Opposition Brief — Michigan Beer & Wine Wholesalers Assn. v. Heald

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No. 03-1116 and No. 03-1120

Jn the Supreme Court of the United States

JENNII zR M. GRANHOLM, ET AL., PETITIONERS

ELEANOR HEALD, ET AL.

MICHIGAN BEER & WINE WHOLESALERS ASSOCIATION,

PETITIONER

Vv.

ELEANOR HEALD, ET AL.

ON PETITIONS FOR WRITS OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF IN OPPOSITION

KENNETH W. STARR JAMES A. TANFORD

KANNON K. SHANMUGAM Counsel of Record

KIRKLAND & ELLIS LLP INDIANA UNIVERSITY

655 Fifteenth Street, N.W. SCHOOL OF LAW*

Washington, DC 20005 211 South Indiana Avenue

(202) 879-5000 Bloomington, IN 47405

(812) 855-4846

* affiliation given for

associational purposes only ROBERT D. EPSTEIN

EPSTEIN COHEN DONAHOE &

MENDES

Meridian Center, Suite 505

50 South Meridian Street

Indianapolis, IN 46204

(317) 639-1326

a nasassasaassssaasnasansnannsnnnsansssnenns

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QUESTION PRESENTED

Whether a state law allowing in-state wineries to make direct

shipments of wine to consumers, but barring out-of-state

wineries from doing so, is discriminatory and therefore violates

the Commerce Clause of the Constitution, notwithstanding

section 2 of the Twenty-first Amendment.

PARTIES TO THE PROCEEDINGS

The petitioners in No. 03-1116, who were defendants-

appellees below and who are nominal respondents in No. 03-

1120, are Jennifer M. Granholm, Governor of the State of

Michigan; Michael A. Cox, Attorney General of the State of

Michigan; and Nida R. Samona, Chairperson of the Michigan

Liquor Control Commission.

The petitioner in No. 03-1120, which was an intervening

defendant-appellee below and which is a nominal respondent in

No. 03-1116, is the Michigan Beer and Wine Wholesalers

Association.

Respondents in both No. 03-1116 and No. 03-1120, who

were plaintiffs-appellants below, are Eleanor Heald; Ray Heald;

John Arundel; Karen Brown; Richard Brown; Bonnie McMinn;

Gregory Stein; Michelle Morlan; William Horwath; Margaret

Christina; Robert Christina; Trisha Hopkins; Jim Hopkins; and

Domaine Alfred, Inc.

STATEMENT PURSUANT TO RULE 29.6

Domaine Alfred, Inc., has no parent corporation, and no

publicly held company owns 10% or more of its stock.

TABLE OF CONTENTS

Page

QUESTION PRESENTED .........-ccccccsssvscssssscssssssseceseesssssssvee

PARTIES TO THE PROCEEDINGS 0........c...csssssssvssseeseeeeee i

STATEMENT PURSUANT TO RULE 29.6 ......cccscvvvsvvvve iii

TABLE OF AUTHORITIES .........-cccccsccvcosessssssssveeseeesesssesee vi

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED .........cccccccccsssssssvsssvesseeeeesessee 2

COUNTERSTATEMENT OF THE CASE ........cssscccsooseeeoeee 2

REASONS FOR DENYING THE WRIT ..........ccccsccsssssssssvee 9

I. THE COURT OF APPEALS CORRECTLY HELD

THAT MICHIGAN’S DIRECT-SHIPPING

Il. THE COURT OF APPEALS’ DECISION DOES

NOT CONFLICT WITH THE DECISIONS OF

Ill. THIS CASE IS A LESS THAN IDEAL VEHICLE

FOR CONSIDERATION OF THE UNDERLYING

CONSTITUTIONAL QUESTION ..............cccccececeseeeeeees 26

TABLE OF AUTHORITIES

Page

CASES

44 Liquormart, Inc. v. Rhode Island,

Bee ee a enmenetmmnnmmnnnnanen 13

Bacchus Imports, Lid. v. Dias,

Ee rerneecnneusnsnsenenntenenmmimennenenenenenets passim

Bainbridge v. Turner,

311 F.3d 1104 (11th Cir. 2002)..0000 cece 19, 24, 25

Beskind v. Easley,

325 F.3d 506 (4th Cir. 2003)..........cccccceeceeeeee 3, 20, 21, 27

Bowman v. Chicago & Northwestern Ry.,

eS nierentenesencisantennenanmemanensmansmensenmmesnses 9

Bridenbaugh v. Freeman-Wilson,

227 F.3d 848 (7th Cir. 2000)..0..........ccccceeeeeeees 5, 8, 22, 23

Brown & Williamson Tobacco Corp. v. Pataki,

ae 18

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

Auth.,

ee 16, 17

California Retail Liquor Dealers Ass'n v. Midcal

Aluminum, Inc.,

Se ee Oe Ce tnenerennienmnemmemenen 13

Capital Cities Cable, Inc. v. Crisp,

Ee Ces GS Ce resrncensrecnssscensemesenmnssmemem 12, 13

Carter v. Virginia,

Ge Ce cncrecnsnssseenmenememnpmemeees 11

City of Newport v. Iacobucci,

gE 14

Collins v. Yosemite Park & Curry Co.,

Ss TTT ibiciesitasieitaiiirierenibinattiaanianiiniemieniiaiiameneaitiaadias 11

oe es

vii

Craig v. Boren,

eC 12, 13

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

Re a a ee etrrcetesenerereneentasensectninionetedtentninnnmnies 12

Dickerson v. Bailey,

336 F.3d 388 (Sth Cir. 2003).............cccccceccsescsessersees passim

Healy v. Beer Inst., Inc.,

ee TT ncscrsinnnsertnienentantanenespingmnesentenmennenenenn 16

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

eT ae Se ncsnernsensenennmniieentomneeineansnentes 13,14

Indianapolis Brewing Co. v. Liquor Control Comm'n,

rc errntretentriennrnnsnceneenmenenmtnemeonmnenincete 11

Joseph S. Finch & Co. v. McKittrick,

ee Se rerenicccnsessnememennmmnesemmnneseenn 11

Larkin v. Grendel's Den, Inc., :

ee Se itrcensenssnssennsenennamesnsmsmmenennmasnnn 12

Leisy v. Hardin,

Be ee SEE bstrerinnnsnenssnsnesnennntenenemennpnenenemmenmnestetts 9

License Cases,

46 U.S. (S How.) 504 (1847) .............ccccccocccsscsrcersreesesnceees 9

Mahoney v. Joseph Triner Corp.,

ee a ee cecnncnrecicnscersernennesntanetnnmntennenenpe 11,12

Mugler v. Kansas,

ee I centerionernsconnnemntevenenssenesnemnnmeneninmeccess 9

New Energy Co. v. Limbach,

Se SE sionsicrententnincerccnenencccsnceemnevenemmmmmunen 18

North Dakota v. United States,

ey rE ciererenecntennnemenesensunsnsesmeencenmmsantmeanenints 17

Pike v. Bruce Church, Inc.,

PU Cee CF Cee enneseneesennermmemenmmen 14, 18

Vili

Rhodes v. Iowa,

ee I citeneresnsnsnenicnenenineseniinnainveininniesiaianie 10

State Bd. of Equalization v. Young's Mkt. Co.,

ey See irernncececssrerecmnscenssensennncrenmenmsenees 11,12

Swedenburg v. Kelly,

kt ene passim

Vance v. W.A. Vandercook Co.,

Pe Se icccocereccererescmnessaineremnsenenmernnennens 10

Wisconsin v. Constantineau,

es ee ernenernssertensensecenscemmenmtimenmnnests 12

Ziffrin, Inc. v. Reeves,

ey Ge EEE rerrncencsnssenetnennspmenemensntennienenemenienenee 11

STATUTES AND REGULATIONS

Ba Cie Eb Ci ccesnnsnnninnncentennncsnssnnepemnesenesnessensssmnesnsenmenins 10

ae ie Ob Se crennesesnenssanmmnnesnsecesnecnneensnesmnsesantamnennenns 20

Bae re SE aE Prcreccnceceennsecensennsepsesesstectenneenmmmmenet 2

ee ee Ee cscctesvaneremsnstmsnmenmnnncsionmantemsnintenemen 10

Oe ey a ee crcccesrennrsecsemsssmnesmensemnememmmnnene 11

Mich. Comp. Laws § 436.1109 .0.......ccccccsssseseeeeesereeneeeeees 5

Mich. Comp. Laws § 436.1111 .....cccccccsessetseeeeeeeeeeeeeenees 4

Mich. Comp. Laws § 436.1113 ..........:ccccccseesseeeeeeeeeeeneees 4, 6

Mich. Comp. Laws § 436.1203 .0........cccccccccseceeceeeeeeeee 5, 6, 20

Mich. Comp. Laws § 436.1607 .0........ccccccccccssseeeeeseeeeeeeeennees 5

Mich. Admin. Code r. 436.1705 .0.........ccccccccescceeseeeeeceeeneeeeees 5

Mich. Admin. Code r. 436.1719 ..0.......cccccccsecseesseeserseeneeenenees 5

N.Y. Alco. Bev. Cont. Law § 3 oo.....ccccccccccceeseeeeeeeeenees 26, 29

N.Y. Alco. Bev. Cont. Law § 76 00.........cccccccceseeeeseeeeeees 26, 29

N.Y. Alco. Bev. Cont, Law § 77 .ccccsssccsssssssssssssssseeseee 26, 29

—_

OTHER AUTHORITIES

ey SE centicnendcersscenenteremienrentnanmeensinnte 11

Marc Humbert,

Wineries Cheer Proposal for Direct Shipping,

Albany Times Union, Jan. 23, 2004.000000.0....0:cccccceeeeeeees 30

Letter from Todd J. Zywicki et al. to William Magee et al.

