Amicus Curiae Brief — Michigan Beer & Wine Wholesalers Assn. v. Heald

|

AL LY is JUL 29 2004 |

Nos. 031116, -1120 and -1274 DERIGE OF THe CLERK |

IN THE

Supreme Court of the United States

JENNIFER M. GRANHOLM,

GOVERNOR OF MICHIGAN, et al., Petitioners,

Vv.

ELEANOR HEALD, et al., Respondents.

MICHIGAN BEER & WINE WHOLESALERS ASSOCIATION,

Petitioner,

..

ELEANOR HEALD, et al., Respondents.

On Writs of Certiorari to the

United States Court of Appeals for the Sixth Circuit

JUANITA SWEDENBURG, ef al., Petitioners,

v.

EDWARD D. KELLY, CHAIRMAN,

NEW YORK DIVISION OF ALCOHOLIC BEVERAGE CONTROL,

STATE LIQUOR AUTHORITY, ef al., Respondents.

On Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

BRIEF AMICUS CURIAE OF

ILLINOIS ALCOHOLISM AND DRUG DEPENDENCE

ASSOCIATION IN SUPPORT OF PETITIONERS IN

GRANHOLM AND RESPONDENTS IN SWEDENBURG

CLAUDETTE P. MILLER

Counsel of Record

UNGARETTI & HARRIS

3500 Three First National! Plaza

Chicago, IL 60602

(312) 977-4390

Counsel for Amicus Curiae

FE A

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 Section 2 of the 21"

Amendment?

TABLE OF CONTENTS

Page

BS ill

Of), ee l

LF. l

SURRERETY OF ASEIIERGEIE ..cccevccsecesesevessrenciiineiee 2

ABER 5..0.0000v00000000,0sensevsssensessesscnsessounennieennnnannnnnnnnnnnnnnE 3

I. |The Commerce Clause Has Underpinned A Strong

American Economy, But Its Unfettered Application

Is Not Appropnate As To Liquor ....................60 3

II. Alcohol Is Responsible For More Social And

Economic Damage To U.S. Society Than All Other

Drs COEBERIGE .cccccsssssessesnenssesessssininsninna 7

Ill. Illinois’ Liquor Law Is Designed To Regulate

BCTNOS LEGMIGE ....cccccccscsssseverecnsnssneniensnneanaannnian 10

IV. This Case Will Have A Substantial Impact On The

Ability Of Illinois And Other States To Maintain

Control Of Imported Alcohol .................:..:00008 12

V. The Swedenburg Analysis Facilitates State Efforts

To Control Improper Alcohol Use .................... 14

CCORRGIIBEGIE ...000ccccccececesesescesenssesesionsestennenssnnnnnnnnnnnnnnnnnnE 16

TABLE OF AUTHORITIES

Page(s)

CASES:

Allstate Beer, Inc. v. Julius Wile Sons & Co. Inc.,

479 F. Supp. 605 (N.D. Ga. 1979) 20.0.0... .eeeccceeeceeeeeeeeeeeeeee 5

Bridenbaugh v. Freeman- Wilson,

227 F.3d 848, 853 (7 Cir. 2000) ......ccccccccccceeseseeeeseeeeeeeee 5

Daley v. Jack's Tivoli Liquor Lounge, Inc.,

254 N.E.2d 814, 819, 118 Ill. App. 2d 264 (Ill. App. Ct.

Si asi diinetinrennerennesenseseensasecsscesesecsseccssoess 1]

Daley v. Rifkin,

228 N.E.2d 224, 226, 84 Ill. App. 2d 467 (Ill. App. Ct.

EE LEED 11

Erfor Corp. v. State of Illinois Liquor Control Commission,

47 Ill. App. 3d 72, 361 N.E.2d 776 (1 Dist. 1977) ....... 10

Heald v. Engler, 342 F.3d 517 (6" Cir. 2003) .........cc0000-. 16

Jager v. Illinois Liquor Control Comm'n,

392 N.E.2d 176, 182, 74 Ill. App. 3d 33

acre cceictrereneecsnenccsssessnssocess 14

Levendis v. Cobb County,

250 S.E.2d 460, 242 Ga. 592 (Ga. 1979) .0.....cccccccceeceeeeeee 5

National Bellas-Hess, Inc. v. Department of Revenue,

386 U.S. 753, 87 S. Ct. 1389 (1967) 2... cececceecceeeeeeeeeee 13

Sn

IV

Table of Authorities continued

Oregon. Waste Systems, Inc. v. Department of

Environmental Quality,

511 U.S. 98, 114 S.Ct. 1345, 1349 (1994) 00. 3

Oklahoma Alcoholic Beverage Control Board v. Parkhill

Restaurant, Inc.,

669 P.2d 265, 1983 Ok. 77 (Ok. 1983) 20.0.0... eeceeeeeeeeees 5

Quill Corporation v. North Dakota,

504 U.S. 298, 112 S. Ct. 1904 (1992) ...................... 13, 15

Show of Shows, Inc. v. Illinois Liquor Control Comm'n,

230 N.E.2d 268, 271, 86 Ill. App. 2d 109 (Ill. App. Ct.

POTTS cccnencnsenenininscnnnndunsiaaseinaeaaiulaiiainsitinmiiniieiadeialal talc 11

Spiros Lounge, Inc_v. State of Illinois Liquor Control

Comm'n,

423 N.E.2d 1366, 1372, 98 Ill. App. 3d 280, 287

Sa A GR, TEED ccnntenrccnnsncrersenesiciinaisniniiandienpananiiitie 1]

Swedenburg v. Kelly, 358 F.3d 223 (2d Cir. 2004) ....14, 16

CONSTITUTIONAL PROVISIONS:

U.S. Constitution, Art. I, § 8, cl. 3 ...................cceeeeeees passim

th G0 0 UY Sy 5

U.S. Constitution Amend. XX], § 2 ...........cccccccceeeeees passim

STATUTES:

