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

(D ( (o © eae

Nos. 03-1116 & 03-IT20 & 03-1274

etd 2004

JUL 29 20dy

IN THE OFFICE OF THE CLERK

Supreme Court of the United States

JENNIFER M. GRANHOLM, Governor, ef a/..

Petitioners.

Vv.

ELEANOR HEALD, ef ai.,

Respondents.

JUANITA SWEDENBURG., ef ai...

Petitioners.

Vv.

EDWARD D. KELLY, ef a/..

Respondents.

On Writs of Certiorari to the

United States Courts of Appeals

for the Sixth and Second Circuits

BRIEF FOR THE WINE AND SPIRITS

WHOLESALERS OF AMERICA, NATIONAL

ASSOCIATION OF BEVERAGE IMPORTERS,

AMERICAN BEVERAGE LICENSEES, THE

PRESIDENTS’ FORUM OF THE BEVERAGE

ALCOHOL INDUSTRY, AND THE SSOCIATED

FOOD DEALERS OF MICHIGAN AS AMICI CURIAE

SUPPORTING PETITIONERS IN NOS. 03-1116 & 1120

AND RESPONDENTS IN NO. 03-1274

M. CRAIG WOLF H. BARTOW FARR, Ill

WINE AND SPIRITS Counsel of Record

WHOLESALERS OF AMERICA, INC. FARR & TARANTO

805 15th Street, N.W. 1220 19th Street, N.W.

Washington, D.C. 20005 Washington, D.C. 20036

(202) 371-9792 (202) 775-0184

Viet D. DINH

BANCROFT ASSOCIATES, PLLC

2121 Bancroft Place, N.W.

Washington, D.C. 20008

(202) 662-9324

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 - WASHINGTON, D.C. 20001

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QUESTION PRESENTED

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

wineries directly to ship alcohol to consumers but restricts the

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

Commerce Clause in light of Sec. 2 of the 21st Amendment?

TABLE OF CONTENTS

Page

QUESTION PRESENTED. .......::cccsssesssesseessvessecssveesvees

INTEREST OF AMICI CURIAE ..cccccscsessseesseesseessvessvee I

EL EE I

SUMMARY OF ARGUMENT.......cccccseesseecssessseesseeseees 3

ET 6

1. THE TWENTY-FIRST AMENDMENT

AUTHORIZES STATES TO RESTRICT

RETAIL SALES OF ALCOHOLIC BEV-

ERAGES BY OUT-OF-STATE VENDORS... 6

ll. THE DORMANT COMMERCE CLAUSE

DOES NOT BAR STATES FROM

RESTRICTING RETAIL SALES BY OUT-

OF-STATE VENDORS. ............cc00sssresseseresseerees 20

SSIES ccrscccsscesscccecccssavssnscesesscesassessesensecsnesseesees 30

(iii)

iV

TABLE OF AUTHORITIES

CASES Page

Bacchus Imports, Lid. v. Dias, 468 U.S. 263

Ge encreraseccenetnctininamepuaniiinenietementdeasl 6, 13, 26, 27

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

CRS GIDE cccniesnsensutaninensenniinainieamnueineiienés 17

Brown-Forman Distillers Corp. v. New York

State Liquor Authority, 476 U.S. 573 (1986) .... 28

C&A Carbene, Inc. v. Town of Clarkstown, 511

Si ee ETE cnnnenseeisnsiciinteninentienciivinbineanminaes 13

California Retail Liquor Dealers Ass'n v. Midcal

Aluminum, Inc., 445 U.S. 97 (1980) ........cccccceee passim

Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691

GR i neesenecsninsescneneisemenmemenmnmmmnmeaets passim

Carter v. Virginia, 321 U.S. 131 (1944)................ 12

Craig v. Boren, 429 U.S. 190 (1976).........cccccccee0es 13, 28

Duckworth v. Arkansas, 314 U.S. 390 (1941)....... 16

Fedway Associates v. U.S. Treasury, 976 F.2d

Pe Geek Pee nceninnnenininintminniiintiinaees 8

44 Liquormart, Inc. v. Rhode Island, 517 U.S.

ee icerreenceveniestticmnnitidnnintiaaiiiiasiiltitiininiaaiis 24, 28

Healy v. The Beer Institute, 491 U.S. 324 (1989) .... 28, 29

Heublein, Inc. v. South Carolina Tax Comm'n,

GP ae RD eremeserninittieaninuiniaintitiianiiisian 23

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

DOU Cae Bae I citiccrnestiiinisiniceninatiineess 5, 7, 23, 28

Indianapolis Brewing Co. v. Liquor Control

Comm'n, 305 U.S. 391 (1939). ....cccccccceeeeereeeeees 22

Larkin v. Grendel's Den, Inc., 459 U.S. 116

Ge ccnssansonsncsnsceneneratiasesnenenetenenaininesaiitaiiinanatans 28

Lunding v. New York Tax Appeals Tribunal, 522

els Se COD crensensrecncensniensecamanieainibeniuemtains 28

Mahoney v. Joseph Triner Corp., 304 U.S. 401

v

TABLE OF AUTHORITIES—Continued

Page

McKesson Corp. v. Division of Alcoholic

Beverages, 496 U.S. 18 (1990).........ccccccceceeeneees 10

Milton S. Kronheim & Co. v. District of

Columbia, 91 F.3d 193 (D.C. Cir. 1996)........... 27

National Distributing Co., Inc. v. U.S. Treasury

Dept., 626 F.2d 997 (D.C. Cir. 1980)..........00000+ 8

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

Ce cccesnsstcctniienmnseneinsaemannmnnsieatiins 2, 6, 25, 26

Premier-Pabst Sales Co. v. Grosscup, 298 U.S.