(Mar. 29, 2004), available at

http://www. ftc.gov/opa/2004/03/nywine.htm ................. 30

William E. Leuchtenburg,

The Perils of Prosperity 1914-1932 (2d ed. 1993)......... 11

Ratification of the Twenty-first Amendment to the

Constitution of the United States,

(Everett Somerville Brown ed., 1938) (reprinted 1970) . 12

Staff of the Federal Trade Commission,

Possible Anticompetitive Barriers to E-Commerce: Wine

SR SEE cccsscccnensnsescanemeusrentenemensenernensencsstoeen 2, 3, 4, 20

WineAmerica,

Wine Facts 2004,

at http://www.americanwineries.org/winedata/

winefacts04.htm (last visited Apr. 5, 2004)... 2

Wine Institute,

Direct Shipment Laws by State for Wineries,

at http://www.wineinstitute.org/shipwine/analysis/

intro_analysis.htm (last modified Mar. 15, 2004)............. 3

James T. Yenckel,

Virginia Vintage,

Behe CEL GEE Win SHINS connecnccnnpsscunscsnessnseesssenssnscssansesseees 3

INTRODUCTION

These petitions present a novel constitutional question:

whether protectionist, anti-consumer state laws allowing in-

state wineries to make direct shipments of wine to consumers,

but barring out-of-state ones from doing so, are unconstitutional

under the Commerce Clause, despite the regulatory power

granted to States by section 2 of the Twenty-first Amendment.

While undeniably interesting, this constitutional question

does not mandate the Court’s attention at this time. When

measured against the traditional standards for granting

certiorari, this Court’s review is, for now, unwarranted.

Contrary to petitioners’ assertions, no genuine circuit split

exists on whether discriminatory state laws allowing direct

shipping by in-state wineries, but barring direct shipping by out-

of-state wineries, are unconstitutional. All of the circuits that

have passed on the constitutionality of such discriminatory laws

have invalidated them, consistent with this Court’s recent

pronouncements on the relationship between the Commerce

Clause and the Twenty-first Amendment. Other circuits either

have upheld narrower state laws on the ground that they do not

discriminate against out-of-state interests, or have refrained

from ruling pending further factual development.

Moreover, this case presents a less than ideal vehicle for

consideration of the underlying constitutional question. At a

minimum, this Court should await a case that presents both the

question whether a plainly discriminatory state law is

constitutional, and the related (and itself substantial) question

whether, if such a law is unconstitutional, the appropriate

remedy is to allow direct shipping by out-of-state wineries or to

ban direct shipping by in-state wineries. And this Court can

afford to wait, both because other challenges to direct-shipping

laws are currently pending in the federal courts and because

States are increasingly repealing such laws and enacting non-

discriminatory ones in response to the outcry from consumers

and wineries alike. The petitions for certiorari should therefore

be denied. In the alternative, in light of a recent Federal Trade

Commission report condemning such discriminatory laws, and

in light of the broader federal regulatory interests here, the

Court may wish to call for the views of the Solicitor General.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The pertinent constitutional and statutory provisions are

reproduced in the petitions at 03-1116 Pet. 1-2 and 44a-71a and

03-1120 Pet. 2 and 45a-69a.

COUNTERSTATEMENT OF THE CASE

1. In 1933, the Twenty-first Amendment was ratified,

ending Prohibition. In its wake, most States adopted a “three-

tier” regulatory system for alcohol distribution. See 03-1116

Pet. 2. Under that system, producers of alcoholic beverages are

typically required to sell their products to licensed wholesalers

or distributors, who in turn sell to retailers, who in turn sell to

consumers. See Staff of the Federal Trade Commission,

Possible Anticompetitive Barriers to E-Commerce: Wine 5 (July

2003) (hereafter “FTC Report”). In addition, producers of

alcoholic beverages who wish to sell their products in interstate

commerce are required to obtain a “basic permit” from the

federal Alcohol and Tobacco Tax and Trade Bureau (a recent

spinoff from the Bureau of Alcohol, Tobacco and Firearms).

See 27 U.S.C. §§ 203-204.

In the decades since States initially adopted the “three-tier”

regulatory system, the American wine industry has grown

exponentially. There are now more than 3,000 wineries in all

50 States—over twice as many as there were 30 years ago. See

WineAmerica, Wine Facts 2004, at http://www.

americanwineries.org/winedata/winefacts04.htm (last visited

Apr. 5, 2004); FTC Report 6. Many of these wineries produce

relatively small amounts of wine. See id. And there has been

an accompanying explosicn in wine-related tourism—even in

States not previously known for their wine industries, such as

Virginia. See, e.g., James T. Yenckel, Virginia Vintage, L.A.

Times, July 1, 2001, at L13.

While the number of wineries has grown dramatically, the

number of wholesalers that distribute wine has correspondingly

shrunk, from several thousand in the 1950s to a few hundred

today. See FTC Report 6. As a result of this consolidation,

many wineries, especially smaller ones, have found it

increasingly difficult to identify wholesalers willing to carry

their products. See id. Consumers have likewise complained

that they are unable to obtain certain wines from local retailers

or to ship wine home when touring out-of-state wineries. See,

e.g., Beskind v. Easley, 325 F.3d 506, 510-11 (4th Cir. 2003)

(discussing typical claims). In addition, with the advent of the

Internet, consumers have increasingly sought to order wine

online. See FTC Report 5.

In response, some 26 States have thus far passed laws

allowing in-state and out-of-state wineries to make direct

shipments of wine to consumers. See Wine Institute, Direct

Shipment Laws by State for Wineries, at http://www.

wineinstitute.org/shipwine/analysis/intro_analysis.htm (last

modified Mar. 15,2004). While varying somewhat, these laws

typically allow consumers to order restricted amo ints of wine

from in-state wineries or wineries in States that have reciprocal

laws. See FTC Report 8. Most of these laws require wineries

to obtain licenses before engaging in direct shipping, to remit

taxes on their shipments, and to label their packages or obtain

an adult signature to prevent wine from being delivered to

minors. See id. at 8, 26-40.

A number of other States, however, have passed

discriminatory laws allowing only in-state wineries, and not

out-of-state wineries, to make direct shipments to consumers.

In doing so, many state legislatures have candidly admitted their

desire to promote the in-state wine industry at the expense of

the out-of-state wine industry, by increasing the sale and

consumption of wine produced by in-state wineries. See, e.g.,

Dickerson v. Bailey, 336 F.3d 388, 399 (Sth Cir. 2003)

(detailing legislative history of Texas Wine Marketing Act).

Wineries and consumers have filed lawsuits around the country,

challenging the constitutionality of laws in this latter category.

2. The instant lawsuit involves Michigan’s laws governing

direct shipping. While the operation of the Michigan Liquor

Control Code is somewhat complex, the bottom line is not:

Michigan allows only in-state wineries, and not out-of-state

wineries, to make direct shipments to Michigan consumers.

Specifically, Michigan law enables only licensed “wine

makers” to make direct shipments. See Mich. Comp. Laws

§ 436.1113(9); of Mich. Comp. Laws § 436.1111(7) (defining

“sale”). The Michigan Liquor Control Commission has

construed this statutory provision to allow only in-state

wineries, and not out-of-state wineries, to obtain a “wine

maker” license. See C.A. App. 97-100, 104-05.' Out-of-state

' Michigan contends that out-of-state wineries “may apply to the Liquor

Control Commission to direct ship to consumers and bypass the three-tier

system by Commission order.” 03-1116 Pet. 3. The statutory provision

Michigan cites for that proposition, however, is merely a generic statute

stating that the sale or importation of alcohol in Michigan is banned unless

authorized by the commission. See Mich. Comp. Laws § 436.1203(1).

Michigan concedes, as it must, that “(t]he policy of the Liquor Control

Commission” has been to deny applications by out-of-state wineries to

obtain licenses to engage in direct shipping, 03-1116 Pet. 3, and indeed

freely recognizes that “[i]n-state wineries are excepted from the three-tier

system,” id. at 4.

Petitioners alternatively contend that “[aJny qualified out-of-state

manufacturer may establish a physical presence in Michigan and be licensed

in Michigan as a wine maker. ” 03-1120 Pet. 5 n.2; see also 03-1116 Pet. 23

(same). But petitioners did not make this argument before the Sixth Circuit.

