amendment and, therefore,

are unquestionably valid.

As explained above, the States should win on a textual

reading of the Twenty-first Amendment, as the laws at Issue

fall within the constitutional text. Within the textual sphere,

States are virtually unconfined by the Commerce Clause

when they restrict the importation, transportation, or delivery

of alcohol into the State for use, consumption or delivery

therein. On this reading, that is the end of the analysis.

13

But even if the Court uses the Bacchus “core purposes”

~ approach, rather than looking solely to text, the laws at issue

here easily pass the test. Indeed, both the textual and the

purpose-driven approaches often yield the same _ result,

because, as the Court has explained, the text acknowledges

the States’ compelling interest in controlling the flow of

alcohol into their borders. Regulatory schemes that

“channelize the traffic, minimize the commonly attendant

evils; [and] facilitate the collection of revenue,” /dlewild, 377

U.S. at 331, thus meet the core purposes of the Amendment.

State regulations that treat in-state producers differently from

out-of-state producers can be an important component of

achieving these legitimate legislative purposes.

Many States allow in-state wineries to ship directly to

consumers, but do not allow out-of-state wineries this same

privilege. Moreover, this restriction against out-of-state

suppliers shipping directly to consumers is not limited to

wine and wineries. Many States bar out-of-state suppliers

from shipping “alcoholic beverages” into the State to anyone

other than the State itself or a licensed wholesaler.’ Were

* See, e.g., Ala. Admin. Code r. 20-X-8.04 (1); Ariz. Rev. Stat. § 4-

250.01; Ark. Code Ann. § 3-7-106(a)(1); Del. Code Ann. tit. 4, § 501:

Fla. Stat. Ann. § 561.545; Ga. Code Ann. § 3-3-32; Haw. Rev. Stat. Ann.

§ 281-3; Ind. Code §§ Ind. Code sec. 7.1-5-11-1.5 (but see Ind. Code

Sec. 7.1-5-1-1, prohibiting transport or delivery of alcohol by anyone to

anywhere within the state except as authorized by law, which in turn does

not authorize in-state direct shipment to consumers in many

circumstances, including (under Ind. Code sec. 7.1-3-12-2) from Indiana

wineries to Indiana businesses or residences); Kan. Stat. Ann. §§ 41-104,

41-306, 41-306a(a); Ky. Rev. Stat. Ann. § 244.165; Me. Rev. Stat. Ann.

tit. 28-A, § 2077-B; Md. Ann. Code art. 2B, § 16-506.1; Mass. Gen.

Laws Ann. ch. 138, § 2; Miss. Code Ann. 97-31-47; Mont. Code Ann.

§ 16-3-402; N.J. Stat. Ann. § 33:1-2; Ohio Rev. Code Ann. §§ 4301.19,

4301.20 and Ohio Admin. Code 4301:1-1-22; Okla. Stat. Ann. tit. 37

§ 505; Pa. Stat. Ann. tit. 47, § 4-410; S.C. Code Ann. § 12-21-1610; S.D.

Codified Laws §§ 35-4-66, 35-4-67; Tenn. Code Ann. § 57-3-402: Tex.

Alco. Bev. Code Ann. § 107.05; Utah Code Ann. §§ 32A-8-201, 32A-8-

301; Va. Code Ann. § 4.1-310; Wyo. Stat. Ann. §§ 12-2-203, 12-3-101.

14

this regulation dealing with any commodity other than

alcohol, it would be subject to the Court’s traditional dormant

Commerce Clause analysis. That analysis requires the State

to show a compelling interest and that the interest could not

be served as well by available nondiscriminatory means, See

Maine v Taylor, 477 U.S. 131, 138 (1986). While the States’

interests are indeed compelling and regulations such as this

would satisfy traditional dormant Commerce Clause analysis,

even applying this analysis is inappropriate because the

Twenty-first Amendment makes alcohol constitutionally

unique,

The States have a compelling reason for treating out-of-

state producers differently from their in-state counterparts. In

particular, locality matters for enforcement purposes. In-state

wineries are plainly subject to a State’s regulations and

enforcement powers. They are subject to all inspections,

subpoenas, taxes, record retention requirements, and license

sanctions that the State may impose. If an in-state winery

violates State law, its license to sell or manufacture wine can

be suspended or revoked. The winery may be fined. And no

matter what the discipline issued, the State can be sure the

discipline is enforced.

With out-of-state wineries, none of the regulatory

safeguards exist. If an out-of-state winery is ordered to

suspend sales, States cannot enforce this suspension, nor can |

they enforce a revocation or fine. States are unable to inspect

out-of-state wineries for possible health violations or

adulterated liquor. And States are unable to enforce

collection of alcohol taxes against out-of-state wineries that

ship directly to consumers. Thus, States have only two

choices: restrict direct shipments by out-of-state wineries or

leave this potentially dangerous product virtually unregulated

as long as it is shipped directly to a consumer from out of

state.