ee — 11,22

Prudential Ins. Co. v. Benjamin, 328 U.S. 408

I cneretnsncdsnnsnsncsmntasnanitinnsinmeenipaienscsnasiniias 5, 20

Quill Corp. v. North Dakota, 504 U.S. 298

GTI ncarensarenenemnanmensisiaeenmenticinnieeiinnnies 17, 20

State Board of Equalization v. Young's Market

OU 21,24

Toomer v. Witsell, 334 U.S. 385 (1948)................ 28

Ziffrin, Inc. v. Reeves, 308 U.S. 132 (1939).......... 23

CONSTITUTIONAL PROVISIONS, STATUTES,

AND RULES

ee) 6

Twenty-first Amendment Enforcement Act, 27

nC eee passim

Webb-Kenyon Act, 27 U.S.C. §§ 121-122....5, 13, 20, 29

N.Y. Alco. Bev. Cont. Law § 100(1)...........:c0s0000 2

§ 10201) (C) ......cceeeeees 2

Ny 8 | ee l

OTHER MATERIALS

B. Bernard, Liguor Laws 26 (1949)... 10, 14, 15

E. Behr, Prohibition: Thirteen Years That

Changed America 232-33 (1996) .......ceeeeees 18

vi

TABLE OF AUTHORITIES—Continued

Page

Economic Localism in State Alcoholic Beverage

Laws—Experience Under the Twenty-First

Amendment, 72 Harv. L. Rev. 1145 (1959)....... 10

L. V. Harrison & E. Laine, Afier Repeal 107-46

Fe vesconesnrnsnnsnensssremsncanenssnentenneentunmemnnmnennetian passim

P. Johnson, A History of the American People

[Eee ati ccncessrecicinsiasnnniinieiesiatinamaiiniiitniiiiiilahiain tai 8

R. B. Fosdick & A. L. Scott, Toward Liquor

eae ae 9,10, 11

Reiter, Citizens or Sinners? The Economic and

Political Inequity of ‘Sin Taxes'on Tobacco

and Alcohol Products, 29 Colum. J. of Law &

eh re rrteninnisietiaitinciitctinpeiesiitinnmnsitiis 18

Shankar, Alcohol Direct Shipment Laws, The

Commerce Clause, and the Twenty-First

Amendment, 85 Va. L. Rev. 353 (1999)........ 11, 12,17

U.S. Dept. Of Commerce, State Liquor Legisla-

A a ee ccictcitcinntstinneininitintnnmnianenimints 15

INTEREST OF AMICI CURIAE

Wine and Spirits Wholesalers of America, Inc., founded in

1943, is a national trade organization representing more than

370 licensed wine and spirits wholesaler companies in 44

States, the District of Columbia, and Puerto Rico that hold

state licenses to act as wine and/or spirits wholesalers. The

National Association of Beverage Importers, Inc. is a national

trade association that represents the interests of beer, wine,

and spirits importers. American Beverage Licensees, Inc. is

an association representing the interests of beer, wine, and

spirits retailers. The Presidents’ Forum of the Beverage

Alcohol Industry is a trade association that provides a forum

for members’ chief executives to respond to issues affecting

the beverage alcohol industry. The Associated Food Dealers

of Michigan, Inc. provides services to businesses engaged in

distribution of food and other products. Amici and their

members play significant roles in the distribution of alcoholic

beverages under state licensing systems. Amici thus have a

direct interest in the proper resolution of these cases, which

involve challenges to those longstanding systems.’

STATEMENT

Like all States, Michigan and New York exercise strict

control over the sale of alcohol within their borders. As part

of their regulatory programs, each State restricts who may

make retail sales to its citizens. Under Michigan law, “con-

sumers must purchase alcoholic beverages from licensed

retailers.” Pet. App. (03-1116) at Sa. Licensed in-state

winemakers are likewise permitted to sell at retail, although

they may do so only with respect to their own products. /d. at

6a. Out-of-state retailers and wineries are not permitted to

sell directly to Michigan consumers. /d. at 6a.

' The parties have consented to the filing of this brief. No party

authored this brief in whole or in part, and no person except amici and

their members made a monetary contribution to the preparation or

submission of this brief. See S. Ct. R. 37.6.

2

The New York retail system is similar in most, though not

all, respects. New York law provides that no one may sell

alcoholic beverages at retail “without obtaining the appro-

priate license ... .” N.Y. Alco. Bev. Cont. Law § 100(1),

quoted in Pet. App. (03-1274) at 6a. The law further provides

that “[n]o alcoholic beverages shall be shipped into the state

unless the same shall be consigned to a person duly licensed

hereunder to traffic in alcoholic beverages .. . ,” id. § 102(1)

(c), quoted in Pet. App. (03-1274) at 6a, effectively barring

direct sales to consumers by out-of-state vendors. Licensed

wineries with an in-state physical presence may sell directly

to consumers. See Pet. App. (03-1274) at 7a-8a. Wineries

that do not meet that condition may not.

Plaintiffs challenged the regulatory systems in both States

on the ground that, by prohibiting direct sales from

unlicensed out-of-state wineries, the States impermissibly

discriminated against interstate commerce. The Sixth Circuit

upheld the challenge to Michigan's law, rejecting the idea

“that a state’s ‘virtually complete control’ [see North Dakota

v. United States, 495 U.S. 423, 431 (1990) (plurality opinion)

(internal quotation marks omitted)] over liquor regulation

enables it to discriminate against out-of-state interests in

favor of in-state interests.” Pet. App. (03-1116) at 12a. The

Second Circuit took a different view with respect to the New

York law. After reviewing this Court’s decisions addressing

the interplay between the Commerce Clause and Section 2 of

the Twenty-first Amendment, the court of appeals concluded

that “New York’s regulatory regime falls squarely within the

ambit of Section 2's grant of authority.” Pet. App. (03-1274)

at 25a. The court found that the provisions limiting the

privilege of direct selling to licensed in-state entities “serve| ]

valid regulatory interests,” id. at 25a, “allow[ing] the state to

monitor the distribution and sale of alcoholic beverages by

permitting such distribution and sale only through state-

licensed entities supervised by, and accountable to, the [State

Liquor Authority].” /d. at 25a.

3

SUMMARY OF ARGUMENT

The short answer to the question posed by this Court is no:

the statutory scheme described in the question does not

“violate the dormant Commerce Clause, in light of Sec. 2 of

the 21st Amendment.” Whatever may be the ultimate boun-

daries of state authority under the Twenty-first Amendment,

that authority necessarily includes—as it has for more than

seven decades—the power to limit retail sales of alcohol by

out-of-state vendors that are not subject to the full extent of

state regulatory and taxing powers. That conclusion controls

these cases. Plaintiff out-of-state wineries are not subject to

the same regulatory oversight as licensed in-state sellers, and,

like other out-of-state retail liquor vendors, they have no

overriding constitutional right, under the Commerce Clause

or any other provision, to disregard state regulatory pro-

hibitions on making direct sales to state citizens.

1. The theory advanced by the plaintiffs—that, if a State

permits in-state vendors to sell alcohol directly to consumers,

it must allow out-of-state vendors to do so as wel!l—

contradicts more than 70 years of regulatory history under the

Twenty-first Amendment. During that period virtually every

State has required alcohol to be sold pursuant to either a state-

monopoly system or a state-licensing system, under which

retail sales to consumers (that is, sales for off-premises

consumption) are made by in-state vendors. Those systems

were implemented after the end of Prohibition precisely to

ensure that States would be able to exert the greatest possible

control, both as a legal and a practical matter, over those who

sold alcohol to their citizens. Given the chaotic conditions

that had prevailed prior to ratification of the Twenty-first

Amendment, it would be historically anomalous to con-

clude that States, under compulsion of the dormant Com-

merce Clause, have been obligated all along to allow vendors

across the Nation to sell alcohol directly to consumers within

their borders.

4

Although plaintiffs seek to portray state restrictions on out-

of-state consumer sales (of which the laws now at issue are an

example) as nothing more than rank favoritism, those

restrictions in fact serve important state interests. To begin

with, they allow state and local officials to impose necessary

limits on the number of vendors licensed to sell alcoholic

beverages within the State and to conduct meaningful in-

vestigations, with direct community input, regarding who

those vendors will be. Furthermore, the licensed vendors’ in-

state locations, and the importance to them of maintaining

their state-granted licenses, give the States much greater

power to enforce their laws regarding illegal sales, particu-

larly sales to minors. Finally, the restriction on sales by out-

of-state vendors provides concrete assurance that those

privileged to sell alcohol actually collect and remit the taxes

that the laws impose. That assurance is of critical importance

to the States, whose support for the Twenty-first Amendment

was prompted in large part by a need for enhanced tax

revenues. See L.V. Harrison & E. Laine, Afier Repeal

173 (1936).

Plaintiffs attempt to sidestep these state interests, arguing

that “temperance” is the only legitimate interest served by the

Twenty-first Amendment. Because the laws here do serve to

inhibit sales of alcohol—especially illegal sales to underage

drinkers—the argument is beside the point. But it is also

incorrect. As the history of post-Prohibition regulation

clearly demonstrates, Section 2 of the Twenty-first Amend-

ment not only allowed States to ban liquor sales entirely, it

enabled so-called “wet” States to blunt the harmful influence

of unsupervised sellers by establishing strict local control

over the sale of alcohol. See Capital Cities Cable, Inc. v.