See, e.g.,C.A. Br. of Intervenor 21 n.8 (discussing “wine maker” provision).

Moreover, in order to qualify for a “wine maker” license under the Michigan

Liquor Control Commission’s construction, an out-of-state winery would

actually have to open a winery in Michigan, not merely “establish a physical

presence” (say, by opening an office). See C.A. App. 97-100, 104-05; of.

03-1120 Pet. 10 (contending that “out-of-state wineries may equally locate in

Michigan and be licensed to sell directly”) (emphasis added).

wineries may obtain only an “outstate seller of wine” license,

which enables them to make shipments only to licensed

wholesalers for distribution through the preexisting “three-tier”

system. See Mich. Comp. Laws §§ 436.1109(9), 436.1607(1);

Mich. Admin. Code rr. 436.1705(2)(d), 436.1719(5).’

3. Plaintiffs, various Michigan wine consumers and

journalists and an out-of-state winery, brought suit against

defendants, various state officials (hereafter “Michigan”),

contending that the Michigan regulatory scheme discriminated

against interstate commerce in violation of the dormant

Commerce Clause. The defendants contended that the

Michigan regulatory scheme constituted a valid exercise of the

State’s power under section 2 of the Twenty-first Amendment.

Michigan Beer & Wine Wholesalers Association (hereafter “the

wholesalers”), a lobbying organization for the Michigan liquor-

distribution industry, intervened in support of the defendants.

In a brief unpublished opinion, the district court granted

summary judgment to the defendants, and denied summary

judgment to the plaintiffs. See 03-1116 Pet. 25a-35a; 03-1120

Pet. 25a-35a. The court observed that the case law concerning

direct-shipping laws was “sparse.” See 03-1116 Pet. 29a; 03-

1120 Pet. 29a. Relying heavily on the Seventh Circuit’s

decision in Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th

Cir. 2000)—the only extant court of appeals decision on the

constitutionality of a direct-shipping law—the court reasoned

that section 2 of the Twenty-first Amendment “authorize[d] the

? Michigan claims that petitioners conceded below that “there was nothing in

the Michigan law that prohibits out-of-state direct sales and shipments of

beverage alcohol.” 03-1116 Pet. 19. While petitioners did concede that

there is no Michigan statutory provision specifically prohibiting direct

shipments by out-of-state wineries, see C.A. Br. of Appellants 3 n.1, it is

undisputed that (1) any sale of alcohol in Michigan is banned unless

otherwise authorized by the Liquor Control Commission, see Mich. Comp.

Laws § 436.1203(1), and (2) out-of-state wineries cannot obtain

authorization to engage in direct shipping, see Mich. Comp. Laws

§ 436.1113(9); C.A. App. 97-100, 104-05.

states to control alcohol in ways that it [sic] cannot control

cheese.” 03-1116 Pet. 33a; 03-1120 Pet. 33a (internal quotation

omitted). The court conceded that a State’s power under the

Twenty-first Amendment was not “complete.” See 03-1116

Pet. 34a; 03-1120 Pet. 34a. In order to avail itself of the

Twenty-first Amendment, the court continued, a State must act

in such a way as to further the “core” concerns of the

amendment. See 03-1116 Pet. 34a; 03-1120 Pet. 34a. Ina

single paragraph of analysis, the court stated that Michigan’s

direct-shipping scheme furthered such a core concern because it

was “one provision of a comprehensive system that regulates

the flow of alcoholic beverages into and within the State of

Michigan.” 03-1116 Pet. 34a; 03-1120 Pet. 34a. The court

concluded that this overall system was necessary to ensure the

collection of taxes and to reduce the risk that minors would

obtain alcohol. See 03-1116 Pet. 34a-35a; 03-1120 Pet. 34-35a.

The court then denied plaintiffs’ motion for reconsideration,

stating that “[t}he three-tier distribution system is a proper

exercise of [Michigan’s] constitutional authority” under the

Twenty-first Amendment. 03-1116 Pet. 38a-39a; 03-1120 Pet.

39a.

4. The Sixth Circuit (Daughtrey, J., joined by Guy and

Boggs, JJ.) reversed. See 03-1116 Pet. 1-18a; 03-1120 Pet. la-

17a. The court began by recognizing that, in a series of

decisions immediately after ratification of the Twenty-first

Amendment, the Supreme Court had “afforded the states nearly

limitless power to regulate alcohol under the new amendment.”

03-1116 Pet. 8a; 03-1120 Pet. 8a. The court reasoned,

however, that Michigan’s reliance on those cases was

“disingenuous at best because, as early as the 1960s, the

Supreme Court signaled a break with this line of reasoning.”

03-1116 Pet. 9a; 03-1120 Pet. 8a. Under this Court’s

subsequent cases, the court continued, challenges to state

alcohol laws should be assessed by “determining how closely

related the law in question is to the ‘core concerns’ of the

Twenty-first Amendment.” 03-1116 Pet. 10a; 03-1120 Pet. 9a.

After reviewing this Court’s more recent cases, the Sixth

Circuit concluded that the mere fact that a State was motivated

by the “core concerns” of the Twenty-first Amendment could

not “shield its laws from constitutional scrutiny.” 03-1116 Pet.

lla; 03-1120 Pet. 10a-l1la. The court noted that facially

discriminatory laws are still subject to strict scrutiny under the

dormant Commerce Clause, with the result that the State must

prove that no reasonable non-discriminatory alternatives are

available to advance the State’s legitimate purposes. See 03-

1116 Pet. 11a; 03-1120 Pet. lla. The court “reject[ed] the

implication that a state’s ‘virtually complete control’ over

liquor regulation enables it to discriminate against out-of-state

interests in favor of in-state interests.” 03-1116 Pet. 12a; 03-

1120 Pet. lla. According to the court, such an approach was

“simply forbid{[den]” by this Court’s decision in Bacchus

Imports, Ltd. v. Dias, 468 U.S. 263 (1984), which struck down

a tax exemption for certain locally produced alcoholic

beverages. 03-1116 Pet. 12a; 03-1120 Pet. lla.

Applying this analytical framework to the Michigan statute,

the Sixth Circuit rejected the district court’s characterization of

the Michigan direct-shipping scheme as a “constitutionally

benign product of the state’s three-tier system.” 03-1116 Pet.

12a; 03-1120 Pet. 1la. As to the dormant Commerce Clause,

the court concluded that “it is clear that the Michigan statutory

and regulatory scheme treats out-of-state and in-state wineries

differently, with the effect of benefitting the in-state wineries

and burdening those from out of state.” 03-1116 Pet. 14a; 03-

1120 Pet. 13a. The court noted that, under the Michigan

system, in-state wineries would enjoy both greater access to

consumers and greater profits by virtue of their exemption from

the three-tier system. See 03-1116 Pet. 14a; 03-1120 Pet. 13a.

The Sixth Circuit then considered whether the Michigan

direct-shipping scheme furthered any of the “core concerns” of

the Twenty-First Amendment and, if so, whether those concerns

could be adequately served by any non-discriminatory

alternatives. See 03-1116 Pet. 15a; 03-1120 Pet. 14a. The

court answered no to both questions. See 03-1116 Pet. 15a; 03-

1120 Pet. 14a. The court added that “the relevant inquiry is not

whether Michigan’s three-tier system as a whole promotes the

goals of temperance, ensuring an orderly market, and raising

revenue, but whether the discriminatory scheme challenged in

this case * * * does so.” 03-1116 Pet. 15a; 03-1120 Pet. 14a

(internal quotation omitted).

Finally, the Sixth Circuit rejected the district court’s reliance

on the Seventh Circuit’s decision in Bridenbaugh. See 03-1116

Pet. 16a-17a; 03-1120 Pet. 15a-17a. The court reasoned that

Bridenbaugh was “distinguishable on its facts.” 03-1116 Pet.

16a; 03-1120 Pet. 16a. It noted that Bridenbaugh “did not

involve any out-of-state wineries as plaintiffs, and it thus

addressed only whether the Indiana statute discriminated

against customers who wanted to have out-of-state wine

shipped directly to them.” 03-1116 Pet. 17a; 03-1120 Pet. 16a.

The court added that “it appears the Indiana statutes differ from

the provisions at issue here,” because those statutes required

every drop of liquor, whether from an in-state or out-of-state

producer, to pass through the “three-tier” system. 03-1116 Pet.

17a; 03-1120 Pet. 16a. Finally, the court noted that, in

Bridenbaugh, the out-of-state sellers did not have or want

permits, whereas here, the out-of-state sellers wanted permits

and were willing to pay taxes on any direct shipments. See 03-

1116 Pet. 17a; 03-1120 Pet. 16a-17a.

5. Both Michigan and the wholesalers petitioned for

rehearing by the panel and rehearing en banc. The Sixth Circuit

denied both petitions without dissent. See 03-1116 Pet. 21a-

22a; 03-1120 Pet. 21a-22a.

REASONS FOR DENYING THE WRIT

I. THE COURT OF APPEALS CORRECTLY HELD

THAT MICHIGAN’S DIRECT-SHIPPING

SCHEME IS UNCONSTITUTIONAL.

