Opposition Brief — Swedenburg v. Kelly, Chairman, New York Division of Alcoholic Beverage Control, State Liquor Authority
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(2 FILED
MAR 19 2004
No. 03-1274
GRICE OFTHE CLERK
IN THE
Supreme Court of the United States
JUANITA SWEDENBURG, IN HER OWN CAPACITY,
ETAL.,
Petitioners,
Vv.
EDWAKD D. KELLY, CHAIRMAN OF THE STATE
LIQUOR AUTHORITY, DIVISION OF ALCOHOLIC
BEVERAGE CONTROL, STATE OF NEW YORK,
IN HIS OFFICIAL CAPACITIES, ET AL.,
Respondents.
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Second Circuit
BRIEF FOR PRIVATE RESPONDENTS
HOWARD GRAFF MIGUEL A. ESTRADA
DEBORAH A. SKAKEL Counsel of Record
VICTORIA A. KUMMER MARK A. PERRY
DICKSTEIN SHAPIRO GIBSON, DUNN & CRUTCHER LLP
MORIN & OSHINSKY LLP 1050 Connecticut Avenue, N.W.
1177 Avenue of the Americas Washington, DC 20036
New York, NY 10036 (202) 955-8500
(212) 835-1400 RANDY M. MASTRO
MICHAEL G. HONEYMAR, JR.
GIBSON, DUNN & CRUTCHER LLP
200 Park Avenue
New York, NY 10166
(212) 351-4000
Counsel for Private Respondents
[Names and addresses of additional counsel listed on inside cover]
ROBERT M. HELLER ALAN J. GARDNER
“KRAMER LEVIN NAFTALIS VERINI & GARDNER
& FRANKEL LLP 225 Broadway
919 Third Avenue New York, NY 10007
New York, NY 10022 (212) 227-1700
(212) 715-9100
J. WARREN MANGAN JOHN O’ MARA
O’ CONNOR & MANGAN P.C. DAVIDSON & O’ MARA, P.C.
One Hunter Street 243 Lake Street
Long Island City, NY 11101 Elmira, NY 14901
(718) 361-7950 (607) 733-4635
Counsel for Private Respondents
QUESTIONS PRESENTED
1. Whether New York may ban direct shipments of al-
coholic beverages from unlicensed, out-of-state suppliers to
in-state consumers as an exercise of its authority under the
Twenty-first Amendment. _
2. If not, whether New York’s direct shipping ban or the
exceptions to it violate the dormant Commerce Clause or the
Privileges and Immunities Clause of Article IV.
PARTIES TO THE PROCEEDINGS
Petitioners, plaintiffs-appellees below, are Juanita Swe-
denburg, in her own capacity, Juanita Swedenburg, as pro-
prietor of Swedenburg Winery, a Virginia partnership, David
Lucas, in his own capacity, David Lucas, as proprietor of The
Lucas Winery, a California sole proprietorship, Patrick G.
Fitzgerald, Cortes DeRussy, and Robin Brooks. Juanita
Swedenburg is a Virginia resident, David Lucas is a Califor-
nia resident, and Patrick G. Fitzgerald, Cortes DeRussy, and
Robin Brooks are New York residents.
State respondents, defendants-appellants below, are State
of New York officials Edward F. Kelly, Chairman of the
State Liquor Authority, Division of Alcoholic Beverage Con-
trol, State of New York, in his official capacity, and Law-
rence J. Gedda and Joseph Zarriello, Commissioners of the
New York State Liquor Authority, Division of Alcoholic
Beverage Control, State of New York, in their official
Capacities.
Private respondents, intervenor-defendants-appellants
below, are Charmer Industries, Inc., Peerless Importers Inc.,
Premier Beverage Company LLC, and Eber Brothers Wine
and Liquor Corp., each a New York-licensed alcoholic bev-
erage wholesaler, Local 2D of the Allied Food and Commer-
cial Workers International Union, a union comprised of
commissioned alcoholic beverage salespeople in the New
York-metropolitan area, and Metropolitan Package Store As-
sociation, Inc., a trade association of New York-licensed al-
coholic beverage retailers.
il
RULE 29.6 STATEMENT
Respondent Charmer Industries, Inc. has no parent cor-
poration, and there is no publicly held company that owns
10% or more of its stock.
Respondent Peerless Importers Inc. has one privately
held parent corporation, Little Quaker Corp., which owns
100% of Peerless Importers Inc. Quaker Equities Ltd., also
privately held, owns 100% of Little Quaker Corp. There is
no publicly held company that owns 10% or more of any
stock in Peerless Importers Inc.
Respondent Eber Brothers Wine & Liquor Corp. has one
privately held parent corporation, Eber Bros. & Co., which
owns 100% of Eber Brothers Wine & Liquor Corp. There is
no publicly held company that owns 10% or more of any
stock in Eber Brothers Wine & Liquor Corp.
Respondent Premier Beverage Company LLC has no
parent corporation, and there is no publicly held company
that owns 10% or more of its stock.
Respondent Metropolitan Package Store Association,
Inc. has no parent corporation, and there is no publicly held
company that owns 10% or more of its stock.