SO OU, I ic inccsiesedtisciasiamsiiisiaia meee 4

Vv

Table of Authorities continued

Illinois Liquor Control Act of 1934:

ee ee A Gs SPD ccnsnnmnscsenteesseceneeeenns 11

a es Ge, GD, SD ctrnsenseninentnncremanatenntimmie 11

ee 11

ye en 11

ee a BR, Be ccrcencerceccineniniicnemenenmn 12

ee 10, 12

ee > GR GE IG creeencermnesememenmememnen 1]

i Ga ns Sr ei eiertecescceneencsenstensneienienincnens 11,12

A 8 8 ee 1]

re 12

Illinois Beer Industry Fair Dealing Act:

ft Ge ave 10

OTHER AUTHORITIES:

Adam Badawi, Uneasy Animosities and the Public

Tranquility: Political Market Failure and the Scope of the

Commerce Power, 91 Cal. L. Rev. 1331 (Date) ................. 3

Linda Carroll, Fetal Brains Suffer Badly from Effects of

Alcohol, New York Times,

Nov. 4, 2003, available at http://www.nytimes.comy ......... a

Frank J. Chaloupka et al., The Effects of Price on Alcohol

Consumption and Alcohol-Related Problems, 26 NATL

ABAD. SER. 0, SED cetenenietnenimnnneemnnininial 6

Chicago Magazine, The Dry Season, July 2003 ................. 6

v1

Table of Authorities continued

Forrester Research, Inc., The Growth Of Multichannel

TES cccnncsnnmnnsensimnatimannsaimmninmmnnninnmmanniatte 14

Susan E. Foster, et al., Alcohol Consumption and

Expenditures for Underage Drinking and Adult Excessive

Drinking, 289 JAMA 8, 989 (Feb. 26, 2003) ...........: — 9

B.F. Grant & D.A. Dawson, Age of Onset of Alcohol Use

and its Association with DSM-IV Alcohol Abuse and

Dependence: Results from the National Longitudinal

Alcohol Epidemiological Survey, J. SUBSTANCE ABUSE, 9,

ITED sicceinnendsenitnitniatadnniasniiniseinicinnesiguiiibumeiiietinteatipls 9

Glen R. Hanson & Ting-Kai Li, Public Health Implications

of Excessive Alcohol Consumption, 289 JAMA 8, 1031

CN I aati sesinearirhhcrinahiieiamen nonin retin ahiiebdteeeial aaa bialitciatin 7,9

National Institute on Alcohol Abuse and Alcoholism

(NIAA), Strategic Plan 2001-2005

at 20 at http://www.miass.nih. gov .................ccceseeececceeeeeeees 8

National Survey: 80% of College Students Say Peers Likely

to Purchase Alcohol Online (April 4, 2000) at

http: /‘www.texassafetynetwork.org/news/reporter/eightyperc

New Survey Confirms Majority of Americans Oppose

Internet Alcohol em. Oct. 22, 2003 at

vil

Table of Authorities continued

Christian Science Monitor: New Face of Underage Drinking:

Teenage Girls (July 13, 2004) .............ccccsseseeseeeneeercenenseees 9

Press Release, Governor Blagojevich Calls for More Federal

Funding to Prevent the Dangers of Binge Drinking: Study

Shows Heavy Drinking Isn't Just on College Campuses

NEED Vo See et crecnteneneesinnecienmnaionnstintansacinastnnsidebaninitinniee 7

Report by the Staff of the Federal Trade Commission,

Possible Anticompetitive Barriers to E-Commerce: Wine 5

TE ETD coctssnnemssndsenensusstipintninanninieasiniieenta 4, 6,8

Report of the National Academy of Sciences, Reducing

Underage Drinking: A Collective Responsibility, at 11

(September 2003) at

RN TN TRIE ocscrcemnnccmmmnasinenmannneneennnennaen 6

Douglas Smith, /nterstate Commerce and the Principles of

the Law of Nations, 2004 Utah L. Rev. 111 at 131............. 3

The Three-Tier System: Texans Overwhelmingly Reject

Direct Shipment of Alcohol (2000) at

(citing a statewide public opinion poll) .....................cee 5

CONSENT TO FILE

Consents to the filing of any amicus briefs in each of the

consolidated cases were filed by the parties on July 9, 2004,

July 13, 2004 and July 14, 2004.

INTEREST OF AMICI'

The Illinois Alcoholism and Drug Dependence

Association (IADDA) is an Illinois-based not for profit

established in 1967. IADDA is involved in professional

training, career development and advocacy for providers in

the field of alcohol and drug dependency prevention,

counseling and diversion. IADDA represents more than 100

prevention and treatment agencies. A list of its members is

attached in the Appendix.

IADDA advocates for sound public policy to foster

healthier families and safer communities. Its objectives are

to work for effective treatment for addicted or drug-

dependent people and for prevention, particularly among

youth. Its public policy advocacy works to promote

healthier individuals and safer communities by helping avoid

the problems of dependence.

IADDA partners with two prevention programs.

One, Illinois Teen Institute, operates an acclaimed

prevention and positive peer influence program directed at

teenagers. It involves youth in community planning for

prevention of addiction and dependence. Its sponsored

program, Teens Reaching For And Achieving Excellence

(TRAX) involves teen leaders workshops around the state to

' Neither party’s counsel authored any portion of this brief. No person or

entity other than amici made any monetary contribution to the

preparation or submission of this brief. S. Ct. Rule 37.6.

2

prepare them and involve them in the anti-dependence and

prevention drives. The other: program, Operation Snowball,

creates youth/adult partnerships to fight against use and

dependence on tobacco, alcohol, and other drugs. Operation

Snowball has 150 chapters working to involve communities

in healthy decisionmaking.

IADDA maintains a web site linking both

dependence providers and those involved in its affiliate

efforts to government. http://www.iadda.org. The site

facilitates access to the Illinois General Assembly, regulatory

agencies, and welfare policymakers.