Crisp, 467 U.S. 691, 713 (1984) (“core § 2 power” is power

“to regulate the sale or use of liquor within its borders”)

(emphasis added). Plaintiffs’ alternative vision of a nation-

wide retail liquor market with thousands of vendors free to

5

sell directly to consumers—a vision that would sound the

death knell of the longstanding liquor distribution system—is

flatly inconsistent with that objective.

Il. Despite plaintiffs’ arguments to the contrary, the dor-

mant Commerce Clause does not prevent States from insti-

_ tuting local control over alcohol sales. First of all, Congress .

has enacted the Webb-Kenyon Act, 27 U.S.C. §§ 121-22,

which (in terms similar to the Twenty-first Amendment)

grants broad authority to the States to limit the “shipment or

transportation” of alcohol across their borders. That provi-

sion gives a federal imprimatur to state laws barring direct

out-of-state liquor sales. Furthermore, Congress extended

this authority at a time when it was well aware that States

were seeking to control alcohol sales by restricting shipments

from out-of-state vendors. Thus, even if the dormant

Commerce Clause would otherwise cast doubt on the laws at

issue here, Congress has effectively overridden its limitations

with respect to this kind of state regulation. See generally

Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 429-30 (1946)

(Congress may narrow effect of dormant Commerce Clause).

In any event, the Twenty-first Amendment itself limits the

effect of the dormant Commerce Clause in these circum-

stances. Although the Court has rejected the proposition that

“the Twenty-first Amendment . . . somehow operated to

‘repeal’ the Commerce Clause [with respect to regulation of

alcohol},” Hostetter v. Idlewild Bon Voyage Liquor Corp.,

377 U.S. 324, 331-32 (1964), it has continued to recognize

that, consistent with the original understanding, “[t]he

Twenty-first Amendment grants the States virtually complete

control over whether to permit importation or sale of liquor

and how to structure the liquor distribution system.”

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

Inc., 445 U.S. 97, 110 (1980). That principle is sufficient to

decide these cases. Here, Michigan and New York have

promulgated laws that are directed to the most fundamental

6

aspect of any “liquor distribution system”: who may sell

alcohol directly to their citizens. In limiting the right of direct

selling to in-state entities over whom the States can exercise

the greatest possible oversight, the States are employing just

the kind of regulatory authority that the Twenty-first

Amendment is meant to protect. See North Dekota v. United

States, 495 U.S. 423, 432 (1990) (plurality opinion); see also

id. at 447 (Scalia, J., concurring in the judgment).

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

263 (1984)}—on which plaintiffs heavily rely—has little

bearing on this particular question. That case involved

neither importation nor transportation, the subjects to which

the Twenty-first Amendment is principally addressed. More-

over, the State in that case defended its discriminatory law

solely on the ground that, by providing a competitive

advantage, it promoted local industry. While the Court found

that particular interest to fall outside the scope of the Twenty-

first Amendment, it specifically contrasted the greater defer-

ence that is given to “laws enacted to combat the perceived

evils of an unrestricted traffic in liquor.” /d. at 276. Here,

the States are seeking to combat those evils, and the Com-

merce Clause does not bar them from doing so.

ARGUMENT

I. THE TWENTY-FIRST AMENDMENT AUTH-

ORIZES STATES TO RESTRICT RETAIL

SALES OF ALCOHOLIC BEVERAGES BY

OUT-OF-STATE VENDORS

Section 2 of the Twenty-first Amendment declares that

“(t]he transportation or importation into any State . . . for

delivery or use therein of intoxicating liquors, in violation of

the laws thereof, is hereby prohibited.” U.S. Const. Am.

XXI, § 2. That language, on its face, indicates that the States’

power to control liquor traffic by restricting importation is

far-reaching. Furthermore, while this Court has said that the

J

Twenty-first Amendment does not give States absolute

authority over all matters pertaining to alcoholic beverages,

see, e.g., Hostetter v. Idlewild Bon Voyage Liquor Corp., 377

U.S. 324, 331-32 (1964), it has repeatedly recognized that

States may exercise extensive control over the physical

distribution of liquor within their borders. See, e.g., Cali-

fornia Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc.,

445 U.S. 97 (1980); Capital Cities Cable, Inc. v. Crisp, 467

U.S. 691 (1984). Thus, in Midcal, the Court observed that

“(t]he Twenty-first Amendment grants the States virtually

complete control over whether to permit importation or sale

of liquor and how to structure the liquor distribution system.”

445 U.S. at 110. Likewise, in Capital Cities, the Court noted

that “[t]he States enjoy broad power under § 2 of the Twenty-

first Amendment to regulate the importation and use of

intoxicating liquor within their borders.” 467 U.S. at 712.

The cases now before the Court fit squarely within those

basic principles. What is at issue is simply the authority of

States to control retail sales of alcohol—that is, sales for off-

premises consumption—by limiting, or even banning, direct

imports to consumers by out-of-state vendors. Numerous

States have exercised that authority since the end of Prohi-

bition, and it remains a significant part of most closely-

regulated liquor distribution systems today. Although plain-

tiffs argue that, if a State permits in-state vendors to sell

directly to consumers, it must allow the same for out-of-state

vendors—a theory that would effectively put an end to the

traditional liquor distribution system—the limitation on direct

out-of-state sales continues to serve important state interests

in controlling the sale of alcohol and in assuring effective tax

collection. It thus advances legitimate goals that are consis-

tent with, and protected by, the Twenty-first Amendment.’

? In our view, it does not matter whether the Court, in deciding the

constitutional question presented here, begins with analysis under the

Commerce Clause or analysis under the Twenty-first Amendment. See

8

A. The idea that States may regulate liquor traffic by re-

stricting sales from out-of-state vendors must be understood

in historical context. After the tumult of the 1920s, the end of

Prohibition brought with it the difficult problem of how to

regulate the newly-allowed sale of alcohol. The conditions at

the time were not promising: “[WJhat Prohibition did was to

transfer the manufacture, sale, and distribution of liquor from

legitimate to criminal forces.” P. Johnson, A History of the

American People (1999). Thus, “[iJn the early days after

repeal of prohibition the nation was infested with bootleggers

and racketeers anxious to continue their trade and willing to

thwart the tax and health laws.” National Distributing Co.,

Inc. v. U.S. Treasury Dept., 626 F.2d 997, 1004 (D.C. Cir.

1980). See Fedway Associates v. U.S. Treasury, 976 F.2d

1416, 1418 (D.C. Cir. 1992) (noting congressional concern

about “corruption of the newly-legal alcohol industry by

bootleggers, racketeers, and other criminal types who had

flourished during Prohibition.”)

It fell primarily to the States, exercising their new consti-

tutionally-recognized powers under the Twenty-first Amend-

ment, to bring order out of this chaos. For the States, a

principal goal was to get and maintain control over who could

sell alcohol, and thereby to dictate to whom (and under what

conditions) they could sell it. After experiencing the law-

lessness of the Prohibition era, States wanted to establish laws

that were aimed at controlling the excesses of liquor traffic

and, perhaps just as important, to enact laws that were

|

Pet. App.|(03-1274) at 12a-14a. Because we believe that state laws within

the scope of the Twenty-first Amendment do not violate the dormant

Commerce Clause—either because the Amendment directly limits the

dormant Commerce C lause or because, in any event, it “saves” certain

alcohol laws from invalidation—the order of analysis seems immaterial.