Respondent Local 2D of the Allied Food and Commer-
cial Workers International Union has no parent corporation,
and there is no publicly held company that owns 10% or
more of its stock.
iV
TABLE OF CONTENTS
ee eT NEE cceresintciesiiteacaaiiinsnteiaincii i
PARTIES TO THE PROCEEDINGS ....0....0.....cccccceceeseseeeeee il
ee a aN EIITITTD crietsieitcssincerasctininteiiptinnininhienimmsanaeaiaa ili
ey ee crcinsiiannicnscinninnsiniinineinintnsaassstceasitsnassintie iv
ET vi
TY wessesicsenrensiiniacintitinatiisiisiihiiiataaliainamattiia |
Fe erernscsnccennnncacinatisenieseeminiiaiansemistamenimetimeaiais |
OCC S Ge BOS GI cencctcccscsesessesssessenenstmapetmutemnnnie l
GENET cernntenetisnnsnetatiniasasentassantaninsaseiaimsmesamseseaas 7
I. There Is A Substantial Conflict Among The
Courts Of Appeals As To The Relationship
Between The Twenty-first Amendment And The
Dormant Commerce Clause .0.............ccccccccceceeecececeeeeeeneee 9
A. The Second And Seventh Circuits’ Mode Of
a 10
B. The Fourth, Fifth, Sixth, And Eleventh
Circuits’ Mode Of Analysis ...............cccccccceseeseeeeee 12
1. The Substantial Conflict Among The
Fourth, Fifth, Sixth, And Eleventh
Circuits Over The Level Of Scrutiny To
Be Applied In Connection With The
Second Step Of Their Analysis....................... 14
2. The Substantial Conflict Between The
Fourth And Sixth Circuits Over The
a Remedy Where A Violation Is
v
C. Even Under The Fourth, Fifth, Sixth, And
Eleventh Circuits’ Mode Of Analysis, New
York’s Statute Would Be Constitutional
Under Both The Dormant Commerce
Clause And The Twenty-first Amendment............ 16
Il. The Fourth, Fifth, Sixth, And Eleventh Circuits
Misapply This Court’s Twenty-first Amendment
JUTISPTUGENCE............0.cecsesererrersersneessnessessnsnsnsessensnsenenss 21
Ill. The Issues Raised By The Petition Are Of
Nationwide Importance ..............-:sceeeseeeeeeenereenerenenens 26
vi
TABLE OF AUTHORITIES
Cases
44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484
Sa veccesiceresheinesceinseesietnateiecieeitetiait icc tiaiatieaa 23
Bacchus Imports, Ltd. v. Dias, 468 U.S. 263
ST ctirsiinistuincsiecenscciienninenetnentaniaiea taieattataaemasisasaastsss 23, 24, 25
Bainbridge v. Turner, 311 F.3d 1104
EEE cere passim
Beskind v. Easley, 325 F.3d 506 (4th Cir. 2003)........... passim
Bowman v. Chicago & N.W. Ry. Co., 125 U.S. 465
Gee vasesnscsceneninisctmsennicnniesasuitel leneianteuneimnasubiitniattiigsnesnetined 4
Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th
Cir. 2000), cert. denied sub nom. Bridenbaugh v.
Carter, 532 U.S. 1002 (2001) .....cccccccccsccsccseseeseeseeees passim
Brockett v. Spokane Arcades, Inc., 472 U.S. 491
ipa ccvccatentensanasmnstinnnenanasteneasiastsininitipmsatastaatabinseieemesees 16
Brown & Williamson Tobacco Corp. v. Pataki, 320
ea aT AIT ncrustscrstnctrnnicecetianetinintaeicinissinininees 18, 19
Brown-Forman Distillers Corp. v. New York State
Liquor Auth., 476 U.S. 573 (1986)......ccccccccccceseeseeseeeeseeens 23
California Retail Liquor Dealers Ass'n v. Midcal
Aluminum, Inc., 445 U.S. 97 (1980).....ccccccccccseseee 22, 23, 26
Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691
Span sereteectteiiesnsnrcinaieenateniadintsianaitinaiaaiaaaaasiatiaanatiitiiai 23,24
Carter v. Virginia, 321 U.S. 131 (1944) wocccccccccccccccseseeeeeees 23
Craig v. Boren, 429 U.S. 190 (1976) ....cccccccccccecscseeeceeeeees 6, 23
Department of Revenue v. James B. Beam Distilling
aig re ey Se I et iteiinscerrnsnreicetinsinseintareniiiateiinteniis 23
Dickerson v. Bailey, 336 F.3d 388 (Sth Cir. 2003)....... passim
a
vii
Exxon Corp. v. Governor of Md., 437 U.S. 117
(19 TB) .cccseccceceseressceerenesesessvssonscscsnossossssenessosoosooeesossoes 19, 20
General Motors Corp. v. Tracy, 519 U.S. 278 (1997)......... 17
Heald v. Engler, 342 F.3d 517 (6th Cir. 2003),
petitions for cert. filed sub noms. Granholm v.
Heald, No. 03-1116 (docketed Feb. 4, 2004), and
Michigan Beer & Wine Wholesalers Ass'n v.