15

As this Court has noted, “[a]s long as a State does not

needlessly obstruct interstate trade or attempt to ‘place itself

in a position of economic isolation’ [citation omitted] it

retains broad regulatory authority to protect the health and

safety of its citizens ....” Maine v. Taylor, 477 U.S. at 151.

It is health and safety concerns, not economic isolationism,

that drive regulations like those here. State legislatures

examined the potential harm to their residents when they

decided to regulate direct shipment of alcohol to consumers.

Enforcement powers against wineries located within their

borders help the States to ensure that the health, welfare, and

safety of the citizens, as well as the other core Twenty-first

Amendment concerns, are achieved.

Requiring accountabiliiy in liquor distribution is a valid

interest recognized by this Court and others. In Heublein,

Inc. v. South Carolina, 409 U.S. 275, 277 (1972), South

Carolina required all alcohol producers shipping alcohol into

the State to have a resident representative in the State. Such

a requirement did not violate the Commerce Clause, because

“by requiring manufacturers to localize their [alcohol] sales,

South Carolina establishes a check on the accuracy of these

records.” /d. at 282. “The requirement that sales be

localized is, unquestionably, reasonably related to the State’s

purposes....” /d. at 283. Similarly, requiring out-of-state

wineries to “localize” their sales is unquestionably

reasonably related to the States’ control of their liquor

distribution systems. See also Kronheim vy. District of

Columbia, 91 F.3d 193 (D.C. Cir. 1996) (upholding local

warehousing regulation designed to advance a_ core

enforcement purpose of the Twenty-First Amendment and

combat the perceived evils of unrestricted traffic in liquor

upheld). As the Second Circuit recently noted, “presence

ensures accountability.” Swedenburg v. Kelly, 358 F.3d 223,

237 (2nd Cir. 2004). The State restrictions at issue here, by

16

limiting the ability of out-of-state wineries to ship directly to

consumers, likewise attempt to achieve accountability by

requiring a localized presence.

Requiring an out-of-state winery to ship its product

through a lecally-licensed entity such as a wholesaler, gives

the State a needed avenue of enforcement. But requiring an

in-state winery to also sell through a local wholesaler would

impose an unnecessary and artificial restriction on the

market. The in-state winery is already accountable. The

Second Circuit correctly recognized this distinction in

Swedenburg: “New York has chosen to relax its regulatory

grip for wineries to sell directly to consumers. It has not

barred out-of-state wineries from the opportunity; it has

correlated its relaxation of regulatory scrutiny with a safety

net ensuring accountability-presence.” 358 F.3d 223, 238;

See also Bridenbaugh v. Freeman-Wilson, 227 F.3d 848, 850

(7th Cir. 2000) (“laws forbidding purchases from sellers that

lack Indiana permits are devilishly difficult to enforce”);

Kronheim & Co.. Inc. v. District of Columbia, 91 F.3d 193,

203-04 (D.C. Cir. 1996) (legitimate state interests would be

supported by requiring geographic proximity of the

warehouses). In short, allowing in-state wineries to ship

directly. but not out-of-state wineries, is a valid distinction

based on the enforcement interest that is supported by having

a localized presence.

The States should be left to properly determine how

best to protect their consumers. “The State may protect her

people against evil incident to intoxicants and may exercise

large discretion as to means employed.” Ziffrin, 308 U.S. at

138-39. Discriminatory legislation is permissible if that

“discrimination is demonstrably justified by a valid factor

unrelated to economic protectionism.” Healy, 491 U.S. at

340-41. Here, any discrimination regarding direct shipment

of alcohol is justified by a valid factor. These valid interests

are unrelated to economic protection: the preservation of the

17

State’s duty to protect the health, safety, and well being of its

residents. The State regulations concerning direct shipment

of alcohol permit out-of-state wineries to participate in the

State market, while still preserving the State’s strong interest

in regulating alcohol distribution.

Il. The Webb-Kenyon Act also authorizes States to

regulate the flow of alcohol for use within their

territories, so the dormant Commerce Clause does

not bar these State regulations.

The State regulations here withstand a dormant

Commerce Clause challenge for another reason as well—

Congress has expressly authorized State regulation. The

Commerce Clause grants to Congress the power to regulate

commerce among the several States. Where Congress has

not acted, of course, the dormant Commerce Clause limits a

State's ability to economically isolate itself or impede the

free flow of interstate commerce. But, where Congress has

acted, the starting point for analyzing State regulations must

be the language of the relevant federal act. The relevant

federal statute here is the Webb-Kenyon Act, 27 U.S.C.

§ 122. And under that statute, the State regulations at issue

here are valid.