In the end, proper resolution of the issue turns upon whether the state laws

in question are within the scope of the Twenty-first Amendment. As we

discuss, the state laws here meet that standard.

9

enforceable. See R. B. Fosdick & A. L. Scott, Toward Liquor

Control 149 (1933) (also known as the Rockefeller Report)

(“[rJestrictive laws which cannot be enforced achieve success

only on paper.”) Furthermore, they sought to levy taxes on

the sale of liquor, an ambition that had been one of the

moving forces behind the repeal of Prohibition. See pages

17-18 infra.

In this environment, States saw a particular need for

stringent regulation with respect to retail sales of liquor. See

Toward Liquor Control 65 (“[v]irtually all the individual and

social evils of the liquor traffic arise from an inadequately

regulated and overstimulated retail sale.”) In general, the

States approached the problem of regulating sales to con-

sumers in one of two ways. Following the recommendation

of the influential Rockefeller Report, approximately 15 States

elected to establish state monopolies over the retail sale of

alcoholic beverages. In those States, “[t]he primary task of

the [State Alcohol] Authority would be the establishment of a

chain of its own retail stores for the sale of the heavier

alcoholic beverages by package only.” /d 64-65. Some

States, while generally following the monopoly model,

provided for sales of specified products (often wine or beer)

by state-licensed entities. See L. V. Harrison & E. Laine,

After Repeal 110-11 (1936). By vesting control in the State

itself, the monopoly system of retail distribution naturally

tended to preclude direct sales to consumers by out-of-state

liquor vendors.

The remaining non-dry States followed a second course—

also recommended by the Rockefeller Report (but with

misgivings that it would not be rigorous enough), see Toward

Liquor Control 55-61—that focused, not upon state pro-

prietorship, but upon strict regulation and licensing of private

vendors. This system, then known as the licensing system,

established a three-tier method of distribution. Under that

system, producers were required to sell to licensed whole-

10

salers, who sold in turn to licensed retailers. See generally

McKesson Corp. v. Division of Alcoholic Beverages, 496 U.S.

18, 24 n.3 (1990) (describing three-tier system in Florida).

Under this type of system, the States closely monitored both

wholesalers and retailers, and only licensed retailers were

permitted to sell to consumers for off-premises consumption.

The licensing system, again, did not contemplate direct

interstate sales to state consumers. To the contrary, it was

founded on principles of tight state, and often local, control.

In particular, States and local governments sought to exert

control with regard to the physical locations at which liquor

would be available. Thus, for example, the authors of the

Rockefeller Report stated that “[s]uitable restrictions should

be established by the license law or by administrative

regulation with respect to the number and character of places

where liquor may be sold.” Toward Liquor Control 44. The

authors further recommended that “[I]icenses issued for the

retail sale of liquor should run not only to the person who

sells, but to the premises where the liquor is sold,” id. 49,

thereby making revocation of the seller’s license a more

powerful enforcement tool. The licensing States generally

followed this regulatory blueprint. See B. Bernard, Liquor

Laws 26 (1949) (“[a] license to sell alcoholic beverages”

provides authority to sell alcohol “in the premises set forth by

address or other description.”)

The importance of local control was reinforced in many

licensing States by a further restriction: that retail licenses

would be issued only to residents of the State or to cor-

porations with resident officers or shareholders. See Liquor

Laws 25-26; see also Note, Economic Localism in State

Alcoholic Beverage Laws—Experience Under the Twenty-

First Amendment, 72 Harv. L. Rev. 1145, 1148 (1959).

Indeed, in some places, state laws required residence in the

county or town where the retail business was located. See

11

Liquor Laws 25-26. These laws plainly assisted authorities in

evaluating the qualifications of licensees, providing a greater

likelihood that applicants would be known to the community

in which they sought to operate. See After Repeal 74-75

(“[t]}wo processes are involved in determining the propriety of

issuing licenses, the investigation of applicants and of the

premises for which the licenses are requested, and the

obtaining of community sentiment toward proposed liquor

businesses.”) Although it is not clear whether the residence

qualification was necessary to other regulatory objectives—

given the extensive regulatory control already available over

the licensee and the premises themselves—it was accepted as

a common feature of post-repeal regulatory schemes. Indeed,

in an early case before this Court, its constitutionality was

regarded as a given. See Premier-Pabst Sales Co. v.

Grosscup, 298 U.S. 226 (1936) (discussed at page 22 infra).

Finally, the States bolstered local control by imposing

direct bans on retail shipments from out-of-state vendors. See

Shankar, Alcohol Direct Shipment Laws, The Commerce

Clause, and the Twenty-First Amendment, 85 Va. L. Rev.

353, 356 (1999) (“States . . . passed direct shipment laws to

protect the three-tier system, which otherwise could be

bypassed by interstate shipment of alcohol from producers

directly to consumers.”) These laws did not prevent all

importation of out-of-state products, but rather required that

the products be distributed through the three-tier system. See

id. at 355. In those States, the three-tier system thus served

several related regulatory purposes. Not only did it protect

against the notorious “tied house” between producer and

retailer—see Toward Liquor Control 43 (“[t}he ‘tied house’

system had all the vices of absentee ownership. The

manufacturer knew nothing and cared nothing about the

community.”)}—but it assured that direct sales to consumers

would be made by licensed local merchants.

12

Following the end of Prohibition, therefore, it was widely

understood that retail sales of liquor, far from being part of a

wide-open national marketplace, instead were subject to strict

state and local control. See generally Carter v. Virginia, 321

U.S. 131, 138 (1944) (Black, J., concurring) (“local, not

national, regulation of the liquor traffic is now the general

constitutional policy.”) After ratification of the Twenty-first

Amendment, the States took steps to assure that, if the State

was not itself the direct seller of liquor, it was at least in a

position to exercise the greatest possible authority over the

direct seller. No one expected that outlets in California or

Illinois would be free to sell liquor directly to consumers in

Michigan or New York. To the contrary, that kind of un-

restrained distribution scheme, with thousands of potential

sellers scattered about the Nation, was precisely what the

States were seeking to foreclose.

5

While contemporaneous practice does not conclusively

establish constitutionality, the historical evidence at least

demonstrates that those enacting alcohol laws after ratifica-

tion of the Twenty-first Amendment regarded limitations on

retail sales by out-of-state vendors as entirely natural and

legitimate under its terms. See Alcohol Direct Shipment

Laws, at 355 (noting that laws against direct shipment have

existed “in many states since the repeal of Prohibition.”)

Indeed, if the Twenty-first Amendment had not countenanced

such restrictions, the regulatory systems of most States would

have immediately been constitutionally suspect—under

plaintiffs’ theory of compulsory equal treatment for out-of-

state retail sellers—even though they were designed to serve

well-recognized, and widely heralded, regulatory goals. That

is an implausible conclusion. In their efforts to clean up the

liquor traffic, the States were entitled to limit direct sales by

out-of-state vendors precisely because their location outside

the particular regulating State made them less susceptible to

the reach of that State’s power.

13

That principle applies with full force to the laws challenged

here. Although plaintiffs try to limit the focus of these cases

to sales of wine alone, the distinction that they attack—

between direct sales by in-state wine producers (allowed) and

direct sales by out-of-state wine producers (prohibited)—is, at

bottom, nothing more than an example of the larger dis-

tinction made between in-state and out-of-state retail sellers

generally. Like other in-state retailers, licensed in-state wine

producers are, by virtue of their situs, subject to the complete

regulatory and taxing authority of their home States. By

contrast, like other out-of-state retailers, out-of-state wine

producers tend to operate largely beyond the authority of the

individual States in which they now seek to retail their

products. That difference, in our view, is decisive. Under the

Twenty-first Amendment, a State seeking to control the

liquor traffic within its borders need not allow retail sales

by out-of-state dealers over whom it has less than ful! regu-

latory authority.’