The Sixth Circuit’s holding that the Michigan direct-shipping

scheme is discriminatory under the dormant Commerce Clause,

and cannot be “saved” from 2 holding of unconstitutionality by

section 2 of the Twenty-first Amendment, is entirely consistent

with this Court’s precedents—especially the Court’s recent

precedents addressing the interplay between those two

constitutional provisions.

A. This Court has a long history of reviewing state

regulations regarding alcoholic beverages. Before the Civil

War, the Court held that States had essentially plenary power to

regulate the production and trade of alcoholic beverages within

their borders. See License Cases, 46 U.S. (5 How.) 504, 577

(1847) (Taney, C.J.). In the late nineteenth century, however,

the Court, applying its then-prevailing muscular view of the

dormant Commerce Clause, began to whittle away at that

power. Thus, while the Court continued to allow States to

prohibit the production and consumption of alcohol within their

borders, see Mugler v. Kansas, 123 U.S. 623, 661-63 (1887),

the Court also held that States could not restrict the importation

of liquor to persons possessing a permit, see Bowman v.

Chicago & Northwestern Ry., 125 U.S. 465, 499-500 (1888),

and then held that States could not regulate the importation or

resale of alcohol as long as the alcohol remained in its original

package, see Leisy v. Hardin, 135 U.S. 100, 108-10 (1890).

The practical, and perverse, result of these decisions was that

States could regulate alcohol produced by in-state persons, but

not alcohol produced by out-of-state persons. In order to

eliminate this disparity, Congress enacted the Wilson Act,

which authorized States to regulate imported alcohol “to the

same extent and in the same manner” as non-imported alcohol.

26 Stat. 313 (1890). This Court, however, construed the

Wilson Act to empower States to regulate only the resale of

imported alcohol, not the direct shipment of alcohol to

consumers. See Rhodes v. Iowa, 170 U.S. 412, 423 (1898);

Vance v. W.A. Vandercook Co., 170 U.S. 438, 446 (1898).

Again acting to eliminate the disparity in treatment between in-

state and out-of-state producers, therefore, Congress passed the

Webb-Kenyon Act, which states, in relevant part, that “[t}he

shipment or transportation * * * of * * * intoxicating liquor of

any kind from one State, Territory, or District of the United

States * * * into any State, Territory, or District of the United

States * * * to be received, possessed, sold, or in any manner

used * * * in violation of any law of such State, Territory, or

District * * * is prohibited.” 37 Stat. 699 (1913).°

B. In 1919, the Eighteenth Amendment was ratified, and the

“Noble Experiment” of nationwide Prohibition began. See,

e.g., William E. Leuchtenburg, The Perils of Prosperity 1914-

1932, at 212-17 (2d ed. 1993). In 1933, that experiment came

to an end with the ratification of the Twenty-first Amendment.

Section 1 of that amendment repealed the Eighteenth

Amendment, and thereby ended nationwide Prohibition. For its

part, the lesser-known section 2 of that amendment effectively

“incorporate[d] [the Webb-Kenyon Act] permanently in the

Constitution.” 76 Cong. Rec. 4172 (1933) (statement of Sen.

Robinson). Section 2, whose language tracks that of the Webb-

Kenyon Act almost exactly, was designed to put to rest any

lingering doubts about the Webb-Kenyon Act’s own

constitutionality. See id. at 4170 (statement of Sen. Borah).

Numerous members of Congress—including Senator Blaine,

the amendment’s sponsor—stated that the purpose of section 2

was to authorize those States that wished to remain “dry” to do

so. See, e.g., id. at 4141 (statement of Sen. Blaine); id. at 4170

(statement of Sen. Borah); id. at 4518 (statement of Rep.

* The Webb-Kenyon Act is reproduced in full at 03-1316 Pet. 44a and 03-

1320 Pet. 46a. It is now codified at 27 U.S.C. § 122.

Robinson); id. at 4522-23 (statement of Rep. McSwain); id. at

4526 (statement of Rep. Tierney). Delegates to the state

ratifying conventions made similar comments. See, e.g.,

Ratification of the Twenty-first Amendment to the Constitution

of the United States 104, 316 (Everett Somerville Brown ed.,

1938) (reprinted 1970). As with the Webb-Kenyon Act itself,

nothing in the legislative or ratification history of the Twenty-

first Amendment specifically indicates that section 2 was

intended to aliow States to discriminate in favor of in-state

producers, at the expense of out-of-state ones.

C. In a series of short opinions in the period following the

ratification of the Twenty-first Amendment, this Court did

suggest that the power of States to regulate under section 2 was

quite generous. See, e.g., State Bd. of Equalization v. Young's

Mkt. Co., 299 U.S. 59, 62-64 (1936); Mahoney v. Joseph Triner

Corp., 304 U.S. 401, 403-04 (1938); Collins v. Yosemite Park

& Curry Co., 304 U.S. 518, 537-38 (1938); Indianapolis

Brewing Co. v. Liquor Control Comm'n, 305 U.S. 391, 394

(1939); Joseph S. Finch & Co. v. McKittrick, 305 U.S. 395,

397-98 (1939); Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138-39

(1939); Carter v. Virginia, 321 U.S. 131, 136-38 (1944). But

despite some broad statements to the effect that a State’s power

under section 2 is “unfettered by the Commerce Clause,” e.g.,

Ziffrin, 308 U.S. at 138, even those early cases do not

unambiguously stand for the proposition that section 2

authorizes discrimination against out-of-state producers.

In Young's Market—the case on which all of this Court’s

other early cases rely—this Court considered a constitutional

challenge by wholesalers to California’s post-Prohibition

regulatory scheme, under which wholesalers were required to

pay $50 for a wholesaler’s license in order to distribute beer,

and importers were required to pay an additional $500 in order

to import beer into the State. See 299 U.S. at 60-61. Somewhat

curiously, the Court began by rejecting plaintiffs’ contention

that this scheme was discriminatory and thereby violated the

dormant Commerce Clause. See id. at 61-62. The Court

reasoned that, while the scheme may have imposed a burden on

interstate commerce, “there is no discrimination against

[plaintiffs] qua wholesalers,” since wholesalers paid the same

fee to sell either imported or domestic beer. /d. at 61. The

Court therefore concluded that “the case does not present a

question of discrimination prohibited by the commerce clause.”

Id. at 62. To be sure, the Court went on to reject the argument

that, under section 2, “if [a State] permits [the] manufacture and

sale [of alcohol], it must let imported liquors compete with the

domestic on equal terms.” /d. But the Court simultaneously

rejected the contention that “the amendment has, in respect to

liquor, freed the states from all restrictions upon the police

power to be found in other provisions of the Constitution.” /d.

at 64. Therefore, insofar as subsequent cases characterized

Young's Market as affirmatively holding that “discrimination

against imported liquor is permissible,” e.g., Mahoney, 304

U.S. at 403, that characterization is at best questionable.

D. To the extent that some language in the Court’s early

cases interpreting the Twenty-first Amendment suggested that a

State’s power under section 2 was effectively unlimited, the

Court soon after began distancing itself from such a view. In

cases arising in a variety of contexts, the Court made clear that

“the Amendment does not license the States to ignore their

obligations under other provisions of the Constitution.” Capital

Cities Cable, Inc. v. Crisp, 467 U.S. 691, 712 (1984). Thus, the

Court held that section 2 did not alter analysis of the

constitutionality of state laws under the Due Process Clause, see

Wisconsin v. Constantineau, 400 U.S. 433, 436 (1971); the

Equal Protection Clause, see Craig v. Boren, 429 U.S. 190,

204-09 (1976); the Export-Import Clause, see Department of

Revenue v. James B. Beam Distilling Co., 377 U.S. 341, 345-46

(1964); the Establishment Clause, see Larkin v. Grendel's Den,

Inc., 459 U.S. 116, 122 n.5 (1982); or the Free Speech Clause,

see 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 516

(1996). The Court also held that, despite section 2, certain state

laws relating to alcohol could be preempted by conflicting

federal law enacted under Congress’ affirmative Commerce

Clause power. See, e.g., Capital Cities, 467 U.S. at 711-16;

California Retail Liquor Dealers Ass'n v. Midcal Aluminum,

Inc., 445 U.S. 97, 106-14 (1980).

The Court did continue to recognize that section 2 “created

an exception to the normal operation of the Commerce Clause.”

Craig, 429 U.S. at 206. The Court expressly stated, however,

that section 2 does not give States unfettered power to regulate

notwithstanding the dormant Commerce Clause. In Hostetter v.