The Webb-Kenyon Act, 27 U.S.C. § 122, expressly

confirms the States’ authority over liquor importation. That

act, originally adopted in 1913 and re-enacted in 1935, states:

“The shipment or transportation... of any... vinous...

intoxicating liquor... into any state... to be... sold; .. in

violation of any lav of such state... is prohibited.” The

Commerce Clause is not dormant in the area of alcohol

shipping among the States; rather, Congress has expressly

authorized the States to regulate alcohol shipping. Thus, not

only does the text of the Twenty-first Amendment authorize

the States to determine how alcohol will be imported across

18

their borders for use therein, but also Congress has taken the

additional step of enacting legislation that complements (and

reinforces) the Twenty-first Amendment.

Moreover, Congress has the authority to empower

States in this manner. As the Court has explained, “It is

equally clear that Congress may ‘redefine the distribution of

power over interstate commerce’ by “[permitting] the states

to regulate the commerce in a manner which would otherwise

not be permissible.” South-Central Timber Development,

Inc. v. Wunnicke, 467 U.S. 82, 88-89 (1984). In the area of

insurance, for example. Congress has transferred exclusive

authority to regulate to the States, notwithstanding the fact

that insurance is an item of interstate commerce. See

Western & Southern Life Insurance Co. v. State Board of

Equalization, 451 U.S. 648, 652-55 (discussing McCarran-

Ferguson Act).

Similarly, Congress. by enacting Webb-Kenyon,

removed any doubt as to the States’ power to determine how

intoxicating liquor would be permissibly shipped into the

States. The Webb-Kenyon Act does not pre-empt State

regulation of alcohol shipments. Nor does it so completely

“occupy the field” of liquor regulation so as to leave no room

for State regulation. Instead, by prohibiting alcohol

shipments into a State that are contrary to State law,

Congress exercised its Commerce Clause power to expressly

empower the States to regulate. The Commerce Clause is not

dormant here: it is expressly on the States’ side.

Consequently. State restrictions on alcohol imports are

valid exercises of the power bestowed upon the States by

both the Twenty-first’ Amendment and the Webb-Kenyon

Act. As the regulations do not conflict with a federal

exercise of Commerce Clause authority, they survive a

dormant Commerce Clause analysis.

19

Ill. The regulations here fall well within the States’

police power, as they impose only minor

limitations on imports that are entirely justified by

the dangers that unrestricted alcohol shipments

present.

After Prohibition ended, States aggressively regulated

alcohol sales and shipments along with the time and place of

consumption. While States have adopted varying approaches

to alcohol regulation, most use some form of a three-tier

distribution, as Michigan does. In specifically analyzing one

such three-tier distribution system, the court noted, “the State

has established a comprehensive system for the distribution

of liquor within its borders. That system is unquestionably

legitimate.” North Dakota v. United States, 495 U.S. 423,

432 (1990). In short, the States have extensive power to

regulate, as they see fit, their internal commerce in liquor.

The Twenty-first Amendment, Webb-Kenyon, and the

States’ inherent police power all authorize State regulation of

how alcohol flows into the State. “While the States, vested

as they are with general police power, require no specific

grant of authority in the Federal Constitution to legislate with

respect to matters traditionally within the scope of the police

power, the broad sweep of the Twenty-first Amendment has

been recognized as conferring something more than the

normal state authority over public health, welfare, and

morals.” California v. LaRue, 409 U.S. 109, 114 (1972).

See also Rice v. Rehner, 463 U.S. 713, 724 (1983) (noting the

State's unquestionable interest in the liquor traffic that occurs

within its borders, independent of the authority conferred on

the States by the Twenty-first Amendment). Under these

settled principles, the significant dangers presented by the

unregulated shipment of alcohol into a State more than justify

the import restrictions embodied in the regulations here.

A. The regulations here do ‘not prevent access to

State markets or State mers, and wineries

have no right to demand specific methods of

access, such as internet sales and direct

shipment.

This case is not about whether out-of-state wineries are

cut off from in-state consumers, as out-of-state wineries may,

and do, sell wine in foreign States. The dispute centers on

whether the out-of-state wineries will sell and ship wine to

foreign States using the specific methods the wineries

demand, or whether the sale and shipment will occur under

the laws, regulations, and distribution systems the States

establish. State regulation that allows in-state, but not out-of-

state, wineries to directly ship to consufners comports with

the States” authority to require that all alcohol in the

intrastate market be purchased from entities over which the

State has significant regulatory control. See North Dakota,

495 U.S. at 447 (Scalia, J. concurring). This system

advances the States’ legitimate interests under the Twenty-

first Amendment and is well within the States’ police powers.