B. The Commerce Clause, of course, generally discour-

ages lines drawn between in-state and out-of-state businesses.

See, e.g., C&A Carbone, Inc. v. Town of Clarkstown, 511

U.S. 383 (1994). But that rule has a diminished effect where

regulation of liquor distribution is in question. See Craig v.

Boren, 429 U.S. 190, 206 (1976) (“Twenty-first Amendment

primarily created an exception to the normal operation of the

Commerce Clause.”); see also pages 21-29 infra (discussing

effect of Twenty-first Amendment on dormant Commerce

Clause). Although the dormant Commerce Clause still

prohibits certain forms of pure “economic protectionism,”

Bacchus Imports, Lid. v. Dias, 468 U.S. 263, 276 (1984), it

> We note that any attempt by plaintiffs to fashion a wine-specific

constitutional rule would run head-long into the language of the Twenty-

first Amendment, which explicitly refers to “intoxicating liquors” without

making any distinctions. See also 27 U.S.C. § 122 (Webb-Kenyon Act)

(“vinous . . . or other intoxicating liquor of any kind.”)

14

necessarily accommodates state regulations that are designed

to promote legitimate interests protected by the Twenty-first

Amendment. Limitations on out-of-state retail sales directly

serve those interests.

1. To begin with, the capacity to limit direct out-of-state

sales allows States to exercise the greatest possible influence

over the lawful sale of liquor to their citizens. Most

immediately, it gives a State the threshold power to determine

how many retail liquor sellers there will be. No State allows

everyone who wants to sell liquor to do so: rather, in most

States, licenses have long been rationed in accordance with

population and local preferences. See Afier Repeal 50;

Liguor Laws 15-17. Although the laws and practices vary

among different States, it is common for States to allow local

communities to have a say (or even a veto) about the grant or

renewal of licenses in their vicinity. As a result, both state

and local governments are able to prevent the unrestrained

proliferation of retail outlets. By contrast, if States had to

allow retail sales by any and all liquor vendors nationwide—

as plaintiffs insist—the benefits gained by limiting the

number of liquor licenses would necessarily be lost.*

The States also have an important interest in knowing as

much as possible about who will be selling alcohol to their

citizens. A central part of the traditional licensing system has

always involved a detailed investigation into the qualifi-

cations and character of persons entitled to sell liquor in a

* Although States theoretically could impose limits by apportioning

licenses between in-state and out-of-state businesses, that solution would

only make matters worse. Given the vastly greater number of potential

out-of-state sellers, any proportional system (i.¢., any system that did not

“favor” local applicants) would be severely weighted towards out-of-state

sellers, undermining state efforts to impose enforceable restrictions on

their licensees. It would also reduce dramatically the incidence of face-to-

face transactions between buyers and sellers, thus interfering with

enforcement of laws against prohibited sales.

15

particular community. Indeed, early observers of state regu-

latory systems remarked that “retail licensing” was “the most

important field of licensing activity.” Afier Repeal 52. Thus,

for example, notices are typically posted on site whenever a

retail seller seeks to obtain, renew, or transfer a retail liquor

license, permitting those in the surrounding community to

voice concerns about issuance of the license generally or

about the prospective licensee in particular. To compel a

State to review and investigate applications from all willing

sellers everywhere—or to rely on investigations by other

States applying their own criteria—would impose a signifi-

cant, and undesirable, reworking of the present locally-based

system. See Pet. App. (03-1274) at 28a.

The local licensing system not only addresses who may sell

liquor, it also leads to better control over who may buy it.

After Prohibition, experts took the view that “[w]hen liquor

licenses are placed in the hands of trustworthy and competent

persons the likelihood of subsequent liquor troubles is greatly

reduced.” Afier Repeal 74. In particular, the selection of

licensees is part of the process for seeing that state laws

barring sales to minors and the intoxicated are observed.

From the ratification of the Twenty-first Amendment to the

present day, all States have had laws prohibiting sales to

minors. See U.S. Dept. of Commerce, State Liquor Legis-

lation 156-63 (1941); Liquor Laws 59. Virtually all States

have restrictions on sales to intoxicated persons as well. See

State Liquor Legislation 156-63.

Proper enforcement of these laws, though concededly

challenging, remains a state interest of the highest impor-

tance. But that enforcement necessarily begins with the

expectation that sellers will refuse to sell to those who are not

permitted to buy. To back up that expectation, States must

wield (and use) the threat that state-issued licenses will be

suspended or revoked for noncompliance. See Afier Repeal

215 (“[rjevocation is the only reliable complete remedy for

16

violations ....”) Thus, if in-state sellers violate the State's

alcohol control laws, they face the loss of their right to sell

and, often, of their businesses: for example, in-state wineries

would, at a minimum, forfeit their opportunity to sell directly

to consumers. The stakes of noncompliance would be very

different, however, for national retailers. National retail

vendors, doing business across a wide spectrum of States,

would have the capacity to spread, and thus minimize, the

risk of disregarding state laws. As a result, even if nation-

wide vendors could be compelled to get licenses for each

State in which they sold (a point that is by no means certain),

the potential loss of any single state license, and the inability

to sell directly in that State alone, would be relatively

unimportant.

Finally, as both a practical and legal matter, in-state sellers

are subject to far greater ongoing administrative oversight.

See Pet. App. (03-1274) at 25a (“[p]resence ensures account-

ability.”) By the very fact that licensees are physically

located in the regulating State, enforcement officials can

more readily investigate, through direct observation, whether

they are conforming to the requirements of state law. See

generally Duckworth v. Arkansas, 314 U.S. 390, 396 (1941)

(noting “peculiar difficulties of controlling [intoxicating

liquor]”).° In addition, state laws call for licensed sellers to

keep detailed records on site, which are subject to review by

State regulatory officials. By contrast, if State enforcement

officials were forced to monitor and inspect a myriad of

sellers in all other States, that administrative exercise, even if

legally permissible, would be both highly impractical and

needlessly costly. See Pet. App. (03-1274) at 28a.

* Even without nationwide retail sales of alcoholic beverages, Congress

has recognized the difficulties that States face in seeking to enforce their

liquor laws against out-of-state entities. See The Twenty-first Amend-

ment Enforcement Act, 27 U.S.C. § 122a (providing federal jurisdiction

for suits by state attorneys general).

17

2. The limitation of out-of-state retail sales is also impor-

tant to another critical objective of alcohol control laws:

effective tax collection. Indeed, while plaintiff wineries

apparently suggest that they would be willing to collect and

remit applicable taxes, they can hardly speak for all liquor

vendors across the Nation, many of whom would presumably

try to gain a competitive advantage by skirting state tax

systems. As the Seventh Circuit has observed, “states have

insuperable problems collecting their use taxes when people

buy from out-of-state vendors that do not collect sales taxes.”

Bridenbaugh v. Freeman-Wilson, 227 F.3d 848, 850 (7th Cir.

2000). Thus, even if the States may constitutionally impose

their alcohol taxes on sales by out-of-state retailers, but see

Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the

practical difficulties of enforcement would be enormous.

Advocates of nationwide sales thus choose a different tack,

arguing that the problem of tax collection exists with respect

to all direct out-of-state sales, not just sales of alcohol. See,

e.g., Alcohol Direct Shipment Laws, 85 Va. L. Rev. at 358.