Idlewild Bon Voyage Liquor Corp., 377 U.S. 324 (1964), the

Court considered the constitutionality of an action by the New

York State Liquor Authority to terminate duty-free sales of

alcohol to departing international airline travelers. At the

outset, the Court noted that, absent the Twenty-first

Amendment, the New York authorities would plainly have

lacked the power to prohibit such sales, since the alcohol in

question merely traveled through the State (under the auspices

of the federal Bureau of Customs) for delivery to consumers in

foreign countries. See id. at 329. The Court conceded that, “in

the early years following adoption of the Twenty-first

Amendment,” it had “made clear * * * that by virtue of its

provisions 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. The Court added, however, that

“[t]o draw a conclusion from this line of decisions that the

Twenty-first Amendment has somehow operated to ‘repeal’ the

Commerce Clause wherever regulation of intoxicating liquors is

concerned would * * * be an absurd oversimplification.” Jd. at

331-32. The Court further noted that “[i]f the Commerce

Clause had been pro tanto ‘repealed,’ then Congress would be

left with no regulatory power over interstate or foreign

commerce in intoxicating liquor.” /d. at 332. “Such a

conclusion,” the Court continued, “would be patently bizarre

and is demonstrably incorrect.” Jd.

The Court concluded that because “the Twenty-first

Amendment and the Commerce Clause are parts of the same

Constitution,” “each must be considered in the light of the

other, and in the context of the issues and interests at stake in

any concrete case.” /d. Reasoning that New York’s interest in

regulating alcohol for ultimate use in a foreign country was

comparatively slight, the Court held that the State’s action was

invalid. See id. at 333-34.

E. In its three most recent decisions specifically addressing

the interplay between the dormant Commerce Clause and the

Twenty-first Amendment, the Court has made clear that the

Twenty-first Amendment “has a barely discernible effect in

Commerce Clause cases.” City of Newport v. lacobucci, 479

U.S. 92, 98 (1986) (Stevens, J., dissenting). Most notably, in

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), this Court

considered the validity of a Hawaii statute that provided a tax

exemption for certain locally produced alcoholic beverages.

The Court began by recognizing that it had taken two different

approaches in dormant Commerce Clause cases. See id. at 270.

Where state legislation constituted “economic protectionism”—

either because it had a discriminatory purpose or a

discriminatory effect—the Court had applied a “stricter rule of

invalidity.” Jd. Where, on the other hand, state legislation did

not constitute “ecohomic protectionism” but nevertheless

burdened interstate commerce, the Court had adopted a “more

flexible approach,” inquiring into the “balance between local

benefits and the burden on interstate commerce.” Jd. (citing

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970)). The Court

noted that the Hawaii statute had both a discriminatory purpose,

since it was undisputed that the purpose of the exemption was

to aid Hawaii industry, and a discriminatory effect, because the

exemption applied only to locally produced beverages. See id.

at 271. The Court rejected Hawaii’s arguments that the tax

exemption was necessary because the local industry was

struggling and that the exemption was designed to aid local

producers rather than harm out-of-state ones. See id. at 272-73.

The Court then considered whether the tax exemption was

“saved” by the Twenty-first Amendment. See id. at 274-76.

The Court, citing Young’s Market and other early cases,

reasoned that “[d]jespite broad language in some of the opinions

of this Court written shortly after ratification of the

Amendment, more recently we have recognized the obscurity of

the legislative history of § 2.” Jd. at 274 (footnote omitted).‘

Relying on its decision in Hostetter, the Court noted that “[i]t is

by now clear that the Amendment did not entirely remove state

regulation of alcoholic beverages from the ambit of the

Commerce Clause.” Jd. at275. The Court reasoned that “[t}he

question in this case is thus whether the principles underlying

the Twenty-first Amendment are sufficiently implicated by the

exemption * * * to outweigh the Commerce Clause principles

that would otherwise be offended.” Jd.

Applying that approach, the Court concluded that the

Twenty-first Amendment did not affect the analysis of the tax

exemption’s constitutionality. See id. at 276. The Court

reasoned that it was “certain” that “[t]he central purpose of the

[Twenty-first Amendment] was not to empower States to favor

local liquor industries by erecting barriers to competition.” /d.

And the Court added that “[s]tate laws that constitute mere

economic protectionism are therefore not entitled to the same

deference as laws enacted to combat the perceived evils of an

unrestricted traffic in liquor.” Jd. Because the tax exemption

* Notwithstanding petitioners’ claims that “no Supreme Court case to date

has directly overruled” Young ’s Market and the Court’s other early Twenty-

first Amendment decisions, 03-1116 Pet. 10 n.7, and that “these foundation

cases [cannot] be written off as historical relics,” 03-1120 Pet. 8, the

Bacchus Court plainly refused to follow the “broad language” in those

cases—over Justice Stevens’ objection, in dissent, that Young's Market

compelled the opposite result, see Bacchus, 468 U.S. at 282-87.

was not justified by a desire to promote temperance or to carry

out any other purpose of the Twenty-first Amendment, the

Court rejected Hawaii’s reliance on the amendment, and

invalidated the statute. See id.°

In two other cases, the Court applied similar reasoning in

refusing to “save” state legislation under the Twenty-first

Amendment. See Brown-Forman Distillers Corp. v. New York

State Liquor Auth., 476 U.S. 573 (1986); Healy v. Beer Inst.,

Inc., 491 U.S. 324 (1989). In both cases, the Court considered

the constitutionality of price-affirmation statutes, which

required alcohol producers to affirm that they were selling their

products at a price no higher than the lowest price elsewhere in

the country. See Brown-Forman, 476 U.S. at 576; Healy, 491

U.S. at 328. In Brown-Forman, the Court held that a

“prospective” price-affirmation statute violated the dormant

Commerce Clause because it had the impermissible effect of

regulating prices in other States. See 476 U.S. at 578-84. The

Court reasoned that the statute could not be “saved” because the

Twenty-first Amendment gave States no authority to control

sales in other States. See id. at 584-85. In Healy, the Court

held that a “contemporaneous” price-affirmation statute was

invalid under the dormant Commerce Clause, not only because

the statute impermissibly regulated prices in other States but

also because the statute discriminated against alcohol producers

and shippers engaged in interstate commerce. See 491 U.S. at

335-41. Following Brown-Forman, the Court reasoned that the

statute could not be “saved” because the Twenty-first

Amendment conferred no authority on States to regulate

* Petitioners suggest that the Court’s Twenty-first Amendment analysis in

Bacchus should somehow be discounted because “the 21st Amendment was

never even raised as an issue in that case until it was before this Court,” 03-

1116 Pet. 12, and because “the State * * * barely attempted to invoke the

Amendment in its defense,” 03-1120 Pet. 10. The mere fact that an

argument was not made below or was not made at length, however, does not

magically render this Court’s discussion of the argument dictum.

extraterritorially. See id. at 341-42. In an opinion concurring in

the judgment, Justice Scalia, citing Bacchus, concluded that

“(the law’s] discriminatory character eliminates the immunity

afforded by the Twenty-first Amendment.” /d. at 344.°

F. Notwithstanding petitioners’ efforts to distinguish this

Court’s cases on the interplay between the dormant Commerce

Clause and the Twenty-first Amendment, see, e.g., 03-1116 Pet.

10-13; 03-1120 Pet. 4, 10, those cases compel the result reached

below. Under this Court’s dormant Commerce Clause

jurisprudence, state statutes that directly regulate or

discriminate against interstate commerce, or that have the effect

of favoring in-state interests over out-of-state ones, are

“virtually per se invalid.” Brown-Forman, 476 U.S. at 579.’

As the Sixth Circuit correctly concluded, “it is clear that the

Michigan statutory and regulatory scheme treats out-of-state

and in-state wineries differently, with the effect of benefitting

the in-state wineries and burdening those from out of state.”

03-1116 Pet. 14a; 03-1120 Pet. 13a. Like Hawaii’s taxation

scheme in Bacchus, see 468 U.S. at 271, the Michigan direct-

* In North Dakota v. United States, 495 U.S. 423 (1990), the Court

considered whether a State’s reporting and labeling regulations applicable to

alcohol shipped into federal enclaves were valid under the intergovernmental

immunity doctrine. The Court held that they were. See id. at 434-44

(plurality opinion); id. at 444-48 (Scalia, J., concurring in the judgment). In

dictum, Justice Stevens, writing fe four Justices, stated that the State’s

“comprehensive system for the distribution of liquor within its borders” was

ena ted “[i}n the interest of promoting temperance, ensuring orderly market

conc tions, and raising revenue,” and was thus “unquestionably legitimate”

under the Twenty-first Amendment. /d. at 432 (plurality opinion).

” While the wholesalers accuse the Sixth Circuit of employing “the kind of

judicial hostility usually associated with restrictions on speech or racial

classifications,” 03-1120 Pet. 9-10, there can be no doubt that this Court has

applied heightened scrutiny to laws that discriminate against out-of-state

commerce, just as it has to laws that discriminate against individuals or laws

that restrict fundamental rights.

shipping scheme plainly has a discriminatory effect.*

As the Sixth Circuit also correctly concluded, petitioners

cannot show either that the Michigan direct-shipping scheme

“advances a legitimate local purpose that cannot be adequately

served by reasonable nondiscriminatory alternatives,” as is

necessary to save a discriminatory statute under the dormant

Commerce Clause, e.g., New Energy Co. v. Limbach, 486 U.S.