Out-of-siate wineries may sell their wine in many

different States and have several methods of participation

from which to select. Out-of-state wineries may participate

in the traditional three-tier system by selling to in-state

wholesalers. They may establish a presence in certain States

and obtain State retail permits. Also some States allow direct

shipment if the product is unavailable within the State and

the product _is shipped either to a_ licensed retailer

(Pennsylvania) or directly to the consumer (Ohio). Several

States provide for an “on-site” visit or other exception to the

restriction on direct shipment. Under these exceptions, State

residents are permitted to have certain amounts of alcohol

shipped directly or personally transported to their homes, if

State requirements are met. Almost all of the States that

restrict the shipment of wine from out-of-state wineries also

place limits on the amount consumers are allowed to receive

during a given period.’ As these shipments are for personal

use only, and are not for resale purposes, these volume

limitations are again an example of the States’ strong interest

im controlling the flow of alcohol into the State. Unrestricted

direct shipments from out-of-state wineries would severely

impact the States’ abilities to enforce the volume limitations

that are already in place.

The out-of-state wineries seek to sell their wine through

a particular method of operation in a retail market—internet

sales and direct shipment to consumers. But the Commerce

Clause does not give the wineries a right to sell through any

method they like. “Not all intentional barriers to interstate

* Connecticut: Conn. Gen. Stat. § 12-436 (2003) allows for up to 4

gallons; Delaware: Del. Code Ann. It. 4, § 716 (2004) allows up to | liter;

Florida: Fla, Stat. § 562.15 (2004) allows up to | gallon; Georgia: Ga.

Code Ann. § 3-6-32 (2002) allows 5 cases; Hawaii: Haw. Rev. Stat. Ann.

§ 281-33.1 (2003) allows 5 gallons; Indiana: Ind. Code Ann. § 7.1-5-11-

15 (2004) allows up to | quart; Maine: Me. Rev. Stat. Ann. Tit. 28,

§ 2077 (2003) allows up to | gallon; Massachusetts: Mass. Gen. Laws ch.

138, § 22 (2004) allows up to 3 gallons; Michigan: Mich. Comp. Laws

Ann. § 436.1203.7 312 oz. personal transport; Montana: Mont. Code

Ann. § 16-6-301 (2003) allows up to 3 gallons on your person (this would

be different from amounts allowed to a consumer who has a

connoisseur’s permit see, Mont. Code Ann. § 16-4-901 (2003)); New

Jersey: N.J. Stat. Ann. § 33:1-2 (2004) allows up to | gallon; North

Carolina: N.C. Gen. Stat. § 18B-109 (2004) and 4 N.C. Admin. Code tit,

2, R.1801 (2004) up to § liters; Ohio: Ohio Admin. Code § 4301:1-1-23

allows 15 gallons per household per quarter; Oklahoma: Okla. Stat. tit.

37, § 537 (2004) allows up to | liter; South Carolina: S.C. Code Ann.

§ 61-4-745 (2003) allows up to 2 cases per month; South Dakota: S.D.

Codified Laws § 35-12A-3 (2003) allows up to 12 cases of wine per year;

Tennessee: Tenn. Code Ann. § 57-3-401 (2004) allows up to | gallon;

Texas: Tex. Alco. Bev. Code Ann. § 107.07 (2004) allows up to 3

gallons personal transport; Vermont: Vt. Stat. Ann. Tit 7, § 63 (2003)

allows up to 6 gallons personal transport, no limit on direct ship;

Virginia: Va. Code Ann. § 4.1-112.1 (2004) allows up to 2 cases per

month.

22

trade are protectionist, however, and the Commerce Clause

‘is not a guaranty of the right to import into a state whatever

one may please, absent a prohibition by Congress, regardless

of the effects of the importation upon the local community.””

Maine v. Taylor, 477 U.S. 131, 149 n.19 (1986). See also

Exxon v. Maryland, 437 U.S. 117, 127 (1978) (“We cannot,

however, accept appellants’ underlying notion that the

Commerce Clause protects the particular structure or

methods of operation in a retail market.”) The decision to

allow in-state wineries to directly ship is a legislative

decision made on a State-by-State basis, best left to the state

legislatures as consistent with the text of the Twenty-first

Amendment.

B. The growth of the internet and e-commerce

threatens the States’ ability to enforce their

liquor laws and preserve a safe and orderly

market in alcohol.

Enforcement of State liquor laws against out-of-state

entities is a very real problem, as is the sale and shipment to

minors by these out-of-state entities. Internet access to

alcohol is not a phantom problem. On the internet, alcohol

websites are offering a “cyber playground” for underage

youths. A study by the Center on Alcohol Marketing and

Youth at Georgetown University revealed that alcohol

websites received 700,000 visits by underage people from

July through December 2003. See Clicking with Kids:

Alcohol Marketing and Youth on the /aternet, Center on

Alcohol Marketing and Youth — http://www.camy.org/

research/ (visited July 21, 2004). The study revealed that

13% of all visitors to 55 alcohol company websites were

under the age of 21. Even though the sites generally require

age verification, that “verification” consists simply of asking

the user if she is 21. But of course, there is no way to verify

the user's truthfulness. /d.