Their point appears to be that the Court should not give

weight to a concern about collection of state alcohol taxes

because that concern, taken to its logical conclusion, would

allow States to restrict direct out-of-state sales of any product.

See id. But the history of the Twenty-first Amendment is

again relevant here. For taxes on alcohol are not just another

kind of fungible tax on goods. Rather than being an

incidental by-product of the end of Prohibition, alcohol taxes

were, in themsel ~s, an important reason for the end of

Prohibition. Put another way, the imposition of state alcohol

taxes was part of the quid pro quo that led to enactment and

ratification of the Twenty-first Amendment in the first place.

The history itself is well-recognized. As early commen-

tators noted, “[t]he repeal of prohibition was brought about as

much by the need for revenue as by the desire to eradicate the

evils that grew out of that social experiment.” Afler Repeal

18

173; see also id. (advocates of repeal found motivation in a

desire to “[t]urn the bootlegger’s profits into public reve-

nues”); E. Behr, Prohibition: Thirteen Years That Changed

America 232-33 (1996). But that goal can only be served, of

course, if States are actually able to collect the taxes; to

obtain the revenues that they looked for, States must have the

right to impose rational conditions to assure proper payment.

Thus, once it is recognized that the end of Prohibition was

partly set in motion by a need for alcohol taxes, it is plainly

counter-historical for liquor sellers to claim that the Con-

stitution denies the States the means of most effectively

obtaining them. That theory ultimately devalues one side of

the expected bargain, allowing sellers, but not States, the full

benefits of repeal. See Pet. App. (03-1274) at 28a (noting

“burden” of attempting to assure compliance with tax laws).

It is also clear that effective tax collection is important, not

just as an end in itself, but as a means of repressing alcohol

consumption within the State. While the overall impact is

debated, it is clear, at the very least, that States have intended

alcohol taxes to depress consumption, even as they deal with

the concern that excessive taxation would cause consumers to

seek out illegal sellers. Reiter, Citizens or Sinners? The

Economic and Political Inequity of ‘Sin Taxes’ on Tobacco

and Alcohol Products, 29 Colum. J. of Law & Soc. Prob. 443,

449 (1996). Moreover, the revenues from alcohol taxes,

taken along with license fees, fund enforcement of the state

liquor laws, and support programs that assist state citizens

suffering from alcohol-related illnesses. If those revenues are

diminished by lack of collection, it follows either that state

alcohol programs must be scaled back (at a time when, under

plaintiffs’ proposed nationwide distribution system, the

difficulties of enforcement will be vastly increased), or that

funds must be siphoned away from other competing state

programs. The restriction of out-of-state retail sales avoids

these unpalatable and unnecessary choices, assuring that local

19

licensees—holding seizable assets within the taxing juris-

diction—are responsible for collecting and remitting the taxes

that the laws impose.

3. Largely disregarding these state interests, plaintiffs sug-

gest that the only legitimate goal served by the Twenty-first

Amendment is “temperance.” But that suggestion, even if

correct, would not help them in these cases. Whatever may

be said about other kinds of state restrictions, the provisions

limiting sales by out-of-state sellers do promote temperance.

As we have discussed, the traditional licensing scheme neces-

sarily lerds to sales made by local retail sellers concerned

about the threat of license revocation and other severe

sanctions, increasing the likelihood that they will deny sales

to those persons—in particular, to minors—for whom liquor

is inappropriate. That is an advancement of temperance in a

most specific and critical sense. And, insofar as taxes (if

collected) reduce consumption, the more general interest in

temperance is advanced as well.

In any event, the idea that temperance is the only real goal of

the Twenty-first Amendment rests upon a misreading of the

historical record. Quite apart from the importance of tax

revenues to its ratification, it is plain that the drafters and

ratifiers of the Twenty-first Amendment did not envision

anything approaching an open market in liquor, limited only by

laws specifically intended to shelter “dry” States. Quite the

opposite: as we have discussed, the focus of alcohol-related

efforts following repeal of Prohibition was upon identifying

and implementing effective forms of state regulation. See

Capital Cities Cable, 467 U.S. at 713 (“core § 2 power” is

power “to regulate the sale or use of liquor within its borders.”)

What the States sought to do—and what the Twenty-first

Amendment permitted them to do—was to impose much

tighter means of control that would provide for sales of alcohol

but avoid the distribution problems of the past. The systems

that they chose, including restrictions on direct out-of-state

20

sales, were designed to meet that goal. While plaintiffs now

seek to replace those traditional systems—substituting a broad

national marketplace in which out-of-state liquor sellers enjoy

full benefits without being subject to full oversight—that view

of liquor sales is very different from the one embodied in the

Twenty-first Amendment.

Il. THE DORMANT COMMERCE CLAUSE DOES

NOT BAR STATES FROM RESTRICTING

RETAIL SALES BY OUT-OF-STATE VENDORS

A. For several reasons, the dormant Commerce Clause

does not prevent States from serving their legitimate interests

in controlling alcohol distribution by limiting out-of-state

retail sales. First of all, it is well-established that Congress

may authorize state actions that the dormant Commerce

Clause would foreclose. See Quill Corp., 504 U.S. at 305;

Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 429-30

(1946). The Webb-Kenyon Act, by its express terms, does

just that. In language similar to that of the Twenty-first

Amendment, the Act prohibits “[t]he shipment or trans-

portation ... of any . . . intoxicating liquor of any kind, from

one State . . . into any other State . . . in violation of any law

of such State ... .” 27 U.S.C. § 122. That provision gives

state laws restricting “[t]he shipment or transportation” of

liquor the weight of explicit federal approval, thus remov-

ing whatever check the dormant Commerce Clause might

place on laws restricting sales to consumers by out-of-

state vendors.

We will not repeat the arguments made on this point by the

Michigan petitioners and New York respondents, which

demonstrate that the Act does what it purports to do. We note

only that Congress chose to reenact the Webb-Kenyon Act at

a time—1935—when it was well aware that States, under

both the monopoly and three-tier licensing models, would

typically be providing for retail sales only by State-controlled

entities or by licensed vendors subject to comprehensive state

21

oversight. (As we have notel, those were the alternative

systems proposed by the well-known Rockefeller Report.) It

seems highly improbable, therefore, that Congress, in

affirmatively prohibiting shipments of alcohol in violation of

state law, somehow meant to allow free passage to retail

shipments that would have fallen afoul of virtually every state

regulatory system at the time. The more sensible reading of

the Act is that it intended to permit States to regulate the

heretofore untrammeled traffic in liquor by doing precisely

what they were doing: restricting the privilege of direct

selling to the State itself or to those under its full control.

B. In any event, the Twenty-first Amendment itself auth-

orizes the laws at issue here. By its plain language, the

Amendment focuses on two activities— “transportation” and

“importation” for delivery or use—declaring either to be

prohibited if conducted “in violation of the laws” of any

State. Under any normal construction of those words, the

Amendment would appear to authorize a law that bars out-of-

state sellers from directly importing their alcoholic products

for delivery to consumers, and the States plainly thought that

it did. See pages 9-13 supra. Without question, the Amend-

ment has that effect with respect to laws barring ail sales of

liquor. It should have the same effect as applied to regulatory

schemes aimed at exercising strict control over the conditions

under which alcoholic beverages may be distributed and sold.

The early cases addressing the Twenty-first Amendment

certainly saw no grounds for a narrow interpretation.