SUMMARY OF ARGUMENT

The Constitutional law approach to the issue of direct

shipping advocated by the Sixth Circuit treats liquor like any

other commodity, the untrammeled trade of which should be

promoted and protected by the Commerce Clause. Such an

approach is at variance with the national welfare, public

opinion, and the plain language of the Twenty-First

Amendment to the United States Constitution.

It is indisputable that liquor is a dangerous drug and the

drug that imposes the highest social and economic costs on

American society. Many authorities, including those relied

upon by direct shipping advocates, recognize that states

legitimately may use taxes and other regulatory measures to

promote temperance and curb alcohol abuse. Particularly

now with the explosive growth of Internet sales, the Sixth

Circuit’s approach will wreak havoc on a state’s abilities to

regulate and control access to this dangerous drug. —

ARGUMENT

I. The Commerce Clause Has Underpinned A

Strong American Economy, But Its Unfettered

Application Is Not Appropriate As To Liquor

Under the Articles of Confederation that preceded the

United States Constitution, import-export duties and

regulations hindered the development of a national economy.

See Adam Badawi, Uneasy Animosities and the Public

Tranquility: Political Market Failure and the Scope of the

Commerce Power, 91 Cal. L. Rev. 1331 (2003). The

Commerce Clause, Article I, Section 8, Clause 3 of the

Constitution, has been a major force in creating a national

free market. The Commerce Clause not only expressly

conveys to Congress the power to regulate interstate trade,

but has long been accepted as denying that power to state

governments by negative implication. Oregon Waste

Systems, Inc. v. Department oj Environmental Quality, 511

U.S. 93, 98, 114 S. Ct. 1345, 1349 (1994).

As the authorities cited by the parties in the cases now

before this Court on wnt of certiorari make clear, a notable

exception to the plenary authority of Congress under the

Commerce Clause is the authority -- however broad or

narrow -- to regulate liquor granted to the states by Section 2

of the Twenty-First Amendment of the Constitution.

Some commentators and some decisions have found

further cause or function for the negative implication of the

Commerce Clause. See, e.g., Douglas Smith, /nterstate

Commerce and the Principles of the Law of Nations, 2004

Utah L. Rev. 111, 131 (2004). Arguing that it provides a

useful tool for invalidating protectionism or special interest

legislation, they contend it has been invaluable in fostering a

free market in the United States and that largely because of it,

4

American consumers get minimum prices and optimum

economic ormance. By placing the interstate portion of

the economy beyond the interference of much state

government regulation, the Constitution has facilitated a

more /aissez-faire economic system.

The parties opposing direct shipping laws make no

attempt to hide the fact that they seek to promote and protect

their ability to make liquor as widely and cheaply available

as possible. In their Brief in Opposition to the Petitions for

Wnits of Certiorari, the Respondents in the Sixth Circuit

cases open and close with references to and repeatedly cite a

Report by the Staff of the Federal Trade Commission,

Possible Anticompetitive Barriers to E-Commerce: Wine 5

(July 2003) (“Report”). In the Report the staff concludes:

states could significantly enhance consume: welfare

by allowing direct shipment of wine to consumers.

Through direct shipping, online wine sales offer

consumers lower prices and greater selection.

Id. at 3.

There is more to the issue before this Court than free

trade, however. The fact that nearly 40 state attorneys

general have added their voices in favor of alcohol regulation

and against open shipping testifies to that.

The American public does not believe that minimum

pricing and maximum consumption is desirable for all

commodities and all industries. Congress in some cases has

responded to that public concern by banning or tightly

regulating the commodity with Commerce Clause authority.

Heroin is an example. See 21 U.S.C. § 841.

Alcohol is an even better example. Congress twice

has placed before the states constitutional amendments to

5

regulate alcohol as an alternative to exclusive Commerce

Clause regulation. Both were ratified by the states and both

dealt with alcohol. The Eighteenth Amendment introduced

Prohibition and banned alcohol. The Twenty-First

Amendment repealed Prohibition and granted regulatory

authority to the states over the transportation or importation

of alcohol.

Courts have recognized the power of states to ban

alcohol totally, Bridenbaugh v. Freeman-Wilson, 227 F.3d

848, 853 (7th Cir. 2000), to permit political subdivisions to

ban it, Allstate Beer, Inc. v. Julius Wile Sons & Co., Inc., 479

F. Supp. 605 (N.D. Ga. 1979), and to ban it at specific times

or in particular places. Levendis v. Cobb County, 250 S.E.2d

460, 242 Ga. 592 (Ga. 1979); Oklahoma Alcoholic Beverage

Control Board v. Parkhill Restaurant, Inc., 669 P.2d 265,

1983 Ok. 77 (Ok. 1983).

Most Americans do not want to maximize the

availability and consumption of alcohol by minimizing price.

In a 2003 national poll by Wirthlin Worldwide, 83% of

respondents agreed that Internet sales should not be allowed

because they would give minors easier access to alcohol.

New Survey Confirms Majority of Americans Oppose Internet

Alcohol Sales, Oct. 22, 2003, at

http://www.cheaphostingdirectory.com/news/2003 1022alcoh

ol. (citing a 2003 WirthlinWorldwide survey). 77% of

Americans oppose permitting direct sales of alcohol by

Internet or mail, as do 71% of self-identified alcohol

consumers, and 85% of non-drinkers. /d. In Texas during

2000, a poll found that 71% disagreed with the statement:

“Manufactures of any product including alcoholic beverages,

should have the right to sell directly to consumers over the

Internet.” The Three-Tier System: Texans Overwhelmingly

Reject Direct Shipment of Alcohol (2000), at

http://www.texassafetynetwork.org/internet/three/survey.htm

6

(citing a statewide public opinion poll). In Chicago,

Illinois, 24 partial and 16 full precincts have voted to go

“dry” since 1992. Mayor Richard Daley has noted that a

“bad liquor establishment can tear the fabric of a

neighborhood and send it into decline.” Chicago Magazine,

The Dry Season, July 2003.