23

Allowing internet sales of a highly dangerous and

highly regulated product, such as alcohol or tobacco, is a

genuine concern for State regulators. Thus, the Court may

fairly consider whether invalidation of State liquor laws will

leave States unable to adequately enforce their laws for the

protection of their residents. Internet sales and direct

shipment from out-of-state wineries significantly undermine

the States’ ability to prevent underage access to alcohol and

significantly impair the collection of sales and excise tax.

1. Unrestricted out-of-state shipment

directly to consumers would impede

States’ efforts to prevent minors from

obtaining alcohol.

The Massachusetts Attorney General _ recently

completed an undercover investigation of out-of-state online

alcohol retailers, and not surprisingly, it got results. The

Attorney General is now suing four online retailers for selling

to underage buyers in Massachusetts. Three other online

alcohol retailers face administrative actions. See http://

www.ago.state.ma.us/sp.cfm?pageid=986&id=1241 (visited

July 19, 2004). In each case, underage college students were

able to order beer, wine, and hard liquor—without having to

verify their age—and the underage buyers had it shipped to

them. /d. A previous Massachusetts sting conducted by the

Massachusetts Alcohol Beverages Control Commission in

2002 yielded similar results. /d. See also The Electronic

Frontier: The Challenge of Unlawful Conduct Involving the

Use of the Internet, A Report of the President’s Working

Group on Unlawful Conduct on the Internet (March 2000)

Appx. G (noting that the primary issue concerning the on-line

alcohol sales is the difficulty sellers have in determining

whether a purchaser is underage.) These examples show

why many States are reluctant to allow out-of-state wineries

to ship directly to consumers,

24

Similar concerns recently led the Second Circuit to

uphold a New York statute that bans direct shipment of

cigarettes to consumers. Brown & Williamson v. Pataki, 320

F.3d 200 (2nd Cir. 2003). The court held that the legislature

rightly determined that cigarettes sold over the internet or by

telephone or mail order pose a serious threat to public health,

safety, and welfare. /d. at 204, “Sales accomplished through

direct shipment made the verification of the purchaser's age

difficult and that existing penalties for cigarette bootlegging

were inadequate.” /d. Because of these concerns, the court

rejected the dormant Commerce Clause challenge and held

that the regulation of importation of cigarettes was a

legitimate exercise of the State power in the public interest.

Id. at 217. As with restrictions on cigarette sales, the States’

restrictions on direct shipments by out-of-state wineries

likewise protect the public interest and are likewise a

legitimate exercise of State power. Such restrictions do not

violate the dormant Commerce Clause.

2. Direct shipment interferes with the

States’ ability to collect legitimate sales

and excise taxes, which are significant

sources of State revenue.

Along with the States’ interests in preventing sales to

minors and maintaining an orderly market, States also share

an interest in regulating liquor markets to ensure proper tax

collection. States have made the legislative decision that

limiting, restricting, or completely banning out-of-state

wineries from shipping directly to consumers serves these tax

collection interests. As the GAO study noted, non-reporting

of internet sales by internet vendors can significantly affect

State sales tax receipts. Staff of the GAO, /nternet Cigarette

Sales: Giving ATF Investigative Authority May Improve

Reporting and Enforcement GAOQ-02-743 (August 2002) at

11.

25

The States’ experience with internet cigarette vendors

illustrates the difficulty of collecting sales and excise taxes

on direct shipments that bypass the State system. Internet

cigarette vendors do not comply with the tax reporting

requirements of the Jenkins Act. General Accounting Office,

GAO-02-743, Internet Cigarette Sales (2002). The GAO

reviewed 147 website addresses for internet cigarette vendors

in the United States and not one site posted information that

indicated the vendors complied with the Jenkins Act. GAO-

02-743 at pp. 3, 4. “Conversely, information posted on 78

percent of the websites indicated the vendors do not comply

with the Act. ” /d. at 4.

Nor can Siates rely on cigarette buyers, rather than

sellers, to remit taxes. To be sure, consumers who buy

Cigarettes over the internet from out-of-state vendors are

liable for their own State’s sales tax. /d. But, despite a

detailed federal regulation requiring reporting of information,

officials from the nine states noted in the GAO study all

expressed concern over the Internet cigarette vendors’

noncompliance with the Jenkins Act and the resulting loss of

State sales tax revenue. /d. at 11. California estimated a loss

of approximately $13 million in tax revenue during a 30-

month period. /d.

The States have little reason to expect that we will have

better luck taxing online alcohol sales than we have had with

cigarette sales. Indeed, in a direct-shipping world, the State

may have no way to collect a sales tax from the winery at all.

See Quill Corp. v. North Dakota, 504 U.S. 298, 315-18

(1992) (holding that Commerce Clause bars imposition of

sales tax where only contact between out-of-state entity and

in-state consumer is internet ordering and direct shipment).

Conversely, by requiring out-of-state wineries and other

alcohol providers to participate in the three-tier distribution

system, States are able to collect legitimate sales and excise

taxes.