Although the full vitality of those cases is open to question,

see pages 23-26 infra, those cases do, at least, reflect a more

or less contemporaneous interpretation of what the Amend-

ment was intended to do. Thus, in State Board of Equali-

zation v. Young's Market Co., 299 U.S. 59 (1936), the Court

stated that “[t]he words used [in the Twenty-first Amend-

ment] are apt to confer upon the state the power to forbid all

importations which do not comply with the conditions which

22

it prescribes.” /d. at 62. Shortly thereafter, the Court stated

flatly: “Since the Twenty-first Amendment, . . . the right of a

state to prohibit or regulate the importation of intoxicat-

ing liquor is not limited by the commerce clause... .”

Indianapolis Brewing Co. v. Liquor Control Comm'n, 305

U.S. 391, 394 (1939). See also Mahoney v. Joseph Triner

Corp., 304 U.S. 401, 403 (1938).

The initial cases from this Court thus were highly re-

spectful of state regulatory authority under the Twenty-first

Amendment. In addition, the Court indirectly acknowledged

the important regulatory interest in having local control over

alcohol distributors. In a case involving a suit brought by an

out-of-state corporation, the Court dismissed a challenge to

certain Pennsylvania licensing fees—which were substan-

tially higher for distributors that sold imported beer—on the

ground that the out-of-state plaintiff lacked standing to bring

the suit. See Premier-Pabst Sales Co. v. Grosscup, 298 U.S.

226 (1936). Addressing the applicable state law, the Court

noted that “no one may sell beer in Pennsylvania unless duly

licensed; and no license may issue to a corporation unless all

of its officers and directors, and fifty-one per cent of its

stockholders, have been residents of the State for the period

of at least two years prior to the application for a license.” /d.

at 227-28. The Court then observed that “/t/he constitutional

validity of that provision is conceded... .” Id. at 228

(emphasis added). Because the Court accepted that the State

could require in-state residence as a valid condition of

granting a license, it followed automatically that an ineligible

out-of-state business could not complain about how fees for

that license were determined.°

° We note that the constitutionality of “residence” requirements is not

before the Court in these cases. Plaintiff wineries were denied the right to

sell in Michigan and New York because they are not located in those

States. See Pet. App. (03-1116) at 6a; Pet. App. (03-1274) at 25a. The

cases thus do not involve a situation in which the location requirement is

23

Some years later, in Heublein, Inc. v. South Carolina Tax

Comm'n, 409 U.S. 275 (1972), the Court likewise upheld a

state law requiring an out-of-state liquor producer to have a

substantial presence within the State. The Court did so even

though it expressly recognized that the in-state presence

“served none of [the producer’s] business interests,” id. at

277, and that it made the producer subject to a South Carolina

tax that it otherwise could have avoided. Despite those

adverse effects, the Court found that the requirement of a

significant in-state presence was part of “a regulatory scheme

that serves legitimate State purposes other than assuring that

the State may tax the firm’s income ....” /d at

282. Seealso Ziffrin, Inc. v. Reeves, 308 U.S. 132, 139

(1939) (approving state policy of “limiting [liquor] traffic in

order to minimize well-known evils, and secure payment

of revenue.”)

It is true, of course, that the Court has since cast doubt on

the seemingly absolute language of its early decisions. Thus,

it is no longer possible to claim, if it ever was, that “the

Twenty-first Amendment has somehow operated to ‘repeal’

the Commerce Clause [with respect to regulation of

alcohol].” Hostetter, 377 U.S. at 331-32 (rejecting that view).

But our position here does not depend on that kind of

expansive reading of the Twenty-first Amendment. Rather, it

rests on the much more basic notion that the Twenty-first

Amendment, at its core, permits the States to exercise strict

control over how, and where, liquor is distributed to their

citizens. That is, under the Amendment, a State may

constitutionally impose restrictions on importation that

rationally advance its interests in protecting against

uncontrolled distribution and in safeguarding its claim to

important revenues.

satisfied but a right to sell is nonetheless denied on the ground of lack of

citizenship.

24

That more limited principle, far from being eroded by

decisions of this Court, has received repeated approval.

While recent cases have struck down state laws that interfere

with congressional power under the Commerce Clause, or

that are incompatible with principles of other constitutional

amendments, or that violate the dormant Commerce Clause

by imposing a discriminatory tax, see pages 26-29 infra, no

case has repudiated, or even cast serious doubt upon, the

States’ authority to dictate how liquor is sold within their

borders. Indeed, in addressing various other questions, the

Court has made clear that the power to control distribution of

liquor lies at the heart of the authority that the Twenty-first

Amendment grants to the States. Thus, in 44 Liqguormart,

Inc. v. Rhode Island, 517 U.S. 484 (1996), the Court

recognized that “the Twenty-first Amendment limits the

effect of the dormant Commerce Clause on a State’s regu-

latory power over the delivery or use of intoxicating

beverages within its borders.” /d. at 516. And, as we pointed

out earlier, see page 7 supra, the Court in Midcal regarded the

States as having “virtually complete control” over “how to

structure the liquor distribution system.” 445 U.S. at 110.

See also Capital Cities Cable, 467 U.S. at 712.

Plaintiffs thus are only partly correct in asserting that the

later cases of this Court have recognized an expanded role for

the Commerce Clause and a less extensive role for the

Twenty-first Amendment. While it is certainly true that the

latter does not displace the former with respect to any and all

matters involving treatment of alcohol—as it might have done

in the Young's Market era—that does not mean that the

Twenty-first Amendment takes a back seat with respect to

laws within its legitimate scope. To the contrary, where the

right to control how liquor is sold is at issue, the Twenty-first

Amendment continues to have decisive force.

25

The decision in North Dakota v. United States, 495 U.S.

423 (1990), makes this apparent. There, the Court upheld a

North Dakota statute requiring out-of-state shippers to file

monthly reports and to affix labels to liquor for sale in federal

enclaves within the State. Citing the “virtually complete

control” standard set forth in Midcal, the plurality found that

“{ijn the interest of promoting temperance, ensuring orderly

market conditions, and raising revenue, the State has estab-

lished a comprehensive system for the distribution of liquor

within its borders. That system is unquestionably legitimate.”

Id. at 432 (plurality opinion); see id at 438-39 (noting

“extensive system of statewide regulation that furthers legiti-

mate interests in promoting temperance and controlling the

distribution of liquor, in addition to raising revenue.”)

Concluding that the North Dakota regulations did not

improperly single out the United States for unfavorable

treatment, the plurality pointed out that under the State’s

three-tier system “{a]ll other liquor retailers are required to

purchase from state-licensed wholesalers, who are legally

bound to comply with the State’s liquor distribution system.”

Id. at 439.

In a separate opinion, Justice Scalia, concurring in the

judgment, addressed a question close to that presented here:

whether North Dakota could require the United States to

purchase its liquor from in-state wholesalers rather than from

out-of-state suppliers. His conclusion was that it could.

Justice Scalia first noted that “[t]he Twenty-first Amendment

. .. is binding on the Federal Government like everyone else

.... Id at 447. He then stated flatly that the Amendment

“empowers North Dakota to require that all liquor sold for

use in the State be purchased from a licensed in-state

wholesaler.” Id. (emphasis added).