Heald, No. 03-1120 (docketed Feb. 4, 2004)............ passim
Healy v. Beer Inst., Inc., 491 U.S. 324 (1989) ......cseceseeeeee 23
Hostetter v. Idlewild Bon Voyage Liquor Corp.,
377 U.S. 324 (1964) .......0.recscrvrsrsvererrsrerseseresesseresenees 22, 24
Indianapolis Brewing Co. v. Liquor Control Comm n,
FOS U.S. 391 (1999) ..ecccsveevcscrsvescorevececcseccesssosssvescoscvosseeees 23
Itel Containers Int'l Corp. v. Huddleston, 507 U.S. 60
(19D3) .accccccsorosesesereesesosssccosssnsssssosesevousonessesossesossosossossoseees 17
Joseph S. Finch & Co. v. McKittrick, 305 U.S. 395
(1DBD) ..occcececscscsesessereseoscesesesecesossossosssssosonsosossooososonsocosoeees 23
Leavitt v. Jane L., 518 U.S. 137 (1996)......:ccccccceeereeereeeeeeeees 16
Leisy v. Hardin, 135 U.S. 100 (1890) ........ccsssseersrseserererenenes 4
Mahoney v. Joseph Triner Corp., 304 U.S. 401
(1GBE) .eccosesccccesecesevrereecsceessesssnssssssssssessscsnsssosesosoessoooeee 21, 22
McKesson Corp. v. Division of Alcoholic Beverages
& Tobacco, 496 U.S. 18 (1990) .....ccccccccccccerceeeeeeeeeeernees 16
Milton S. Kronheim & Co. v. District of Columbia, 91
F.3d 193 (D.C. Cir. 1996) ......cccccccscccsscerrevcesesessersserorsoenes 13
North Dakota v. United States, 495 U.S. 423
(1990) ..xccccccsosvceeesersosencevsocsoscoscssosossossossssosssssesoooes 20, 25, 26
Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1868),
overruled in part by United States v. South-Eastern
Underwriters Ass'n, 322 U.S. 533 (1944).....cccccccccecseeeeees 29
Vill
Saas V. Roe, SZB U.S. 4B9 (ADH) ....eccseseccrceseresccecccesecceeseese 29
State Bd. of Equalization v. Young's Market Co., 299
Seah Sara encinerarentensnctniinasiiiniitiehiaitaininniintnaipineeanaiids 21, 22, 24
Toomer v. Witsel!, 334 U.S. 385 (1948)........ccccccccsseeeseeeeseees 29
Wardair Canada Inc. v. Florida Dep't of Revenue,
Pe : 1 Carat cnsincsstensesiieitiatniahtasraditindtiabtianaesiceinpienistinionnaiimees 17
Ziffrin, Inc. v. Reeves, 308 U.S. 132 (1939) ........ccccceceee. 23, 24
Zobel v. Williams, 457 U.S. 55 (1982) .......ccccccccccescseesesseseees 29
Constitutional Provisions
8 FG § oe passim
Fee 8 8 passim
CR BS | eee passim
Statutes
Sa Nn SUIT abelian iaichabitainatataiat 5
Spor ETuTaiarh Uk I ciietnieiatiadinicneiiecieitiieinebaiiahnianatailininaii 5,17
SF es ae ee inseeieisiieieistieieiiinininiiieiieaiaciiaiaaiasingina aie 17
| __ l
N.Y. Alco. Bev. Cont. Law §§ 1 ef S€q. ........ccccccccsseesseseeeeeeees ]
Te 20
a I I) PI Diesiiesinsetntereeninersnemnemeneninieamananeil 8
en 8
N.Y. Alco. Bev. Cont. Law § 77 .......ccscccscsssssesssssssscsseees a
as GE I i eritrsisinrnirensiiniideiiniiaiiniil 8
Se Re ET eee passim
ec Gan Ts ey SY Oe i iiteineiitisienaiiniitneieichetiaali 8
ee 16
a tee Pee ee ee wee ne
BRIEF FOR PRIVATE RESPONDENTS
The private respondents respectfully submit that the peti-
tion for a writ of certiorari should be granted.
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. 1a-33a) is
reported at 358 F.3d 223 (2d Cir. 2004). The opinion of the
district court granting summary judgment for petitioners (Pet.
App. 34a-71a) is reported at 232 F. Supp. 2d 135 (S.D.N.Y.
2002). The order of the district court entering judgment for
petitioners (Pet. App. 72a-73a) is not reported.
JURISDICTION
The judgment below was entered on February 12, 2004.
Pet. App. la. The jurisdiction of this Court is invoked under
28 U.S.C. § 1254(1).
STATEMENT OF THE CASE
1. Shortly after Prohibition’s repeal in 1933 by the
Twenty-first Amendment, New York enacted its Alcoholic
Beverage Control Law (“ABC Law”), N.Y. Alco. Bev. Cont.
Law §§ 1 et seg. (McKinney 2000 & Supp. 2004). As did
most States, New York adopted a “three-tier” regulatory sys-
tem for distribution of alcoholic beverages. Under this sys-
tem — the heart of which is found in ABC Law §§ 102(1)(c)
and (d) — all alcoholic beverages imported into New York
must be shipped to parties licensed by and, thus, accountable
to, the State. Specifically, out-of-state producers of alcoholic
beverages sell their products to New York-licensed whole-
salers, who then sell them to New York-licensed retailers,
who, in turn, sell them to in-state consumers. Thus, under
New York’s ABC Law, unlicensed, out-of-state purveyors of
alcohol cannot legally ship their products to consumers lo-
cated within New York State. In contrast, the ABC Law
does permit licensed, in-state wineries to ship alcohol di-
2
rectly to in-state consumers. These same licenses also are
available to out-of-state wineries, provided they establish a
presence in New York and comply with its laws.
2. On February 3, 2000, petitioners Juanita Swedenburg
and David Lucas, proprietors of wineries located in Virginia
and California, respectively, and petitioners Patrick Fitzger-
ald, Cortes DeRussy, and Robin Brooks, three wine consum-
ers resident in New York, filed suit against three officials
from the New York State Liquor Authority — the agency
charged with administering and enforcing the ABC Law - in
the United States District Court for the Southern District of
New York. Petitioners sought a declaration that ABC Law
§§ 102(1)(c) and (d) were unconstitutional under the dormant
Commerce Clause and the Privileges and Immunities Clause
of Article IV because they prohibit unlicensed wineries from
shipping their wine products directly to New York con-
sumers, while other provisions of the ABC Law permit
licensed, in-state wineries to make such shipments. '
Thereafter, private respondents were granted leave to in-
tervene in the action as defendants, and the parties cross-
moved for summary judgment. The district court granted pe-
titioners’ motion. Pet. App. 34a. Relying on the two-tier
analysis used by a number of other federal courts in similar
challenges, the district court first found that New York’s re-
gime directly discriminated against interstate commerce. Jd.
at 53a-54a. The court then held that New York’s ban on di-
rect shipment of out-of-state wine by unlicensed wineries did
not “implicate the State’s core concerns under the Twenty-
' Petitioners also contended, and both the district court and
Second Circuit held, that ABC Law § 102(1)(a) violated the First
Amendment insofar as it impermissibly banned out-of-state pur-
veyors of alcoholic beverages from soliciting orders from New
York consumers. This issue is not before the Court.