26

Moreover, taxes on liquor are a vital source of revenue.

The table attached as Appendix B lists the State wine excise

tax rates for each State. The table in Appendix C provides

the amounts of sales and excise taxes that each State

collected in fiscal year 2001. These amounts range from a

high of $545.48 million in Florida to $1.34 million in

Wyoming. States rely on these revenues, so underreporting

of sales and use taxes by individuals costs the States. Thus,

many States rely on the three-tier system for the efficient

collection of taxes due the State.

Again. States’ revenue concerns are not alleviated by

any suggestion that we may rely on individual consumers to

remit sales and excise taxes, as we have already seen how tax

revenues escape when online sales grow. The Government

Accounting Office Report on sales taxes and electronic

commerce reported, “use tax compliance by individual

purchasers (for all purchases, not just those over the internet)

was extremely low—on the order of 0 to 5 percent.” General

Accounting Office. GAO/GGD/OCE-00-165, Sales Taxes:

Electronic Commerce Growth Presents Challenges; Revenue

Losses Are Uncertain (June 2000) at 17. A Congressional

Budget Office paper also noted this threat: “(T]he

administrative costs of use taxes paid by purchasers are

relatively high and the rate of collections is quite low.”

Economic Issues in Taxing Internet and Mail-Order Sales,

Congressional Budget Office paper (Oct. 2003) at 3,

available at www.cbo.gov/showdoc.cfm?index+=4638. One

estimate is that the State of Florida alone may lose between

$321 million and $1.28 billion in taxes on remote sales in

2003. See GAO Sales Taxes Report at App. V. “[S]tates

have insuperable problems collecting their use taxes when

people buy from out-of-state vendors that do not collect sales

taxes. Noncompliance is almost impossible to detect, and

rampant civil disobedience ensures that a handful of

prosecutions would not be effective. Private gains from

violating the laws vastly exceed the anticipated legal

27

penalties.” Bridenbaugh v. Freeman-Wilson, 227 F.3d 848,

850 (7th Cir. 2000). Requiring out-of-state wineries to sell

through wholesalers that are present in the State is a

legitimate response to these concerns.

IV. If this Court determines that, notwithstanding the

express text of the Twenty-first Amendment, the

dormant Commerce Clause applies to State

regulations governing importation of alcohol into

the State, then the Court should use a rational basis

test for its Commerce Clause analysis.

The States freely admit that regulations such as those at

issue here treat out-of-state wineries differently from in-state

wineries with regard to the ability to directly ship to in-state

consumers. Under traditional dormant Commerce Clause

principles (i.e., those applicable to non-alcohol products),

then, these statutes would constitute virtually per se

violations, which this Court has subjected to the strictest

scrutiny. But for all the reasons above, those traditional

dormant Commerce Clause principles simply do not apply,

because this discrimination in regulating alcohol rests

squarely on both the text of the Twenty-first Amendment and

the congressional authorization for state regulation reflected

in the Webb-Kenyon Act. However, if the Court rejects

these arguments, and finds that the dormant Commerce

Clause does apply, then the amici States argue in the

alternative that such Commerce Clause analysis should be

adjusted to reflect the unique protection for state alcohol

regulations embodied in the Twenty-first Amendment.

Specifically, we propose two changes to dormant Commerce

Clause analysis of such regulations. First, the standard

Commerce Clause rule—that statutes that discriminate on

their face against out-of-state entities are virtually per se

violations of the dormant Commerce Clause—should not

apply. Second, the Court should apply a rational basis test,

28

not the traditional Pike balancing test used for other articles

of commerce. Pike v. Bruce Church Inc., 397 U.S. 137

(1970).

First, the Court should not apply traditional Commerce

Clause analysis without any alcohol-specific adjustment,

because if the Court were to simply treat alcohol like any

other product, then the Twenty-first Amendment would be

reduced to a nullity. Respondents urge the Court to treat

alcohol just like butter or any other item that moves in

commerce. This approach, however, ignores both the

Twenty-first Amendment and the Court’s precedent, as both

acknowledge that alcohol is, in fact, constitutionally

different. Given the express language of the Twenty-first

Amendment, the Court should, at the very least, acknowledge

the interests recognized there. A virtually per se prohibition

on facially discriminatory regulations, or any approach that

would require State laws to pass strict scrutiny to survive,

would not adequately reflect the States’ interests in liquor

control.

Similarly, the traditional Pike balancing test also fails to

give due deference to the State authority granted by the

Twenty-first Amendment. The Pike test balances the burden

a regulation imposes on commerce against the putative local

benefits. That test should not be applied to alcohol import

regulations either, as simply applying the Pike balancing test

would essentially treat alcohol like every other article of

commerce. Nor would it be enough to recognize the States’

interest within the Pike framework by granting greater weight

to the State-interest side of the scale where alcohol is

involved. That thumb-on-the-scale approach has already

been adopted for dangerous products such as cigarettes. See

Brown & Williamson v. Pataki, 320 F.3d 200, 217. So

alcohol would undoubtedly warrant such treatment even

29

without the Twenty-first Amendment. Consequently,

adopting such an approach would not fully honor alcohol’s

constitutionally unique status.