269, 278 (1988), or that it is “designed to promote temperance

or to carry out any other purpose of the Twenty-first

Amendment,” as is necessary to save a discriminatory statute

under section 2, e.g., Bacchus, 468 U.S. at 276. Although

petitioners protest that the prohibition on direct shipping by

only out-of-state wineries is necessary to “prevent sales to

minors, ensure applicable excise and sales taxes are collected,

and that equal exposure to the State’s strict alcohol regulatory

regiment [sic] is achieved,” 03-1116 Pet. 23; see also 03-1120

Pet. 6 (same), Michigan could readily effectuate all of those

purposes by requiring out-of-state wineries, like in-state

wineries, to obtain “wine maker” licenses before engaging in

direct shipping; requiring them, like in-state wineries, to remit

taxes on their shipments; and requiring them, like in-state

wineries, to label their packages or obtain an adult signature to

* Michigan suggests that its direct-shipping scheme should instead be

measured against the more deferential balancing test of Pike v. Bruce

Church, Inc., 397 U.S. 137 (1970), because “[o]ut-of-state wineries are not

similarly situated to in-state wineries for regulation purposes.” 03-1116 Pet.

23 (citing Brown & Williamson Tobacco Corp. v. Pataki, 320 F.3d 200, 216

(2d Cir. 2003)). The only way in which in-state and out-of-state wineries are

differently situated here, however, is that in-state wineries may presently

obtain a license to engage in direct shipping, whereas out-of-state wineries

cannot. Where in-state and out-of-state interests are differently situated only

by virtue of the very regulations being challenged, the balancing test of Pike

is plainly inapplicable. Nor does the fact that there may be many more out-

of-state wineries than in-state ones, see 03-1116 Pet. 4, 23, 24, alter the

analysis, see, e.g., Bacchus, 468 U.S. at 268-69 (holding that Hawaii statute

was discriminatory despite fact that exempted locally produced alcoholic

beverages constituted less than 1% of total alcohol sold in the State).

prevent wine from being delivered to minors.” Indeed, the FTC

reached precisely this conclusion. As the FTC’s recent

nationwide study demonstrated, those States that have imposed

similar requirements have reported “few or no problems with

shipments to minors or with tax collection.” FTC Report 4."°

Unsurprisingly, therefore, the Sixth Circuit concluded, “based

on the evidence in the record, that defendants have not shown

that the Michigan scheme’s discrimination between in-state and

out-of-state wineries furthers any of the [State’s] concerns

* ** much less that no reasonable non-discriminatory means

exists to satisfy those concerns.” 03-1116 Pet. 15a; 03-1120

Pet. 14a. This conclusion was evidently correct, and the Sixth

Circuit’s decision to invalidate Michigan’s direct-shipping

scheme was entirely consistent with this Court’s precedents.''

* The Michigan Liquor Control Commission could impose all of these

requirements through the simple expedient of allowing out-of-state wineries

to obtain “wine maker” licenses, which would automatically subject them to

the detailed requirements currently applicable to direct shipments by in-state

wineries. See Mich. Comp. Laws § 436.1203.

'© Citing an Alabama district-court decision, Michigan suggests that

Michigan courts may lack personal jurisdiction over unlicensed out-of-state

producers. See 03-1116 Pet. 13-14 & n.12, 16, 24. It seems doubtful at best,

however, that Michigan courts would lack personal jurisdiction over an out-

of-state producer that had purposely availed itself of the benefits of

Michigan law by applying for a direct-shipping license. Contrary to the

wholesalers’ suggestion, see 03-1120 Pet. 11, once personal jurisdiction is

established over out-of-state producers, Michigan could prosecute them for

any violations of state law—either in state court or, under the Twenty-first

Amendment Enforcement Act, in federal court, see 27 U.S.C. § 122a.

'' To the extent that petitioners insinuate that the Webb-Kenyon Act

somehow carries independent weight in the analysis, see, e.g., 03-1116 Pet.

17; 03-1120 Pet. 2,4, 9 & n.5, 11; of Ohio Br. 18-19 (same), that suggestion

lacks merit. The only court of appeals expressly to have addressed this issue

has held that, because section 2 of the Twenty-first Amendment, like the

Webb-Kenyon Act, could constitute a reconveyance of authority to the

States, and because the language of the Webb-Kenyon Act and section 2 is

materially identical, the two provisions must be identically construed. See

Bainbridge v. Turner, 311 F.3d 1104, 1110-11 (11th Cir. 2002).

II. THE COURT OF APPEALS’ DECISION DOES

NOT CONFLICT WITH THE DECISIONS OF

OTHER CIRCUITS.

The Sixth Circuit invalidated the Michigan direct-shipping

scheme because it discriminated against interstate commerce.

That holding is consistent not only with the prior decisions of

this Court, but also with the decisions of other courts of

appeals, all of which have invalidated similar state statutes and

upheld only narrower ones.

A. As Michigan concedes, see 03-1116 Pet. 7, the Sixth

Circuit’s holding on the constitutionality of Michigan’s direct-

shipping scheme is unquestionably consistent with the recent

holdings of the Fourth and Fifth Circuits concerning similar

state laws.

1. In Beskind v. Easley, 325 F.3d 506 (4th Cir. 2003), the

Fourth Circuit struck down North Carolina’s direct-shipping

laws, which unambiguously allowed in-state wineries but not

out-of-state wineries to engage in direct shipping, see id. at 510.

Writing for the court, Judge Niemeyer, joined by Judges Luttig

and Traxler, began by tracing the history of the Twenty-first

Amendment, noting that the Twenty-first Amendment withdrew

some, but not all, of the power of Congress to regulate interstate

commerce. See id. at 512-13. Citing this Court’s decision in

Bacchus, the court first considered whether the North Carolina

statute would “violate[] the Commerce Clause without

consideration of the Twenty-first Amendment.” Jd. at 513-14.

The court concluded that there was “little doubt that those laws

treat in-state manufacturers of wine differently from out-of-state

manufacturers of wine, with the undoubted effect of benefiting

the in-state manufacturers and burdening the out-of-state

manufacturers.” Jd. at 515. The court added that North

Carolina had various reasonable non-discriminatory

alternatives, including requiring out-of-state wineries to

establish an in-state presence and import their wine to that

location. See id. at 515-16. Turning to the Twenty-first

Amendment, the court reasoned that North Carolina could not

identify any Twenty-first Amendment interest that was served

by its system of “selective deregulation.” /d. at 517. The court

therefore concluded that North Carolina’s law “cannot credibly

be portrayed as anything other than local economic boosterism

in the guise of a law aimed at alcoholic beverage control.” /d.

2. So too, in Dickerson v. Bailey, 336 F.3d 388 (Sth Cir.

2003), the Fifth Circuit invalidated Texas’ direct-shipping laws,

which likewise unambiguously allowed in-state wineries but not

out-of-state wineries to engage in direct shipping, see id. at 393.

Like the Sixth Circuit in this case and the Fourth Circuit in

Beskind, the Fifth Circuit began by analyzing the statute under

the dormant Commerce Clause. See id. at 395-403. The court

found that “[ijt is clear beyond peradventure” that the Texas

statute had the effect of discriminating against out-of-state

wineries, id. at 398, and added that there was substantial

evidence that the direct-shipping exemption for in-state

wineries was enacted with a discriminatory purpose, see id. at

399-400. The court reasoned that “the operable facts of this

case are identical to those resulting in the Supreme Court’s

decision in Bacchus.” Id. at 400. The court concluded that

Texas had failed to demonstrate that alternative means were

unavailable to achieve its policy goals. See id. at 401-02. As to

the Twenty-first Amendment, the court stated that the

appropriate inquiry, under Bacchus, was whether the statute

furthered a “core concern” of the Twenty-first Amendment. /d.

at 404. The court rejected Texas’ argument that the Twenty-

first Amendment required the Texas laws to be reviewed

deferentially, reasoning that such a test was a “legal dinosaur

that went extinct long ago in the history of the Supreme Court’s

Twenty-first Amendment jurisprudence.” /d. at 406. Instead,

citing this Court’s decisions in Bacchus, Brown-Forman, and

other cases, the court concluded that it was required to

“scrutinize strictly whether a state’s statutes are tailored to the

Twenty-First Amendment’s ‘core concerns.”” /d. The court

concluded that Texas’ laws were not. /d. at 406-07.

B. Petitioners contend that the first two circuits to have

addressed the issue, the Seventh and Eleventh Circuits, reached

conflicting results on the constitutionality of state direct-

shipping laws. See 03-1116 Pet. 6-10; 03-1120 Pet. 12-15. Not

so. Those decisions, and a more recent decision of the Second

Circuit, can readily be reconciled with the Sixth Circuit’s

decision.

1. In Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th

Cir. 2000), the Seventh Circuit upheld Indiana’s direct-shipping

laws only after finding that they were not discriminatory, and its

decision is therefore consistent with the decision below.