3
first Amendment” and, thus, the ban was not insulated from
invalidation under the dormant Commerce Clause. Jd. at 59a.
The court did not reach petitioners’ assertion that New
York’s law also violated the revenge & and Immunities
Clause of Article IV.
After further submissions and oral argument regarding
the appropriate remedy for the dormant Commerce Clause
violation, the district court entered judgment enjoining the
State respondents from enforcing ABC Law §§ 102(1)(c) and
(d) with respect to wine. Pet. App. 72a. The district court,
however, stayed its judgment pending appeal. /d. at 73a.
3. Respondents timely appealed to the Second Circuit, a
unanimous panel of which reversed the district court’s deci-
sion with respect to petitioners’ dormant Commerce Clause
and Privileges and Immunities Clause claims.
a. The Second Circuit began its analysis by recognizing
t “[flive other circuits have decided similar cases”
recently. Jd. at lla & n.6. (citing Heald v. Engler, 342 F.3d
517 (6th Cir. 2003), petitions for cert. filed sub noms.
Granholm v. Heald, No. 03-1116 (docketed Feb. 4, 2004),
and Michigan Beer & Wine Wholesalers Ass'n v. Heald, No.
03-1120 (docketed Feb. 4, 2004); Dickerson v. Bailey, 336
F.3d 388 (Sth Cir. 2003); Beskind v. Easley, 325 F.3d 506
(4th Cir. 2003); Bainbridge v. Turner, 311 F.3d 1104 (11th
Cir. 2002); Bridenbaugh v. Freeman-Wilson, 227 F.3d 848
(7th Cir. 2000)). In each of these cases, plaintiffs challenged
a state regulatory scheme that prohibited out-of-state
wineries from shipping their wines directly to in-state
consumers, but permitted local wineries to make such
shipments.
The Second Circuit further recognized that two distinct
modes of analysis had developed among the courts in ad-
dressing this issue. Under one mode of analysis — applied by
the Fourth, Fifth, Sixth, and Eleventh Circuits, and by the
district court below — the challenged statute is first examined
in the context of the dormant Commerce Clause to determine
4
whether the statute discriminates against or unduly burdens
interstate commerce. Pet. App. 12a. If the statute is found to
violate the dormant Commerce Clause, the court then consid-
ers whether the statute nevertheless can be “saved” by the
Twenty-first Amendment. For the statute to be “saved,” it
must be found to advance one of the Twenty-first Amend-
ment’s “‘core concerns.’” Jd. Applying this two-step ap-
proach, these circuit courts, and the district court in this case,
struck down the regulatory schemes in question.”
Rejecting this mode of analysis as “flawed” because it
failed to give proper deference to the authority granted the
States by Section 2 of the Twenty-first Amendment, the Sec-
ond Circuit adopted the.approach of the Seventh Circuit in
Bridenbaugh. Id. at 12a-13a (“We adopt this approach ac-
knowledging that only one other circuit court has employed it
in a similar case.”’) (citing Bridenbaugh, 227 F.3d 848). This
“mode of inquiry considers the scope of the Twenty-first
Amendment’s grant of authority to the states to determine
whether the challenged statute is within the ambit of that au-
thority, such that it is exempted from the effect of the dor-
mant Commerce Clause.” Jd. at 13a.
b. Explaining its focus on the Twenty-first Amendment,
the Second Circuit focused first on the “[l]egal [h]istory” of
that Amendment. /d. at 14a. The court noted that because
the States’ pre-Prohibition efforts to control the production
and consumption of alcohol often.conflicted with this Court’s
dormant Commerce Clause jurisprudence, see id. (citing
Bowman v. Chicago & N.W. Ry. Co., 125 U.S. 465 (1888);
Leisy v. Hardin, 135 U.S. 100 (1890)), Congress responded
by enacting two statutes designed to expand state power. In
2 The Eleventh Circuit in Bainbridge reversed the district
court’s dismissal of such a constitutional challenge to Florida’s di-
rect shipping ban and remanded the case for further factfinding.
ee eee ee ae
5
the Wilson Act, ch. 728, 26 Stat. 313 (1890) (codified at 27
U.S.C. § 121 (2000)), Congress gave States the authority to
regulate imported liquor “‘to the same extent and in the same
manner as though such liquids or liquors had been produced
in such State or Territory,’” and it provided that such liquor
could “‘not be exempt [from state regulation] by reason of
being introduced therein in original packages or otherwise.’”
Pet. App. 14a (quoting 27 U.S.C. § 121) (emphasis in origi-
nal). Moreover, in the Webb-Kenyon Act, ch. 90, 37 Stat.
699 (1913) (codified at 27 U.S.C. § 122 (2000)), Congress
prohibited “‘the shipment or transportation, in any manner or
by any means whatsoever, of any . . . liquor of any kind, from
one State... into any other State which... is intended, by
any person interested therein, to be received, possessed, sold,
or in any manner used, either in the original package or oth-
erwise, in violation of any law of such State.’” Pet. App. 15a
(quoting 27 U.S.C. § 122) (omissions in original).