As the foregoing illustrates, prudent use is a more

favored social objective than wide-open access where liquor

is concerned. This should be recognized in evaluating the

competing schemes of legal analysis for state regulation of

alcohol.

The Report acknowledges that “some states may

explicitly pursue a policy of elevating prices above

competitive levels to promote temperance.” Jd. at 26-27. In

fact, the National Academy of Sciences has recommended

that “Congress and state legislatures should raise excise

taxes to reduce underage consumption ...“ Report of the

National Academy of Sciences, Reducing Underage

Drinking: A Collective Responsibility at 11 (September

2003) at _ http://www.marininstitute.org/alcohol_policy/

UnderageDnnking Exec Summary.

A 2002 article summarizing the economic research on

the effect of price on alcohol consumption found that:

This research, which has used a wide variety of data,

generally has concluded that increases in the price of

alcoholic beverages lead to reductions in drinking and

heavy drinking as well as in the consequences of

alcohol use and abuse.

Frank J. Chaloupka et al., The Effects Of Price On Alcohol

Consumption and Alcohol-Related Problems, 26 Nat’|. Acad.

7

Sci. 1, 22 (2003). One of the studies commended in the

review found:

After controlling for State and year effects, the

investigators concluded that a $1 increase in the per

gallon liquor tax can reduce gonorrhea rates by 2.1

percent; furthermore a beer tax increase of 20 cents

per six-pack can reduce gonorrhea rates by 8.9

percent. Similar, or even somewhat larger, effects of

liquor and beer taxes were found for syphilis rates.

See id. at 30.

Il. Alcohol Is Responsible For More Social And

Economic Damage To The American Public Than

All Other Drugs Combined.

Statistics on violence, divorce, crime, fetal alcohol

syndrome, spousal and child abuse, DUI killings and

maimings, and lost work time clearly demonstrate the

terrible social and economic cost our society pays for the

imprudent use of alcohol.

The economic cost of liquor abuse in America is

estimated at $185 billion, while that for illicit drugs is

estimated at $161 billion. Underage drinkers and adult

excessive drinkers account for an aggregate 50.1% of total

alcohol consumption in the United States. Glen R. Hanson

& Ting-Kai Li, Public Health Implications of Excessive

Alcohol Consumption, 289 JAMA 8, 1031 (Feb. 26, 2003).

Approximately one-third of U.S. adults exceed the guidelines

defining excessive consumption. Jd. at 1032. A recent

Illinois state government survey found that 10% of eighth

graders and 36% of twelfth graders reported binge drinking.

Press Release, Governor Blagojevich Calls for More Federal

Funding to Prevent the Dangers of Binge Drinking: Study

Shows Heavy Drinking Isn't Just on College Campuses

8

(April 7, 2004). The Report that the direct shipping

advocates repeatedly cite confirms what should be sobering

statistics on youth access to alcohol:

In 2002 approximately 68% of eighth graders, 85%

of tenth graders, and 95% of twelfth graders said that

it is “fairly easy” or “very easy” to get alcohol.

Underage alcohol use imposes significant costs, in

both human terms and economic terms. Although the

numbers are very difficult to quantify, one study

estimated that, in 1996, the total cost of underage

drinking— including traffic crashes, violent crimes,

burns, drowning, suicide attempts, fetal alcohol

syndrome, alcohol poisoning, and treatment—was

$52.8 billion.

Id. at 11.

Those numbers are significant for many reasons.

Alcohol is associated with violence. The National Institute

on Alcohol Abuse and Alcoholism (NIAA) has found that:

Excessive alcohol consumption is frequently a factor

in violence toward women. These events range from

being the recipient of verbal aggression . . . to

battery, rape, and death. Recent findings among

women who reported sexual assaults include higher

levels of alcohol consumption, both their own and the

perpetrators, and sexual risk-taking.

NIAA, Strategic Plan 2001-2005 at 20 at

http://www.niaa.nih.gov. 50-60 % of male alcoholics report

violent behavior toward women. /d.

Further, “[a]lcohol abuse is associated with high-risk

sexual behavior and injection drug use, two of the major

modes of human immunodeficiency virus transmission.”

9

Hanson & Li, supra, at 1031. The Christian Science Monitor

noted in a report on underage drinking that:

experts say (sex) . . . is a factor advertisers exploit,

often to the detriment of girls more than boys. ‘Bad

girls make good company,’ reads one ad for Cuervo

rum. In a Martell Cognac ad, a sultry woman is on

display with a plea to ‘be at least capable of bad.’

New Face of Underage Drinking: Teenage Girls, Christian

Science Monitor, July 13, 2004.

The adverse impact of alcohol on the young is well-

established. Drinking increases “the chances that teenagers

will become adult heavier drinkers with alcohol problems

later in life”. Susan E. Foster, et al., Alcohol Consumption

and Expenditures for Underage Drinking and Adult

Excessive Drinking, 289 JAMA 8, 989 (Feb. 26, 2003); B.F.

Grant & D.A. Dawson, Age of Onset of Alcohol Use and its

Association with DSM-IV Alcohol Abuse and Dependence:

Results from the National Longitudinal Alcohol

Epidemiological Survey, J. SUBSTANCE ABUSE, 9, 103-110

(1997). Prenatal contact with alcohol is highly detrimental:

“We found more serious cognitive impairment in relation to

alcohol than cocaine or other drugs, including marijuana or

smoking” (Dr. Sandra Jacobson, Wayne State University).

Linda Carroll, Fetal Brains Suffer Badly from Effects of

Alcohol, N.Y. Times, Nov. 4, 2003, available at

http://www.nytimes.com/. “Fetal alcohol syndrome, a

serious disorder affecting brain function, is the leading

preventable birth defect in the U.S.” Jd.