Because none of the other Commerce Clause tests are

appropriate, the States submit that—if the Commerce Clause

is to apply here at all—the Court should adopt a standard that

recognizes the constitutionally-unique nature of alcohol

regulation. In particular, the Court should defer to the States’

compelling interest in regulating alcohol imports for use in

the State and uphold such import regulations as long as there

is “any reasonably conceivable set of facts” that shows a

rational basis for treating out-of-state wineries differently

from those in-state. See FCC v. Beach Communications,

Inc., 508 U.S. 307, 315 (1993). Such a rational-basis

standard would acknowledge the constitutionally-unique

character of alcohol, the States’ compelling interest in

controlling the flow of alcohol into their borders for use or

consumption, and Congress's power to regulate the free flow

of commerce.

30

CONCLUSION

The judgment of the Court of Appeals for the Sixth

Circuit should be reversed.

Respectfully submitted,

JIM PETRO

Attorney General of Ohio

DOUGLAS R. COLE* SUPPLEMENTAL MATERIALS

State Solicitor

*Counsel of Record

STEPHEN P. CARNEY

Senior Deputy Solicitor

PETER M. THOMAS

Assistant Solicitor

30 East Broad Street, 17th Floor

Columbus, Ohio 43215

614-466-8980

614-466-5087 fax

Counsel for Amici States

A-|

APPENDIX A

1. Reciprocity States - Allow direct shipments only

from States that afford the reciprocal privilege.

California

Colorado

Hawaii

Idaho

Illinois

lowa

Minnesota

Missouri

New Mexico

Oregon

Washington

West Virginia

Wisconsin

2. Limited Personal Import States - Allow direct

shipment of alcohol in limited amounts if certain State

requirements are met.

Alabama

A-2

North Carolina

Ohio

Oklahoma

Pennsylvania

Rhode Island

South Carolina

Vermont

Virginia

Wyoming

3. Express Prohibition States - Simply ban all direct

shipments of alcohol.

Arkansas

Indiana

Kansas

Kentucky —

Maine

Massachusetts

Maryland

Mississippi

Montana

New York

North Dakota

South Dakota

Tennessee

Texas

Utah

Source: See, Vijay Shaniar, Note, Alcohol Direct Shipment

- Laws, the Commerce Clause, and the Twenty-first

Amendment, 85 Va.L.Rev. 353, 356-57, n.20, 22, 24 (1999)

(States have been re-classified from what appears in the note

due to statutory changes since 1999; these classifications

represent legislative restrictions and may not reflect how

laws are currently being enforced due to pending litigation).

A-3

APPENDIX B

STATE ALCOHOL EXCISE TAX COLLECTIONS BY

STATE - FISCAL YEAR 2001

($Thousands)

State 2001

Total $4,18 , 160

Alabama $ 128,848

Alaska 12,003

Arizona 51,406

Arkansas 29,121

California 288,451

Colorado 30,439

Connecticut 47,328

Delaware 11,611

Florida 545,488

Georgia 140,367

Hawaii 37,782

Idaho 6,057

Illinois 140,643

Indiana 33,078

lowa 12,209

Kansas 77,896

_| Kentucky 69,876

Louisiana 52,392

Maine 40,900

Maryland 24,522

Massachusetts 64,793

Michigan 136,591

Minnesota 60,610

Mississippi 39,256

Missouri 25,912

Montana 17,541

A-4

Nebraska 17,290

Nevada 16.468

New Hampshire 11,462

STATE ALCOHOL EXCISF TAX COLLECTIONS BY

STATE - FISC Ai. YEAR 2001

($Thousands)

State 2001

New Jersey 79.889

New Mexico 34,738

New York 179,157

North Carolina 199.844

North Dakota 4.892

Ohio 81.029

Oklahoma 61,994

Oregon 12.616

Pennsylvania 187,662

Rhode Island 9.450

South Carolina 137,429

South Dakota 11,070

Tennessee 78,471

Texas 541,305

Utah 25,020

Vermont 15,386

Virginia 127,638

Washington 168,777

West Virginia 8,197

Wisconsin 44,907

Wyoming 1,349

Source: Compiled from information found at

http://www taxfoundation.org/statealcoholtaxes (last visited

on July 29, 2004).

A-5

APPENDIX C

STATE WINE EXCISE TAX RATES

January |, 2004

EXCISE

TAX SALES OTHER

STATES RATES TAXES TAXES

($per APPLIED

gallon)

Alabama $1.70 Yes | Over 14% - sold through

state store

Alaska $2.50 n.a.