The court further noted that the language of Section 2 of
the Twenty-first Amendment closely tracked the language of
the Wilson and Webb-Kenyon Acts, providing that “‘[t}he
transportation or importation into any State, Territory, or
possession of the United States for delivery or use therein of
intoxicating liquors, in violation of the laws thereof” is pro-
hibited. Jd. at 15a-16a (quoting U.S. Const. amend. XX],
§ 2). In other words, as the court stated: “Section 2 effec-
tively constitutionalizes most state prohibitions regulating
importation, transportation, and distribution of alcoholic bev-
erages from the stream of interstate commerce into the state.”
Id. at 16a.
c. Next, the court engaged in an historical analysis of
this Court’s Twenty-first Amendment jurisprudence. The
court examined both “early” and “contemporary” lines of this
Court’s cases, and, disagreeing with appellate decisions such
as Heald, found that all of this Court’s cases support the
proposition that Section 2 of the Twenty-first Amendment
grants States the plenary authority to regulate the transporta-
tion or importation of alcohol within their borders. Pet. App.
6
18a-19a, 23a-24a; id. at 23a (stating that in each of its con-
temporary cases this “Court unequivocally reaffirmed the
principle that insofar as section 2 [of the Twenty-first
Amendment] permits each state to regulate alcoho! traffic
within its borders it ‘primarily created an exception to the
normal operation of the Commerce Clause.’” (quoting Craig
v. Boren, 429 U.S. 190, 206 (1976)).
d. Applying these principles to the challenged statute,
the Second Circuit held that “New York’s regulatory regime
falls squarely within the ambit of section 2’s grant of author-
ity.” Jd. at 25a. The court further found that (i) New York’s
statutory scheme “regulates only the importation and distri-
bution of alcoho! in New York,” (ii) “New York’s prohibi-
tion of the sale and shipment of wine by unlicensed wineries
directly to New York consumers serves valid regulatory in-
terests,” (iii) there was “no indication, based on the facts pre-
sented here, that the regulatory scheme is intended to favor
local interests over out-of-state interests,” (iv) New York’s
regulatory scheme was not discriminatory because “(alll
wineries, whether in-state or out-of-state, are permitted to ob-
tain a license as long as the winery establishes a physical
presence in the state,” and (v) the ABC Law’s mandate that
all licensees establish a physical presence in the State served
valid regulatory functions such as ensuring that those traf-
ficking in alcohol are accountable to the State. Jd. at 25a-
29a.
e. The Second Circuit, finding that New York’s regula-
tory scheme did not discriminate on the basis of residency,
then rejected petitioners’ claim that, in addition to violating
the dormant Commerce Clause, New York’s prohibition
against direct shipping also ran afoul of the Privileges and
Immunities Clause of Article IV. Jd. at 29a-30a.
f. The Second Circuit thus reversed the district court’s
grant of summary judgment in favor of petitioners on their
dormant Commerce Clause and Privileges and Immunities
Clause claims.
7
ARGUMENT
The petition should be granted because it raises recurrent
and important constitutional issues having nationwide rami-
fications.
Principal among these issues is the scope of the authority
granted the States under Section 2 of the Twenty-first
Amendment to ban direct shipments of alcohol imports.
There is a substantial conflict among the circuits that have
addressed this fundamental issue, both as to the mode of
analysis and as to the result. The Second and Seventh Cir-
cuits, applying the plain language of the Twenty-first
Amendment, have upheld state direct shipping bans on alco-
hol imports. In contrast, the Fourth, Fifth, and Sixth Circuits,
first applying a dormant Commerce Clause analysis to such
regulations, have struck them down. The Eleventh Circuit,
also first applying a dormant Commerce Clause analysis, re-
manded the case before it for further factfinding to determine
whether such a direct shipping ban furthered any legitimate
state interests protected by the Twenty-first Amendment.
Moreover, those circuit courts that struck down state direct
shipping restrictions on “dormant” Commerce Clause
grounds failed to address the fact that Congress has affirma-
tively authorized the States to enact such bans — separate and
apart from the rights that States enjoy under the Twenty-first
Amendment. Accordingly, there is a compelling need for
this Court to review these important issues.
Indeed, this Court now has before it petitions seeking re-
view of the Sixth Circuit's decision striking Michigan’s di-
rect shipping ban. Heald v. Engler, 342 F.3d 517 (6th Cir.
2003), petitions for cert. filed sub noms. Granholm v. Heald,
No. 03-1116 (docketed Feb. 4, 2004), and Michigan Beer &
Wine Wholesalers Ass'n v. Heald, No. 03-1120 (docketed
Feb. 4, 2004). Although there is a significant degree of over-
lap in the issues raised by those petitions and by the petition
in this case, this case also raises somewhat different issues
because under New York law, unlike Michigan law, out-of-
8
state wineries may obtain licenses to ship their products on
the same terms as in-state wineries simply by establishing a
presence in the State.’ Moreover, in reaching their respective
holdings, the Second and Sixth Circuits employed different
modes ©* s1alysis, with the Second Circuit focusing primar-
ily on tnx 4 wenty-first Amendment and the Sixth Circuit fo-
cusing primarily on the dormant Commerce Clause. For
these reasons, this Court’s consideration of the related issues
raised by all currently pending petitions may be illuminated
by reviewing both the Second and Sixth Circuits’ judgments
in these cases, rather than one or the other. Given the num-
> That factor may be significant in this Court’s analysis.
Thus, for example, although the Fourth Circuit applied a two-step
analysis to invalidate an outright ban coupled with exceptions for
in-state wineries, it agreed that a statutory scheme such as New
York’s that permits out-of-state wineries to obtain licenses allow-
ing them to ship directly to in-state consumers would be constitu-
tional. See Beskind, 325 F.3d at 516 (“North Carolina could sat-
isfy its concerns by requiring out-of-state wineries to import their
wine into North Carolina to an in-state location and by treating that
location in the same manner as it treats in-state winery locations.”);
see also Pet. App. 13a n.7 (stating that “the Fourth Circuit offered
a possible nondiscriminatory alternative to North Carolina’s statute
that is remarkably similar to the New York scheme”).