10

Ill. _ Illinois’ Liquor Law Is Designed To Regulate

Imported Liquor

Illinois is home to many large liquor retailers, such as

Sam’s Wine & Spirits, Binny’s, and Walgreen’s. Illinois,

however, has relatively few wineries and distilleries and no

major breweries, so a very high percentage of the alcohol

sold is imported. [Illinois law looks to and derives its

authority from the Twenty-First Amendment. For example,

the direct shipping provision of the Illinois Liquor Control

Act of 1934 provides:

Pursuant to the Twenty-First Amendment of the United

States Constitution allowing states to regulate the

distribution and sale of alcoholic liquor and pursuant to

the federal Webb-Kenyon Act declaring that alcoholic

liquor shipped in interstate commerce must comply with

state laws, the General Assembly hereby finds and

declares that selling alcoholic liquor from a point outside

this State through various direct marketing means, such

as Catalogs, newspapers, mailers and the Internet, directly

to residents of this State poses a serious threat to the

State’s efforts to prevent youths from accessing alcoholic

liquor; to State revenue collections; and to the economy

of this State.

235 Ill. Comp. Stat. 5/6-29.1 (1934). See also Illinois Beer

Industry Fair Dealing Act, 815 Ill. Comp. Stat. 720/2 (“This

Act is promulgated pursuant to authority of the State under

the provisions of the Twenty-First Amendment to the United

States Constitution ...”); Erfor Corp. v. State of Illinois

Liquor Control Commission, 47 Ill. App. 3d 72, 361 N.E.2d

776 (ill. App. Ct. 1977) (“The source of state power to

control alcoholic beverages is the police power as fortified

by the twenty-first amendment of the United States

Constitution.”’)

1]

In Illinois, retailers must determine age eligibility,

observe operating hours, halt bawdy conduct and gambling,

prevent disorderly conduct, and must not intoxicate patrons.

235 Ill. Comp. Stat. 5/6-16; Spiros Lounge, Inc. v. State of

Illinois Liquor Control Commission, 423 N.E.2d 1366, 1372,

98 Ill. App. 3d 280, 287 (Ill. App. Ct. 1981) (sales to minor

justified revocation); Jager v. Illinois Liquor Control

Commission, 392 N.E.2d 176, 182, 74 Ill. App. 3d 33 (Ill.

App. Ct. 1979), (repeated altercations as grounds for

revocation); Show of Shows, Inc. v. Illinois Liquor Control

Commission, 230 N.E.2d 268, 271, 86 Ill. App. 2d 109 (Ill.

App. Ct. 1967) (solicitation of drinks by female employee

warranted revocation); Daley v. Jack's Tivoli Liquor Lounge,

254 N.E.2d 814, 819, 118 Ill. App. 2d 264 (Ill. App. Ct.

1969) (sexual solicitation of police officer by prostitute

vouched for by bartender warranted revocation); Daley v.

Rifkin, 228 N.E.2d 224, 226, 84 Ill. App. 2d 467 (Ill. App. Ct.

1967) (evidence that bartender steered patron to prostitute

justified revocation).

An Illinois importing distributor must be licensed as

a distributor. 235 Ill. Comp. Stat. 5/5-1(c). An importing

distributor must hold received alcohol in his warehouse from

receipt until delivery to a retailer. 235 Ill. Comp. Stat. 5/6-8.

A tax measured by volume is imposed on importing

distributors and must be paid within 15 days of the month

following delivery to a retailer. 235 Ill. Comp. Stat. 5/8-1;

235 Ill. Comp. Stat. 5/8-2. A distributor may only deliver to

a licensed retailer. 235 Ill. Comp. Stat. 5/1-1(b).

Common carriers delivering alcohol into Illinois are

required to file shipment manifests with the Illinois Liquor

Control Commission. 235 Ill. Comp. Stat. 5/8-12.

Consequently, reconciliation of the manifest information with

the distributor tax filing and the warehouse inventory creates

a fail-safe system for tax collection. If manifested product is

12

not in the inventory, it has been delivered and tax is due. 235

Ill. Comp. Stat. 5/8-2. Further, the tax document verifies that

the distributor is only selling to retailers, not consumers,

because the retailer must remit the sales tax to the state,

accounting for the product. 235 Ill. Comp. Stat. 5/8-14. This

distribution system means that sales to consumers go through

licensed retailers and, as set forth above, Illinois polices

retailers by inventory control to assure that taxes are paid and

that sales are not made to minors or in furtherance of

undesirable conduct.

Illinois permits some limited direct shipment to

Illinois consumers, 235 Ill. Comp. Stat. 5/6-29, while

maintaining a general prohibition. 235 Ill. Comp. Stat. 5/6-

29.1. Retail inventory control is a regulatory scheme which

serves to limit youth access.

IV. This Case Will Have A Substantial Impact On

The Ability Of Illinois And Other States To

Maintain Control Of Imported Alcohol

This Court now has before it decisions by the Second

Circuit and the Sixth Circuit Courts of Appeals that take

radically different views of the authority to regulate the

importation of intoxicating liquor granted to the states by the

Twenty-First Amendment and of the interplay between the

Twenty-First Amendment and the dormant Commerce

Clause. The very basis of their analyses differs.

The Second Circuit essentially looks at the scope of

authority granted by the Twenty-First Amendment and

allows states to regulate the importation of liquor in any

rational fashion within that scope.

The Sixth Circuit, however, employs a_ two-step

approach, siarting with a dormant Commerce Clause analysis

13

and, if the state statute fails to pass a “strict scrutiny” test,

proceeding on to determine whether the statute is somehow

“saved” by the Twenty-First Amendment.

The Sixth Circuit approach effectively reduces the

Twenty-First Amendment to surplusage and prevents a state

from regulating alcohol in a fashion any stricter than it may

regulate other goods in interstate commerce.

Consider:

An out of state Internet seller with no physical

presence in Illinois sells directly to an Illinois liquor

retailer. Under the current law requiring physical

presence to establish Commerce Clause nexus with a

taxing state, the State of Illinois has no ability to

impose a sales or use tax on the seller. See Quill

Corporation v. North Dakota, 504 U.S. 298, 112 S.