Arizona $0.84 Yes

Arkansas $0.75 Yes, | under 5% - $0.25/gallon;

$0.05/case; and 3% off-

and

10% on-premise

California $0.20 Yes | Sparkling wine -

$0.30/gallon

Colorado $0.32 Yes

Connecticut | $0.60 Yes | Over 21% and sparking

wire - $1.50/gallon

Delaware $0.97 n.a.

Florida $2.25 Yes | Over 17.259% -

$3.00/gallon, — sparking

wine $3.50/gallon

6.67¢/4 ounces on-

premise retail tax

Georgia $1.51 Yes | Over 14% - $2.54/gallon;

$0.83/gallon local tax

Hawaii $1.36 Yes _ | Sparkling wine -

$2.09/gallon and wine

coolers - $.084/gallon

Idaho $0.45 Yes

Illinois $0.73 Yes | Over 20% - $4.50/gallon;

$0.30/gallon in Chicago

and ($0.16-$0.30)/gallon

in Cook County

Indiana $0.47 Yes | Over 21% - $2.68/gallon

lowa $1.75 Yes | Under 5% - $0.19/gallon

Kansas $0.30 No Over 14%-$0.75/gallon;

8% off- and 10% on-

premise

Kentucky $0.50 Yes* | 9% wholesale

Louisiana $0.11 Yes | 14% to 24% -

$0.23/gallon, over 24%

and = sparkling ~—_—wine-

$1.59/gallon

Maine $0.60 Yes | Over 15.5% -_ sold

through state __ stores,

sparkling wine -

$1.25/gallon; additional

5% on-premise sales tax

Maryland $0.40 Yes

Massachusetts | $0.55 Yes* | Sparkling wine -

$0.70/gallon;

Michigan $0.51 Yes | Over 16% - $0.76/gallon

Minnesota $0.30 -- 14% to 21% -

$0.95/gallon, under 24%

and sparkling wine -

$1.82/gallon; over 24% -

$3.52/gallon; $0.01 /bottle

(except miniatures) and

9.0% sales tax

Mississippi $0.35 Yes | Over 14% and sparkling

wine — sold through the

state

Missouri $0.36 Yes

—_

A-7

Montana $1.06 na. | Over 16% - sold through

S state stores

Nebraska $0.95 Yes

Nevada $0.70 Yes |14% to 22% -

$1.30/gallon, over 22% -

$3.60/gallon

New See n.a.

Hampshire footnote

(1)

New Jersey $0.70 Yes

New Mexico | $1.70 Yes | Over 14% - $6.06/gallon

New York $0.19 Yes

North $0.79 Yes | Over 17% -$0.91/gallon

Carolina

North Dakota | $0.50 -- Over 17% - $0.60/gallon,

Sparkling wine -

$1.00/gallon; 7% state

sales tax

Ohio $0.32 Yes | Over 14% - $1.00/gallon,

vermouth - $1.10/gallon

and sparkling wine -

$1.50/gallon

Oklahoma $0.72 Yes | Over 14% -

$1.144/gallon, sparkling

wine - $2.08/gallon;

13.5% on-premise

Oregon $0.67 | n.a. | Over 14% - $0.77/gallon

Pennsylvania | See Yes 3

footnote

(1)

Rhode Island | $0.60 Yes | Sparkling wine -

$0.75/gallon

South $0.90 Yes | $0.18/gallon —_ additional

Carolina tax

U.S. Median

$0.64

South Dakota | $0.93 Yes | 14% to 20% -

$1.45/gallon, over 21%

and sparkling wine —

$2.07/gallon; 2%

wholesale tax

Tennessee $1.21 Yes | $0.15/case and 15% on-

premise

Texas $0.20 Yes | Over 14% - $.408/gallon

and sparkling wine -

$0.516/gallon; 14% on-

premise and $0.05/drink

on airline sales

Utah See Yes

footnote

(1)

Vermont $0.55 Yes | Over 16% - sold through

state store, 10% on-premise

sales tax

Virginia $1.51 Yes | Under 4% - $0.2565/gallon

and over 14% ~-_ sold

through state store

Washington | $0.87 Yes | Over 14% - $1.72/gallon

West $1.00 Yes | 5% local tax

Virginia

Wisconsin $0.25 Yes | Over 14% - $0.45/gallon

Wyoming See Yes 7

Footnote

(1)

Dist. Of | $0.30 Yes | 8% off -— and 10% on-

Columbia premise sales tax, over 14%

- $0.40/gallon and

Sparkling - $0.45/gallon

Source: Compiled by FTA from various sources, See

_ http://www.taxadmin.org/fta/rate/wine.html (visited July 24,

2004)

* Sales tax is applied to on-premise sales only.

(1) All wine sales are through state stores. Revenue in these

States is generated from various taxes, fees and net profits.