Petitioners assert that “[nJo license is available to out-of-
state producers to traffic in alcoholic beverages,” but that conten-
tion is mistaken. Pet. 2. As the Second Circuit below expressly
found: “All wineries, whether in-state or out-of-state, are permit-
ted to obtain a license as long as the winery establishes a physical
presence in the state.” Pet. App. 25a. “Thus, unlike in other
states, out-of-state wineries are permitted to seek and obtain a New
York license to distribute and sell alcohe!.” Jd. at 8a (footnote
omitted); see also N.Y. Alco. Bev. Cont. Law §§ 3(37), 76 (Pet.
App. 86a-90a), 77(1)-(2), 96, 116; Jt. App. 1564-65, ¢ 43.
9
ber of issues raised by both judgments — and the number of
public and private parties in each case — private respondents
respectfully suggest that the Court grant review in both sets
of petitions and, rather than consolidate them, set the two
cases for argument in tandem.
I. There Is A Substantial Conflict Among The Courts
Of Appeals As To The Relationship Between The
Twenty-first Amendment And The Dormant Com-
merce Clause
By its plain language, Section 2 of the Twenty-first
Amendment “prohibit{s]” the “transportation or importation
Indeed, since 2000, six Courts of Appeals — those for the
Second, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits — have
issued decisions involving challenges to state alcoholic beverage
control laws that prohibit out-of-state wineries from shipping their
wines directly to in-state consumers but permit local wineries to
make such shipments. Four of these decisions were handed down
within the last year alone.
10
A. The Second And Seventh Circuits’ Mode Of
Analysis
The opinion below represents the most recent decision
by a federal appeals court addressing state regulation of alco-
hol imports. In its opinion, the Second Circuit flatly (and
correctly) rejected as “flawed” the analysis adopted by the
Fourth, Fifth, Sixth, and Eleventh Circuits focusing, in the
first instance, on the dormant Commerce Clause “because it
has the effect of unnecessarily limiting the authority dele-
gated to the states through the clear and unambiguous lan-
guage of section 2 [uf the Twenty-first Amendment].” Pet.
App. 12a-13a (footnote omitted).
Instead, the Second Circuit adopted the approach taken
by the Seventh Circuit in Bridenbaugh, 227 F.3d 848. This
“mode of inquiry considers the scope of the Twenty-first
Amendment’s grant of authority to the states to determine
whether the challenged statute is within the ambit of that au-
thority, such that it is exempted from the effect of the dor-
mant Commerce Clause.” Jd. at 13a.
The inquiry, in our view, should not allow the pro-
tective doctrine of the dormant Commerce Clause to
subordinate the plain language of the Twenty-first
Amendment. Instead, the inquiry should be sensi-
tive to the manner in which these two constitutional
forces interact in light of the impact the Twenty-first
Amendment has on dormant Commerce Clause con-
cerns.
Id. at 13a-14a. “Allowing dormant Commerce Clause con-
cerns to restrict state regulatory schemes that focus on the
importation of liquor would render section 2 a nullity.” Id. at
16a.
ee
. —- — =. 3 a
11
In Bridenbaugh, plaintiffs challenged the constitutional-
ity of an Indiana statutory scheme that prohibited the direct
shipment of alcoholic beverages from out-of-state suppliers
to in-state consumers. Focusing on the “text and history” of
the Twenty-first Amendment, Judge Easterbrook wrote for
the Seventh Circuit that the Indiana statute was a valid exer-
cise of that State’s plenary power under the Twenty-first
Amendment, which directly authorizes States “to control al-
cohol in ways that it cannot control cheese.” 227 F.3d at
851.
No longer may the dormant commerce clause be
read to protect interstate shipments of liquor from
regulation; §2 [of the Twenty-first Amendment]
speaks directly to these shipments. Indeed, all “im-
portation” involves shipments from another state or
nation. Every use of § 2 could be called “discrimi-
natory” in the sense that plaintiffs use that term, be-
Cause every statute limiting importation leaves intra-
State commerce unaffected. If that were the sort of
discrimination that lies outside state power, then § 2
would be a dead letter.
No decision of the Supreme Court holds or im-
plies that laws limited to the importation of liquor
are problematic under the dormant commerce
clause.
* Judge Easterbrook expressly rejected the parties’ invitation
in Bridenbaugh to consider the “‘core purposes” of Section 2 of
the Twenty-first Amendment: “If ‘core concerns’ spelled the dif-
ference, we would follow the Supreme Court rather than district
courts and student notes. But our guide is the text and history of
the Constitution, not the ‘purposes’ or ‘concerns’ that may or may
not have animated its drafters.” Bridenbaugh, 227 F.3d at 851.
12
Id. at 853 (emphasis in original). The Seventh Circuit so
held, even though local Indiana wineries, like wineries in
New York and some other States, are permitted to ship di-
rectly to in-state consumers while their out-of-state counter-
parts are not. See id. at 853 (“holders of Indiana wine whole-
saler or retailer permits may deliver directly to consumers’
homes”); id. at 851 (“Indiana permits local wineries, but not
wineries ‘in the business of selling . . . in another state or
country,” to ship directly to Indiana consumers.”) (omission
in original).°
B. The Fourth, Fifth, Sixth, And Eleventh Circuits’
Mode Of Analysis
Notwithstanding the plain language of the Twenty-first
Amendment, the Fourth, Fifth, Sixth, and Eleventh Circuits
essentially treat alcohol no differently for constitutional pur-
poses than any other product. Presented with a dormant
Commerce Clause challenge to a state alcohol importation
law, those courts incorrectly applied a two-step analysis.