Ct. 1904 (1992); National Bellas-Hess, Inc. v.

Department of Revenue, 386 U.S. 753, 87 S. Ct. 1389

(1967). The state loses not only revenue, but the

ability to use high taxes to depress consumption.

Furthermore, the state must deploy more resources or

divert existing resources to ensure that only licensees

are selling, and selling within the limits of the law.

Under Illinois law, a distributor must operate a

strictly controlled warehouse. The inventory can be

ascertained by the deliveries made and reported from

the common carrier delivery manifests. The

distributor pays a tax when product at the warehouse

is delivered to a licensed retailer. However, if an

Illinois distributor were to purchase product over the

Internet and have it delivered directly to the retailer,

tracking, regulating and taxing the product would

become infinitely more difficult for the State. An

untraceable, unidentified supply of liquor will

14

encourage failure to pay tax and lower prices, making

liquor more accessible to minors.

According to a July 2004 report released by the National

Governor’s Association and the National Conference of State

Legislators, sales over the Internet topped $104 billion in

2003, a nearly 40% jump over the previous year. See

Forrester Research, Inc., The Growth Of Multichannel

Retailing. The volume of sales over the Internet has grown

exponentially in the years since this Court last interpreted the

Twenty-First Amendment. There is no reason to think that

growth will not coutinue.

This is undoubtedly true with respect to alcohol sales

to minors, as well. A 2000 poll by Americans for

Responsible Alcohol Awareness found 80% of college

students say their peers are likely to purchase alcohol over

the Internet, as no age verification is required. National

Survey: 80% of College Students Say Peers Likely to

Purchase Alcohol Online (Apmnl 4, 2000) at

http://www.texassafetynetwork.org/news/reporter/eightyperc

ent. Volume alone will render it increasingly hard for state’s

to prevent and police such sales.

Vv. The Swedenburg Analysis Facilitates State Efforts

To Control Improper Alcohol Use

The Second Circuit’s approach in Swedenburg

requires state liquor control schemes to be rational exercises

of power pursuant to the purpose of the Twenty-First

Amendment. It necessarily looks to 7 state’s regulatory

structure to find meaning for any particular component

subject to challenge.

The Sixth Circuit’s logic in Granholm starts by

treating liquor the same as if it were any other commodity,

15

like autos, milk, or furniture. If it finds discriminatory

treatment of out-of-state-sourced liquor, it defaults to

Commerce Clause strict scrutiny.

The Sixth Circuit approach is inconsistent with the

language of the Twenty-First Amendment prohibiting

importation in violation of the state’s laws and ignores the

overwhelming medical and economic evidence that liquor is

the dangerous drug most affecting American society.

Furthermore, it flies in the face of the explosive development

of a new distribution technology that threatens to swamp

efforts at liquor regulation, the Internet.

Illinois predicates its liquor tax collection system on

distributor collection and payment. The Internet can go

around it. Under the Sixth Circuit approach, perhaps Illinois

could find a way to collect the tax from out-of-state sources.

But it would succeed only if Quill does not apply, if

Congress permits, if presence is not required, and if the

Internet shipper can actually be found. It makes a high

tax/lower consumption strategy for liquor control virtually a

dead letter.

Collection from in-state sources will be more difficult

if not impossible. A state cannot police its sales tax

collections if Internet delivery to retailers becomes

physically possible. The suggestion that the state do more

physical audits comparing inventory to sales tax remissions

and distributor delivery reports is unrealistic. Illinois has

25,000 retail liquor licensees. Constant physical surveillance

of retail sites is not a feasible enforcement option. Physical

surveillance of cyberspace is virtually impossible.

If a state predicates underage distribution control on

retail carding to determine eligibility, it still may be able to

impact diversion to minors if direct shippers are physically

16

present in the state because the state has much more intimate

supervision of how the shippers conduct business. Internet

sites can open and close in a click.

Currently, the circuits are split on direct sales of

liquor. An Internet industry in liquor looms. Illinois, like

other states, has a system that uses inventory controls to tax

and monitor retail sales. Undermining the tocis of control

will not help. Imposing Commerce Clause strict scrutiny for

a test of Twenty-First Amendment rational purpose will

promote uncontrolled, unregulated liquor sales. If states can

effectively reguiate the development of this industry, the

political branches of government may devise a strategy for

dealing with this dangerous product.

CONCLUSION

The judgment of the Second Circuit Court of Appeals in

Swedenburg v. Kelly, 358 F.3d 223 (2d Cir. 2004) should be

affirmed and the judgment of the Sixth Circuit Court of

Appeals in Heald v. Engler, 342 F.3d 517 (6™ Cir. 2003)

reversed.

Dated: July 29, 2004 Respectfully submitted,

Claudette P. Miller

UNGARETTI & HARRIS

3500 Three First National Plaza

Chicago, Illinois 60602

(312) 977-4390

Counsel of Record

Counsel for Amici Curiae

rt

2

«

,

> “a

oi

7.

=)

APPENDIX

@

ae)

Pree

> ees

-

la

ILLINOIS ALCOHOLISM AND

DRUG DEPENDENCE ASSOCIATION

AGENCY MEMBERS

July 7, 2004

REGION 1

Center for Alcohol & Drug Services

Carolyn Ross, Executive Director

1523 S. Fairmount St., PO Box 3278

Davenport, [A 52808

563/322-2667

FAX # 563/322-3671 (D15)

cross @cads-ia.com

Human Service Center :

Michael Boyle, President & CEO

mboyle @ fayettecompanies.org

P.O. Box 1346, 600 Fayette

Peoria, IL 61654

309/67 1-8025 .

309/671-8005 (Administration)

FAX # 309/671-8021 (DOS)

P.H.A.S.E.