The reasoning of both those opinions is directly relevant

here. Like the North Dakota laws, the Michigan and New

York restrictions against out-of-state retail sales serve

26

legitimate state interests in “controlling the distribution of

liquor” and “raising revenue.” See 495 U.S. at 439 (plurality

opinion). Furthermore, they stand on the same footing as the

North Dakota requirement that all retailers pu:chase their

liquor from “licensed in-state wholesaler[s}].” See id. at 447

(Scalia, J., concurring in the judgment). If the Twenty-first

Amendment empowers a State to require all retailers

(including the Federal Government) to purchase liquor only

from licensed in-state vendors, it seems evident that it would

also empower a State to require that its own citizens purchase

liquor only from licensed in-state vendors. Although one

requirement applies at the wholesale level, the other at retail,

they constitute interrelated parts of a comprehensive regu-

latory program aimed at exercising vigorous control over the

sale of liquor.’

C. To counter the decision in North Dakota, plaintiffs rely

heavily on Bacchus Imports, which struck down part of a

state tax scheme on dormant Commerce Clause grounds.

But, in Bacchus, the tax law in question—which exempted

certain local alcoholic products from a general state tax—

bore, at best, an attenuated connection to the act of impor-

tation, and none at all to transportation, the two activities to

which the Twenty-first Amendment is primarily addressed.

Morever, the State never contended (and, seemingly, could

not have contended) that the tax was an integral part of a

traditional regulatory system or that it served important state

interests in controlling liquor traffic and raising needed

revenue. Instead, the State justified the differential treatment

” Although Justice Scalia, in his opinion, did not refer to the Commerce

Clause, it is fair to assume that his conclusion regarding the in-state sale

requirement takes it into account. Even apart from the unqualified nature

of the statement that the Twenty-first Amendment “empowers North

Dakota to require that all liquor sold for use in the State be purchased -

from a licensed in-state wholesaler” (495 U.S. at 447), the United States’

option of complying with that requirement would be of no significance if

it was invalid under the Commerce Clause.

27

solely on the ground that it promoted local industry. See 468

U.S. at 270-71. The Court found that particular explanation

to fit poorly with the objectives safeguarded by the Twenty-

first Amendment, saying that “[s]tate laws that constitute

mere economic protectionism are . . . not entitled to the same

deference as laws enacted to combat the perceived evils of an

unrestricted traffic in liquor.” /d. at 276.

The laws at issue here, however, are designed to combat

the evils of unrestricted liquor traffic. Like most States—

whether they have chosen to implement the monopoly system

or the three-tier system—Michigan and New York impose

strict regulations limiting who can sell alcohol and under

what conditions they can do so. Faced with the prospect of

sales by thousands of producers and resellers—most of whom

are beyond the full regulatory authority of any given State—

the States have elected to bring the sale of liquor as close to

home as possible, limiting direct sales by out-of-state dealers.

That goal, unlike “mere economic protectionism,” is one

properly recognized and protected by the Twenty-first

Amendment. See Milton S. Kronheim & Co. v. District of

Columbia, 91 F.3d 193, 203 (D.C. Cir. 1996) (upholding

local liquor warehousing requirement on the ground that it

served valid enforcement objectives.)

To be sure, a law specifically restricting sales by out-of-

state entities will, by its very nature, tend to benefit in-state

entities. But, contrary to what plaintiffs appear to believe,

that is the beginning, not the end, of the relevant consti-

tutional analysis. The critical question remains whether the

law properly serves ends cognizable under the Twenty-first

Amendment. If not, as was the case in Bacchus, the law

cannot be “saved” by that Amendiment. But if the law does

serve legitimate ends, as it does here, it is not rendered

invalid simply because, to serve those ends, its provisions

must be directed towards out-of-state businesses. See

28

generally Toomer v. Witsell, 334 U.S. 385, 396 (1948) (under

Privileges and Immunities Clause, States may favor their

citizens “where there are perfectly valid independent reasons

for it.”); Lunding v. New York Tax Appeals Tribunal, 522

U.S. 287, 298 (1998) (applying Toomer standard).

The other cases relied on by plaintiffs «serve only brief

mention. For the most part, the cases involve conflicts

between state laws regulating some aspect of the liquor trade

and constitutional provisions other than the Commerce

Clause. See, e.g., 44 Liquormart, Inc., supra; Capital Cities

Cable, supra; Larkin v. Grendel's Den, Inc., 459 U.S. 116

(1982); Craig v. Boren, supra; Hostetter, supra. \n resolving

those conflicts, this Court has taken the unstartling position

that, however broad the authority conferred by the Twenty-

first Amendment, it does not permit States to regulate liquor

traffic without regard te values embodied in other consti-

tutional provisions like the First Amendment. As the Court

observed in Craig, “[o]nce passing beyond consideration of

the Commerce Clause, the relevance of the Twenty-first

Amendment to other constitutional provisions becomes

increasingly doubtful.” 429 U.S. at 206. The reverse is also

true: given that their challenges are specifically grounded in

the Commerce Clause, plaintiffs can find little support in

decisions with respect to different constitutional provisions.

The remaining few cases, though they do at least involve

the Commerce Clause, are scarcely more on point. To the

extent that States have argued that the Twenty-first Amend-

ment allows them to take actions affecting liquor pricing in

other States, see Healy v. The Beer Institute, 491 U.S. 324

(1989); Brown-Forman Distillers Corp. v. New York State

Liquor Authority, 476 U.S. 573 (1986), the Court has

expressed an obvious reluctance to endorse the authority of

one State to export its pricing structure to other States (who,

of course, have their own regulatory powers under the

Twenty-first Amendment). There is no such problem here:

29

nothing in the Michigan or New York laws “has the unde-

niable effect of controlling commercial activity occurring

wholly outside the boundary of the State.” Healy, 491 U.S. at

337. To the contrary, each State seeks only to exercise the

fullest control over what happens within the State itself,

protecting its ability to control distribution of alcohol against

the prospect of unrestrained direct sales from outside its

borders. And nothing in the Michigan or New York laws

brings into question the power of the Federal Government to

regulate interstate commerce with regard to alcoholic

beverages, an issue that necessarily requires definition of the

residual Commerce Clause power left to the Federal

Government after ratification of the Twenty-first Amend-

ment. See, e.g., Midcal Aluminum, supra. Indeed, to the

extent that federal power is implicated here, it supports, in the

form of the Webb-Kenyon Act, the proposition that in-state

sales requirements are constitutionally permissible.

In short, plaintiffs are simply mistaken that, except for laws

directly promoting temperance, the Commerce Clause re-

quires an open national marketplace for retail sale of alcohol

to consumers. To the contrary: the Twenty-first Amendment

authorized the States, not just to prohibit or depress sales of

alcohol, but to exercise strict control in order to combat the

well-known problems of unregulated sales. Rather than being

forced to deal with all potential liquor sellers nationwide,

States have the authority to insist that sales to consumers be

made only by those within the full reach of their regulatory

and taxing powers. The regulations at issue here plainly are a

legitimate exercise of that authority, and the Twenty-first

Amendment assures their validity.

30

CONCLUSION

The judgment of the Sixth Circuit in Nos. 03-1116 and 03-

1120 should be reversed. The judgment of the Second Circuit

in No. 03-1274 should be affirmed.

Respectfully submitted,

M. CRAIG WOLF H. BARTOW FARR, III

WINE AND SPIRITS Counsel of Record

WHOLESALERS OF AMERICA, INC. FARR & TARANTO

805 15th Street, N.W. 1220 19th Street, N.W.

Washington, D.C. 20005 Washington, D.C. 20036

(202) 371-9792 (202) 775-0184

Viet D. DINH

BANCROFT ASSOCIATES, PLLC

2121 Bancroft Place, N.W.

Washington, D.C. 20008

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