Those courts began with a traditional dormant
Commerce Clause analysis, examining whether the statute in
° Although plaintiffs in Bridenbaugh sought review of the
Seventh Circuit’s decision before this Court, the Court
appropriately denied the petition, there being no split among the
circuits at the time, and the Seventh Circuit having reached the
correct holding after properly applying this Court's precedents.
See Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (2000), cert.
denied sub nom. Bridenbaugh v. Carter, 532 U.S. 1002 (2001).
Review by this Court, however, is now urgently needed given the
circuit split that has developed, and widened, since Bridenbaugh
was decided. Moreover, as explained herein, this petition, together
with the petitions in connection w.th Heald, represent the proper
vehicles for this Court to resolve the split.
13
question affects interstate commerce in a manner that either
(i) discriminates against interstate commerce, or (ii) imposes
burdens on interstate commerce that are incommensurate
with putative local gains. See Heald, 342 F.3d at 524-25;
Dickerson, 336 F.3d at 400; Beskind, 325 F.3d at 514;
Bainbridge, 311 F.3d at 1108-09. If such a violation is
found, the challenged statute may nonetheless be “saved” by
the Twenty-first Amendment, but only if it advances one of
the Amendment’s “core concerns.” See Heald, 342 F.3d at
524-26; Dickerson, 336 F.3d at 403-07; Beskind, 325 F.3d at
513-14; Bainbridge, 311 F.3d at 1108.’
Applying this two-tier analysis, those courts held that
each of the challenged statutes regulating the importation of
alcoholic beverages was facially discriminatory in violation
of the dormant Commerce Clause. Heald, 342 F.3d at 525:
Dickerson, 336 F.3d at 402-03; Beskind, 325 F.3d at 515;
Bainbridge, 311 F.3d at 1109-11. Moreover, three of these
courts held that the challenged statutes were not saved by the
Twenty-first Amendment, Heald, 342 F.3d at 526-27:
Dickerson, 336 F.3d at 403-07; Beskind, 325 F.3d at 516-17,
and the remaining court remanded the case for further fact-
finding, see Bainbridge, 311 F.3d at 1115-16.
” In Milton S. Kronheim & Co. v. District of Columbia, 91
F.3d 193 (D.C. Cir. 1996), the D.C. Circuit, also applying a two-
step analysis, found that the District of Columbia’s statute at issue
(requiring District-licensed wholesalers to store all alcoholic bev-
erages within the District) would have otherwise violated the dor-
mant Commerce Clause but that the statute was saved by the
Twenty-first Amendment — even though the legislature operated
with a “mixed motive” in enacting it — because the “legitimate
State interests” promoted by the statute “fall{] squarely within the
state’s core enforcement powers over alcohol.” /d. at 200-04.
14
1. The Substantial Conflict Among The Fourth,
Fifth, Sixth, And Eleventh Circuits Over The
Level Of Scrutiny To Be Applied In Connec-
tion With The Second Step Of Their Analysis
Although the Fourth, Fifth, Sixth, and Eleventh Circuits
agreed that a two-step mode of analysis should apply to the
review of a dormant Commerce Clause challenge to a State’s
ban on direct shipment of alcohol imports, they disagreed on
the appropriate level of scrutiny to be applied in connection
with the second step of determining whether the Twenty-first
Amendment permits the State’s actions. Specifically, the
Fourth, Fifth, and Sixth Circuits applied a “strict scrutiny”
standard typically seen in cases involving restrictions on
speech to require the State’s action to be “narrowly tailored”
to the “least restrictive” alternative necessary to address the
State’s legitimate concerns. See Heald, 342 F.3d at 524-26;
Dickerson, 336 F.3d at 406; Beskind, 325 F.3d at 514-16.°
In contrast, the Eleventh Circuit, recognizing that the
Twenty-first Amendment mandates that substantial deference
be afforded state statutes regulating the importation of alco-
hol, applied a “far” lower standard. Bainbridge, 311 F.3d at
1114 n.17. In the Eleventh Circuit’s view, the State “need
not show that there are no nondiscriminatory alternatives
available.” Jd. Rather, it must demonstrate that its statutory
scheme is “closely related” to a core power under the
Twenty-first Amendment and not a pretext for mere eco-
nomic protectionism — a burden that is “‘far less than the strict
scrutiny required under a traditional tier-one [dormant Com-
merce Clause] analysis.” Jd. at 1106, 1114 n.17; see also id.
at 1112-15.
8 In the decision reversed by the Second Circuit, the district
court also applied a “strict scrutiny” standard. Pet. App. 51a-64a.
Se ee SE
15
2. The Substantial Conflict Between The
Fourth And Sixth Circuits Over The Proper
Remedy Where A Violation Is Found
Although the Fourth and Sixth Circuits agreed on the
two-step mode of analysis and the level of scrutiny to be ap-
plied in connection with the second step, they disagreed on
the proper remedy to be applied where the challenged statute
is found to be unconstitutional.
In Beskind, plaintiffs challenged the constitutionality of
North Carolina’s laws prohibiting out-of-state alcohol pro-
ducers from shipping their products directly to in-state con-
sumers but allowing in-state producers to make such ship-
ments. Unlike New York, North Carolina did not provide a
mechanism by which an out-of-state winery could obtain an
in-state license that would permit it to ship directly to in-state
consumers. See Beskind, 325 F.3d at 515. The Fourth Cir-
cuit found that “the combination of the prohibition of direct
shipment and the law permitting local wineries to circumvent
[that] prohibition” amounted to a dormant Commerce Clause
violation. Jd. at 518 (emphasis in original). Recognizing that
state three-tier systems such as North Carolina’s were “long-
standing” “scheme[s] authorized by the Twenty-first
Amendment,” the Fourth Circuit preserved those provisions
of North Carolina’s regulatory scheme requiring alcoholic
beverages to be imported through in-state, licensed parties —
provisions enacted shortly after the 1933 repeal of Prohibi-
tion — and struck only the more recently enacted provisions
allowing in-state producers to ship directly to in-state con-
sumers. Jd. at 516, 519.°
* Even if New York’s ABC Law were found to violate the
dormant Commerce Clause because it permits licensed, in-state
wineries to ship directly to in-state consumers while prohibiting
unlicensed, out-of-state wineries from doing so, the only proper
16
The Sixth Circuit in Heald took a different approach.