Jared Kresge, Executive Director

319 South Church

Rockford, IL 61101

815/966-1285

FAX # 815/490-1051 (D08)

jebjudy @ mcleodusa.net

2a

REGION 1 (Cont.)

Robert Young Center for Community Mental Health

David Deopere, Ph.D., President

4600 Third Street

Moline, IL 61265

309/779-2051

FAX # 309/779-2555 (D11)

Rosecrance Health Network

Philip Eaton, President

3815 Harrison Avenue

Rockford, IL 61108

815/391-0100 ext. 416

FAX # 815/391-5041 (D12)

eatonp @rosecrance.net

Sojourn House, Inc.

Brenda Bombard, Director

565 North Turner Avenue

Freeport, IL 61032

815/232-5121

FAX # 815/233-4591 (S029)

REGION 2

Resolve Center

Dr. James Simone, Executive Director

411 W. Division

Manteno, IL 60952

815/468-3241

FAX # 815/468-5463 (S003)

jimdoc2] @hotmail.com

3a

REGION 2 (Cont.)

Breaking Free, Inc.

Mike Moran, Executive Director

120 Gale Street

Aurora, IL 60506

630/897-1003

FAX # 630/897-1042 (S054)

mjmoran @bigfoot.corn

Family Service & Community Mental

Health Center for McHenry Country

Robert Martens, Executive Director

Barb Schmiege, VP for Sub. Abuse Srvcs.

bschmiege @ familyservicemch.org

5320 West Elm Street

McHenry, IL 60050

815/385-6400

FAX # 815/385-8127 (D17)

famserv @stans.com

Leyden Family Service & MHC

Dennis P. Vaccaro, CEO

10001 Grand Avenue

Franklin Park, IL 60131

847/451-0330

FAX # 847/451-1652 (S052)

dpvaccaro @aol.com

Renz Addiction Counseling Center

Jerry Skogmo, Executive Director (x232)

Two American Way

Elgin, IL 60120

847/742-3545

FAX # 847/697-5583 (S051)

jskogmo @aol.com

REGION 2 (Cont.)

Stepping Stones, Inc.

Peter McLenighan, Exec. Director (x 125)

pmclenighan @steppingstonestreatment.com

Paul Lauridsen, Clinical Director (x 103)

plauridsen @ steppingstonestreatment.com

1621 Theodore Street

Joliet, IL 60435

815/744-4555

FAX # 815/744-4670 (S055)

Aunt Martha’s Youth Service Ctr.

C. Gary Leofanti, Exec. Director

Warren Wood, Division Manager

wwood @ auntmarthas.org

233 W. Joe Urr Road (North Bldg)

Chicago Heights, IL 60411

708/754-1044

FAX # 708/747-3497 (D16)

Will County Health Department

Dr. Joseph Troiani, Director

Randy Bultman, Interim Manager

501 Ella Avenue

Joliet, IL 60433

815/727-8521

FAX # 815/727-8436 (D18)

jtroiani @ willcountyhealth.org

Sa

REGION 3

Central East Alcoholism and Drug Council

Pam Irwin, Ph.D., Executive Director

635 Division, PO Box 532

Charleston, IL 61920

217/348-8108

FAX # 217/345-6794 (S038)

ceadpam @ hotmail.com

Chestnut Health Systems, Inc.

Rev. Russell J. Hagen, Pres. /\CEO

1003 Martin Luther King Drive

Bloomington, IL 61701

309/827-6026 ext. 2200

FAX # 309/820-3574 (D28)

rhagen @chestnut.org

Great River Recovery Resources

Ron Howell, Exec. Director

428 S. 36th Street

Quincy, IL 62301

217/224-6300

FAX # 217/224-4329 (D36)

info@recoveryres.org

Human Resource Center

Kenneth Polky, Executive Director

P.O. Box 1118, 753 E. Court

Paris, IL 61944

217/465-4118

FAX # 217/463-1899 (D38)

kenneth.polky @hrcec.org

REGION 3 (Cont.)

Illinois Alcohol & Other Drug Abuse

Professional Certification Association

Bill Johnson, Executive Director

1305 Wabash Avenue, Suite L

Springfield, IL 62704

217/698-8110

FAX # 217/698-8234 (S078)

iaodapca @ aol.com

Prairie Center Health Systems, Inc.

Patrick Leary, CEO

718 Killarney

Urbana, IL 61801

217/328-4500

FAX # 217/328-4535 (S050)

pleary @ mail.prairie-center.com

Prevention First, Inc.

Karel Ares, Executive Director

2800 Montvale Drive

Springfield, IL 62704

217/793-7353 or 800/252-8951

FAX # 217/793-7354 (D39)

Chicago Office

720 N. Franklin Street, Suite 500

Chicago, IL 60610

312/988-4646 or 800/572-5385

FAX # 312/998-7096

aresk @prevention.org

7a

REGION 3 (Cont.)

Project Oz

Peter Rankaitis, Executive Director

peter @projectoz.org

Nancy Wisted, Dir., Drug Education

502 South Morris

Bloomington, IL 61701

309/827-0377

FAX # 309/829-8877 (SO43)

Schuyler Counseling & Health Services

Francis "Kip" Wilson, Director

127 S. Liberty, P.O. Box 320

Rushville, IL 62681

217/322-4373

FAX # 217/322-2138 (SO45)

kipwilson @ starband.net

Shelby County Community Services

Dick Gloede, CEO

Cheri Fiala, Program Coordinator

1810 W. S. 3rd Street, P.O. Box 650

Shelbyville, IL 62565

217/774-5587

Fax # 217/774-1400 (S083)

sccsaoda @consolidated.net

The Wells Center

Bruce Carter, Exec. Director

1300 Lincoln Avenue

Jacksonville, IL 62650

217/243-1871

FAX # 217/243-2278 (D40)

bcarter @ weliscenter.org

REGION 4

Franklin-Williamson Human Services, Inc.