Admittedly, the Bridenbaugh court began its analysis with the

Twenty-first Amendment, rather than the dormant Commerce

Clause. /d. at 851-53." Like the Fourth, Fifth, and Sixth

Circuits after it, however, the Seventh Circuit held that the

Twenty-first Amendment could not be used to save a state law

that discriminated against out-of-state sellers. Writing for the

court, Judge Easterbrook reasoned that, under this Court’s

recent Twenty-first Amendment decisions, “the greater power

to forbid imports does not imply a lesser power to allow

imports on discriminatory terms.” /d. at 853. The court noted

that, in those decisions, this Court had “appl[ied] an

'? The wholesalers contend that “(t]he Sixth Circuit explicitly disagreed with

Bridenbaugh’s approach and its result.” 03-1120 Pet. 12; see generally

Ohio Br. 6-9 (suggesting that circuits are split because they have “applied a

different legal test,” with some starting their analysis with the dormant

Commerce Clause and others with the Twenty-first Amendment). To be

sure, the Sixth Circuit did chastise the Seventh Circuit for not fully

addressing the dormant Commerce Clause issue, see 03-1116 Pet. 16a-17a;

03-1120 Pet. 15a-16a. This Court does not ordinarily grant certiorari,

however, to resolve disagreements about the order in which constitutional

arguments should be addressed—even if those disagreements are dressed up

as disagreements about “the analytical framework to be employed.” 03-1274

Br. for Private Respondents 9; see also 03-1274 Br. for State Respondents 4,

6, 8, 10 (same).

unconstitutional-conditions approach to the use of the § 2

power,” “treat[ing]} § 2 as eliminating economic discrimination

against in-state commerce *** without authorizing

discrimination against out-of-state sellers.” Jd. (emphasis

added). The court therefore concluded that “§ 2 enables a state

to do to importation of liquor * * * what it chooses to do to

internal sales of liquor, but nothing more.” /d.

Although the Seventh Circuit did proceed to uphold

Indiana’s direct-shipping laws, it did so based on its reading of

those laws, which it construed to require that “every drop of

liquor pass through its three-tiered system and be subjected to

taxation.” Jd. The court reasoned that Indiana law barred in-

state and out-of-state sellers alike from engaging in direct

shipping, as long as they also sold alcohol in other States, and

added that such sellers could still engage in direct shipping

simply by obtaining wholesaler permits. /d. at 853-54." On

that basis, the court concluded that there was no “functional

discrimination” between out-of-state and in-state sellers. /d. at

853. Notably, both the Sixth Circuit in this case, see 03-1116

Pet. 16a-17a; 03-1120 Pet. 15a-17a, and the Fifth Circuit in

Dickerson, see 336 F.3d at 400-01, distinguished Bridenbaugh

factually, on the ground that it involved a different statutory

scheme. Because Bridenbaugh adopted the conventional view

of the Twenty-first Amendment, and because the statutory

scheme at issue was found to be not discriminatory,

Bridenbaugh does not conflict with the consistent line of later

'’ The wholesalers contend that the “Bridenbaugh opinion makes clear that

Indiana, like Michigan, permitted ‘local wineries but not [out-of-state]

wineries * * * to ship directly to consumers."” 03-1120 Pet. 12, 13 n.6

(quoting 227 F.3d at 851); see also 03-1274 Br. for Private Respondents 12

(same); cf. 03-1116 Pet. 8 (contending that “Michigan, in application of its

shipping law, is the same as Indiana”). But that is not what Bridenbaugh, or

the Indiana statute, says. Bridenbaugh actually says that Indiana permitted

“local wineries, but not wineries ‘in the business of selling * * * in another

state or country,’ to ship directly” to Indiana consumers. /d. (quoting Ind.

Code § 7.1-S-11-1.5(a)) (emphasis added).

decisions invalidating more plainly discriminatory direct-

shipping laws.

2. In Bainbridge v. Turner, 311 F.3d 1104 (11th Cir. 2002),

the Eleventh Circuit declined to reach a final decision on a

challenge to Florida’s direct-shipping laws, and its decision is

thus consistent with the decision below. Florida’s laws allowed

in-state wineries but not out-of-state wineries to engage in

direct shipping using their own vehicles (and, at least in

practice, by common carrier). See id. at 1107 & n.5. Like the

Fourth, Fifth, and Sixth Circuits, the Eleventh Circuit began by

concluding that the statutory scheme discriminated against

interstate commerce. See id. at 1108-11. The court reasoned

that Florida’s regulatory scheme discriminated on its face, and

that Florida could adopt various non-discriminatory alternatives

(including a requirement that out-of-state wineries obtain

licenses). See id. at 1109-10.

The Eleventh Circuit then turned to the Twenty-first

Amendment. See id. at 1111-15. Citing this Court’s decision

in Healy, the court reasoned that “the Amendment falls short of

giving states free rein in regulating the importation of alcoholic

beverages.” /d. at 1112. The court concluded that, where a

state law amounted to “mere economic protectionism” under

Bacchus, the Twenty-first Amendment had no inderendent

effect. See id. at 1112-13. To be sure, the court drew a

distinction (in our view illusory, see Bacchus, 468 U.S. at 271)

between laws that “amount to mere economic protectionism,”

on the one hand, and laws that “discriminate on their face,” on

the other, and suggested that the Twenty-first Amendment

could affect the analysis in the latter instance if a State could

show that the regulation is “genuinely need[ed]” to effectuate a

“core concern” of the Twenty-first Amendment. Bainbridge,

311 F.3d at 1112-13 (internal quotation omitted). However, the

court then remanded for factfinding on whether Florida’s

facially discriminatory law was needed to effectuate a core

concern—though it rejected outright Florida’s argument that the

law was necessary to protect minors, and expressed skepticism

about the argument that the law was necessary to collect taxes.

See id. at 1114-15. The Eleventh Circuit’s decision in

Bainbridge was therefore effectively interlocutory. Because the

district court may ultimately conclude, like the Fourth, Fifth,

and Sixth Circuits, that the State’s justifications for its

discriminatory regulatory scheme are insufficient, the Eleventh

Circuit does not presently stand in conflict with those circuits."

3. Finally, in Swedenburg v. Kelly, 358 F.3d 223 (2d Cir.

2004), the Second Circuit upheld New York’s regulatory

scheme only after determining that it was not discriminatory,

and that decision thus does not conflict with the decision below.

Critically, New York’s regulatory scheme allowed out-of-state

wineries to obtain direct-shipping licenses, provided that they

paid a license fee and established a physical presence in the

State by “maintain[ing] a branch factory, office, or storeroom

within the state.” N.Y. Alco. Bev. Cont. Law §§ 3(37), 76(4),

77(2). The Second Circuit expressly distinguished the New

York statutory scheme from the ones before the Fourth, Fifth,

and Eleventh Circuits, and before the Sixth Circuit in this case.

See Swedenburg, 358 F.3d at 229 n.3."°

Like the Seventh Circuit, the Second Circuit began its

constitutional analysis not with the dormant Commerce Clause,

but rather with the Twenty-first Amendment. See id. at 230.

'* Admittedly, as the petitioners note, see 03-1116 Pet. 9; 03-1120 Pet. 13,

the Eleventh Circuit did suggest, in a short footnote, that the district court

should apply something less than strict scrutiny to the State’s justifications

on remand, see Bainbridge, 311 F.3d at 1114.n.17. To the extent that this

standard of review is more deferential than the standard adopted by other

circuits, however, that difference does not justify this Court’s review—

especially since the district court may yet reach the same result as those other

circuits even under that apparently more deferential standard.

'S The Second Circuit's opinion, like the Seventh Circuit’s in Bridenbaugh,

therefore belies the (unelaborated) claim of amici that the regulatory scheme

at issue was “virtually identical” to Michigan's. Ohio Br. 4; NABCA Br. 7.

Although the court expressed its disagreement with those

circuits that chose to begin with the dormant Commerce Clause,

it stated that it “need not assess the other circuits’

determinations, as the statutes challenged in those cases were

significantly different from the regulatory regime at issue here.”

Id. at 231 n.7 (emphasis added). The court noted, moreover,

that the Fourth Circuit had suggested that a “presence”

requirement, like that imposed by New York law, could

constitute a possible non-discriminatory alternative to an

outright ban on direct shipping by out-of-state wineries. See id.

The court then considered the Twenty-first Amendment,

tracing its history and this Court’s decisions construing it. See

id. at 230-37. Although the court seemed to give section 2 of

the Twenty-first Amendment a robust construction, see id. at

236-37, the court ultimately conceded that protectionist laws

were not entitled to the same degree of deference under section

2, see id. Crucially, the court found that there was “no

indication, based on the facts presented here, that the regulatory

scheme is intended to favor local interests over out-of-state

interests,” on the ground that “[a]ll wineries, whether in-state or

out-of-state, are permitted to obtain a license as long as the

winery establishes a physical presence in the state.” /d. at 237.

The court therefore concluded that the New York regulatory

scheme allowed direct shipping “in a non-discriminatory

manner.” /d. at 239. Because New York’s statutory scheme,

like Indiana’s, was found to be non-discriminatory, the Second

Circuit’s decision, like the Seventh Circuit’s in Bridenbaugh,

does not conflict with the decision below.