Dr. David Melby, Administrator

902 West Main

West Frankfort, IL 62896

618/997-5336 ext. 7100

dmelby @fwhs.org

Wendy Bailie, Substance Abuse Services Division Director

1307 West Main St., PO Box 365

Marion, IL 62959

618/997-5336 ext. 6108

FAX # 618/993-2969 (S006)

wbailie @fwhs.org

Human Service Center

Gary Buatte, Executive Director

10257 State Route Three

Red Bud, IL 62278

618/282-6233

FAX # 618/282-6220 (S082)

g.buatte@humanservicegroup.com

REGION 5

Addiction Counseling & Educational Service (A.C.E.S.)

Mary Ellen Flynn, Director

721 N. LaSalle Drive

Chicago, IL 60610

312/655-7453

FAX # 312/335-9853 (D19)

mflynn @catholiccharities.net

9a

REGION 5 (Cont.)

Alternative Schools Network

Jack Wuest, Exec. Director

1807 W. Sunnyside, Suite 1D

Chicago, IL 60640

773/728-4030

FAX # 773/728-3335 (S009)

jwuest @altschools.net

Bobby E. Wright Comprehensive

Behavioral Health Center, Inc.

Lucy Lang-Chappell, Ph.D., Exec. Dir.

Geraldine Katovich, Administrator

Program Manager

Nine South Kedzie Avenue

Chicago, IL 60612

773/722-7900

FAX # 773/722-0644 (S056)

Central States Institute of Addiction Programs

Kevin Doyle, Executive Director

120 West Huron Street °

Chicago, IL 60610

312/655-7530

FAX # 312/266-9027 (SO11)

kdoyle @catholiccharities.net

10a

REGION 5 (Cont.)

Cornell Interventions, Inc.

Leslie Balonick, Regional Vice President

Terri Matthes, Regional Director

901 W. Jackson Blvd., Ste. 400

Chicago, IL 60607

312/421-0817

FAX # 312/421-6425 (S092)

Ibalonick @cornellcompanies.com

tmatthes @comellcompanies.com

Gateway Foundation, Inc.

Michael Darcy, Pres/CEO (ext.216)

mdarcy @ gatewayfoundation.org

Nick Gantes, Vice President, IL

ngantes @ gatewayfoundation.org

312/913-2324

819 S. Wabash, Suite 300

Chicago, IL 60605

312/663-1130 (Administration)

FAX # 312/663-0504 (S017)

Springfield Office

413 E. Adams

Springfield, IL 62701

217/544-2040 ext. 104

FAX # 217/544-2188 (S081)

Healthcare Alternative Systems

Marco Jacome, Exec. Director

2755 West Armitage Avenue

Chicago, IL 60647

773/252-3100

FAX # 773/252-8945 (5019)

hascares @aol.com

lla

REGION 5 (Cont.)

Human Resources Dev. Inst.

Dr. Terra Thomas, President & CEO

222 S. Jefferson Street

Chicago, IL 60661

312/441-9009

FAX # 312/441-1663 (S020)

hrdi @hrdi.org

Illinois Association of Extended Care

Sterling Gildersleeve, Chairman

P.O. Box 269180

Chicago, IL 60626

708/224-2445

FAX # 773/764-1866 (R10)

iaecrecovery @ aol.com

Lutheran Social Services of Ilinois

Rev. Frederick Aigner, President

1001 Touhy Avenue, Ste. 50

Des Plaines, IL 60018

847/635-4600

Fax # 847/635-6764 (S023)

Rev. Roger A. Boekenhauer

Exec. Dir. Behavioral Health Services

4840 W. Byron

Chicago, IL 60641

773/282-7347 ext. 281

Fax # 773/282-9013 (S024)

roger.boekenhauer @Issi.org

12a

REGION 5 (Cont.)

PEER Services, Inc.

Kate Mahoney, Executive Director

906 Davis Street

Evanston, IL 60201

847/492-1778

FAX 847/492-0320 (S021)

peer_services ameritech.net

Omni Youth Services

Jay Meyer, Associate Executive Director

jmeyer @omniyouth.org

1111 Lake Cook Road

Buffalo Grove, IL 60089

847/353-1750

FAX # 847/541-0228 (S027)

Pillars Community Services

John Shustitzky, Executive Director

6120 South Archer Road

Summit, IL 60501

708/458-6920

FAX # 708/458-2326 (SO49)

jshustitzk @pillarscommunity.org

Jerri Allers

Director, Prevention Task Force

100 W. Cosset

La Grange, IL 60525

708/352-1188

Fax # 708/352-1198 (S034)

taskforce @earthlink.net

= ere “Set rr or ~

13a

REGION 5 (Cont.)

South East Alcohol & Drug Abuse Center

Greg Zyvert, Exec. Director

8640 S. South Chicago Avenue

Chicago, IL 60617

773/731-9100 ext. 232

FAX # 773/731-1292 (S030)

gzyvert @seadac.org

South Suburban Council on Alcoholism

Allen Sandusky, President/CEO

1909 Checker Square

East Hazel Crest, IL 60429

708/647-3333

FAX # 708/957-2614 (S031)

allensandusky @ameritech.net

Specialized Assistance Services (SASI)

Doris Reynolds, Exec. Director

2101 South Indiana Ave, 2nd Floor

Chicago, IL 60616

312/808-3218

FAX # 312/791-9037 (S039)

sasichgo @earthlink.net

TASC, Inc.

Melody Heaps, President (ext. 203)

1500 North Halsted, 2nd Floor

Chicago, IL 60622

312/787-0208 ext. 203 or 800/621-8076

FAX # 312/787-8214 (S033)

mheaps @tasc-il.org

nreyes @tasc-il.org —- Admin. Assistant

14a

YMCA Network for Counseling & Youth Development

of Greater Chicagoland

Peter Sari, Interim Executive Director

3801 W. 127th

Alsip, IL 60658

708/385-6700

FAX # 708/385-6770 (S005)

petersari @hotmail.com