Ill. THIS CASE IS A LESS THAN IDEAL VEHICLE

FOR CONSIDERATION OF THE UNDERLYING

CONSTITUTIONAL QUESTION.

Even if this Court were to conclude that the Sixth Circuit’s

decision was inconsistent with decisions of this Court or other

circuits, this case presents a less than ideal vehicle for

consideration of the underlying constitutional question.

1. The primary problem with this case is that it does not

present the logically subsequent question whether, if a state

direct-shipping law is held to be unconstitutional, the

appropriate remedy for the constitutional violation is to allow

direct shipping by out-of-state wineries or to ban direct shipping

by in-state wineries. The district court did not have occasion to

reach the remedy question because it upheld the Michigan

direct-shipping scheme. Before the Sixth Circuit, none of the

parties briefed the question of the appropriate remedy, and the

court of appeals opted merely to reverse the district court’s

decision on the merits and remand for entry of judgment in

favor of the plaintiffs. See 03-1116 Pet. 18a, 20a; 03-1120 Pet.

17a, 20a. Thus, far from “effectively granting the plaintiffs the

relief requested,” id. at 5, or somehow advantaging out-of-state

wineries over in-state wineries, id. at 6, the court of appeals was

entirely silent on the issue of the appropriate remedy, leaving

the issue to the district court on remand and thereby postponing

its own consideration of the issue.

While the courts of appeals have addressed the

constitutionality of state direct-shipping laws in a consistent

manner, they have reached conflicting results on the appropriate

remedy for a constitutional violation. Compare Dickerson, 336

F.3d at 407-09 (allowing direct shipping by out-of-state

wineries), with Beskind, 325 F.3d at 517-20 (prohibiting direct

shipping by in-state wineries). Although those decisions turn to

some extent on the structure of the state regulatory scheme, see,

e.g., id. at 519, they als» present a broader question whether

extending benefits to disadvantaged parties or imposing

burdens on advantaged parties is the more appropriate remedy

for dormant Commerce Clause violations more generally, see,

e.g., Dickerson, 336 F.3d at 407-08. And by claiming (albeit

erroneously) that the Sixth Circuit’s decision conflicts with the

Fourth Circuit’s decision in Beskind on the issue of the

appropriate remedy, petitioners themselves implicitly concede

that the remedy issue is independently worthy of this Court’s

consideration. See, e.g., 03-1116 Pet. 13-14; 03-1120 Pet. 13-

14. This Court should therefore wait for a case that presents not

only the constitutional question, but also the remedial one. '®

2. Since the petitions in this case were filed, plaintiffs in the

New York direct-shipping litigation have also filed a petition

for certiorari from the Second Circuit’s decision. See

Swedenburg v. Kelly, No. 03-1274 (petition filed Mar. 8, 2004).

That petition should be denied for the same reasons as the

petitions in this case, and for some additional ones. As the

Second Circuit itself recognized, Swedenburg involves an

unusual statutory scheme, in which out-of-state wineries can

engage in direct shipping provided they establish a “physical

presence” within the State. See, e.g., 358 F.3d at 229 n.3, 231

n.7."’ And by virtue of its holding that the New York regulatory

'® In a quixotic detour, Michigan suggests that this case would be a

particularly good vehicle for this Court’s consideration because it involves a

facial challenge. See 03-1116 Pet. 18-21. The Sixth Circuit, however, held

only that the Michigan regulatory scheme, as construed and applied by the

Michigan Liquor Control Commission, was facially, or plainly,

discriminatory—not that plaintiffs were bringing only a facial (as opposed to

an as-applied) challenge to the Michigan statutory scheme. See, e.g., 03-

1116 Pet. 15a; 03-1120 Pet. 14a. It is clear from the complaint that the

plaintiffs were bringing both. See, e.g.,C.A. App. 21.

’ The petitioners in Swedenburg suggest that New York law does not allow

out-of-state wineries to engage in direct shipping if they establish a mere

“physical presence” in the State, but allows them to do so only if they

actually open a winery in the State. See, e.g., 03-1274 Pet. 2-3, 15-16. To

the extent that there is any ambiguity on the threshold factual question of

what New York law actually requires (and thus on the legal question of

whether New York law is discriminatory), such ambiguity counsels against,

not in favor of, the granting of certiorari—as the plaintiffs in Swedenburg

themselves contended in opposing certiorari from the Seventh Circuit’s

decision in Bridenbaugh. See 00-1323 Br. of Amici David Lucas and Juanita

Swedenburg 5-6. In any event, the better reading of New York law is that it

does allow direct shipping upon the establishment of a “physical presence”

in the State. See N.Y. Alco. Bev. Cont. Law §§ 3(37), 76(4), 77(2).

Notably, the respondents in Swedenburg have acknowledged that New

York’s regulatory scheme is “meaningfully different” from Michigan’s, 03-

scheme was constitutional, the Second Circuit, like the Sixth

Circuit, did not reach the remedial issue at all."

Moreover, Swedenburg may shortly be rendered moot by

pending legislation that would allow direct shipping by out-of-

state wineries in States that have reciprocal jaws." While the

governor of New York previously vetoed a similar bill after it

was passed by the New York legislature, see Swedenburg, 358

F.3d at 239, the governor recently reversed course and included

the proposed legislation in his most recent state budget

proposal, see, e.g., Marc Humbert, Wineries Cheer Proposal for

Direct Shipping, Albany Times Union, Jan. 23, 2004, at B3.

Notably, the staff of the Federal Trade Commission has

expressed its support for the proposed legislation in a letter to

leading members of the New York legislature. See Letter from

Todd J. Zywicki et al. to William Magee et al. (Mar. 29, 2004),

available at http://www.ftc.gov/opa/2004/03/nywine.htm.

Because of this pending legislation, and because of the peculiar

nature of the regulatory scheme being challenged, the petition in

Swedenburg should be denied in any event.”

1274 Br. for State Respondents 8; see also 03-1274 Br. for Private

Respondents 7-8 (same), and have added that “[t)hat factor may be

significant in this Court’s analysis,” id. at 8 n.3, and indeed “perhaps

dispositive,” 03-1274 Br. for State Respondents 7.

'8 Should the Court choose to grant certiorari despite the absence of the

remedial issue in either of these cases, the Sixth Circuit case presents a

considerably better vehicle because it involves the more common regulatory

scheme in which out-of-state wineries are prohibited outright from engaging

in direct shipping. See Ohio Br. 10 (stating that “Michigan’s law provides a

perfect example of typical State efforts to regulate alcohol shipments”). In

that event, the Court should grant certiorari on the two instant petitions, and

hold the petition in Swedenburg.

'9 Astonishingly, the state respondents in Swedenburg suggest that the

possibility that the case will be mooted should have no bearing on this

Court’s decision as to whether to add the case to its calendar. See 03-1274

Br. for State Respondents 20 n.6.

2° The petitioners in Swedenburg contend that their case would be a

3. To the extent that this Court were to conclude that these

cases present potentially certworthy issues, the Court can afford

to wait for a better vehicle for their consideration. As

petitioners concede, see, e.g., 03-1120 Pet. 15 n.8, numerous

other challenges to direct-shipping laws are currently pending in

the federal courts— including the challenge to Florida’s direct-

shipping laws, which is still pending before the district court on

remand, see Bainbridge v. Turner, No. 99-CV-2681 (M.D.

Fla.). Our understanding is that litigation is being actively

considered in other jurisdictions as well. And many States are

not waiting for their laws to be invalidated, but are instead

amending them in response to the outcry from consumers and

wineries alike. Should a genuine circuit split arise on the

constitutionality of state direct-shipping laws, this Court can act

then. There is no need for it to weigh in now—or to weigh in

here. These cases are more like a 2000 Bordeaux than a 1961.

All of the pending petitions for certiorari should be denied.

CONCLUSION

For the foregoing reasons, this Court should deny the

petitions for certiorari. In the alternative, in light of the FTC’s

position on the direct shipment of wine, and the regulatory

interests of the Alcohol and Tobacco Tax and Trade Bureau and

other federal agencies, the Court may wish to call for the views

of the Solicitor General.

Respectfully submitted,

particularly good vehicle because plaintiffs challenged the New York

regulatory scheme under both the dormant Commerce Clause and the

Privileges and Immunities Clause of Article IV. See 03-1274 Pet. 24-27.

Petitioners do not contend, however, that there is a circuit split on the

question whether state direct-shipping laws violate the Privileges and

Immunities Clause, and the Second Circuit (operating on the premise that

New York law allowed direct shipping by out-of-state wineries provided

they established a “physical presence” within the State) summarily rejected

petitioners’ argument. See Swedenburg, 358 F.3d at 239.

KENNETH W. STARR

KANNON K. SHANMUGAM

KIRKLAND & ELLis LLP

655 Fifteenth Street, N.W.

Washington, DC 2000

(202) 879-5000

* affiliation given for

associational purposes only

APRIL 2004

JAMES A. TANFORD

Counsel of Record

INDIANA UNIVERSITY

SCHOOL OF LAW*

5211 South Indiana Avenue

Bloomington, IN 47405