Like North Carolina, Michigan adopted a three-tier system of
alcohol distribution shortly after the repeal of Prohibition
and, decades later, adopted provisions permitting in-state
producers to ship alcohol directly to in-state consumers.
Unlike the Fourth Circuit, however, the Sixth Circuit effec-
tively struck Michigan’s long-standing three-tier system, and
not the subsequently enacted exceptions permitting in-state
producers to ship directly to in-state consumers. See Heald,
342 F.3d at 527-28.
C. Even Under The Fourth, Fifth, Sixth, And Elev-
enth Circuits’ Mode Of Analysis, New York’s
Statute Would Be Constitutional Under Both The
Dormant Commerce Clause And The Twenty-
first Amendment
Even under the two-tier approach adopted by these other
circuits, New York’s statutory scheme would pass constitu-
tional muster.
Focusing first on the Commerce Clause, New York’s
statutory scheme would not violate the dormant Commerce
Clause. Indeed, the dormant Commerce Clause is not appli-
cable here because Congress has repeatedly exercised its ple-
nary power under the Commerce Clause and expressly au-
remedy would be that which the Fourth Circuit employed in
Beskind — that is, to sever and strike New York’s in-state delivery
exemptions, leaving intact its overall and long-standing prohibition
on direct shipping. That is particularly so where, as here, the stat-
ute at issue contains a severability clause. See N.Y. Alco. Bev.
Cont. Law § 161; Leavitt v. Jane L., 518 U.S. 137, 143-44 (1996)
(per curiam); Brockett v. Spokane Arcades, Inc., 472 U.S. 491,
506-07 (1985); see also McKesson Corp. v. Division of Alcoholic
Beverages & Tobacco, 496 U.S. 18, 39-40, 51-52 (1990).
17
thorized States to pass statutes such as ABC Law § 102.'°
For example, the Webb-Kenyon Act, which was enacted by
Congress in 1913, and reenacted without change by Congress
in 1935 after the end of Prohibition and ratification of the
Twenty-first Amendment, is, by its very title, an “[a]n act di-
vesting intoxicating liquors of their interstate character in
certain cases.” 27 U.S.C. § 122.'' Moreover, in 2000, Con-
gress, again acting pursuant to its plenary authority under the
Commerce Clause, amended the Webb-Kenyon Act to au-
thorize federal court injunctions to enforce state bans on di-
rect shipments of alcohol from unlicensed, out-of-state pur-
veyors to in-state consumers. See 27 U.S.C. § 122a (Twenty-
first Amendment Enforcement Act, Pub. L. No. 106-386,
§ 2004, 114 Stat. 1464, 1546 (2000)). Thus, this congres-
'0 The dormant aspect of the Commerce Clause arises from a
negative inference from the constitutional grant to Congress to
regulate commerce. U.S. Const. art. I, § 8, cl. 3. The dormant
Commerce Clause prohibits state laws that discriminate against or
unduly burden interstate commerce in the absence of express Con-
gressional authorization. See General Motors Corp. v. Tracy, 519
U.S. 278, 287 (1997). Thus, it is axiomatic that the dormant
Commerce Clause “only operates where the Federal Government
has not spoken.” Wardair Canada Inc. v. Florida Dep't of Reve-
nue, 477 U.S. 1, 12 (1986); accord Itel Containers Int’] Corp. v.
Huddleston, 507 U.S. 60, 76 (1993).
'' In clear and unambiguous terms, the Webb-Kenyon Act
provides that the “shipment or transportation... of
any ... intoxicating liquor... from one State... into any other
State ...in violation of any law of such State . . . is prohibited.”
27 U.S.C. § 122. :
18
sional authorization precludes application of a dormant
Commerce Clause analysis here."
The Fourth, Fifth, Sixth, and Eleventh Circuits neverthe-
less applied a dormant Commerce Clause analysis to the
challenged statutes before them. They all found that those
statutes were discriminatory on their face and, thus, virtually
per se invalid. Heald, 342 F.3d at 525, Dickerson, 336 F.3d
at 402-03; Beskind, 325 F.3d at 515; Bainbridge, 311 F.3d at
1109-11.
In contrast, the Second Circuit recognized that, far from
being facially discriminatory, New York’s direct shipping
ban applies evenhandedly to all shipments of alcoholic bev-
erages, whether from within or without the State. Pet. App.
8a, 25a; see also N.Y. Alco. Bev. Cont. Law § 102(1)(c)-(e)
(Pet. App. 80a-82a). Thus, New York’s ABC Law is facially
neutral. See Brown & Williamson Tobacco Corp. v. Pataki,
320 F.3d 200 (2d Cir. 2003). Moreover, New York’s limited
exceptions that authorize licensed, in-state wineries to ship
their wines directly to consumers are not discriminatory be-
cause, as the Second Circuit recognized, “fall wineries,
whether in-state or out-of-state, are permitted to obtain a li-
cense as long as the winery establishes a physical presence in
2 The Second Circuit below cited this congressional authori-
zation. Pet. App. 15a. In contrast, the Eleventh Circuit rejected
this congressional authorization argument on the flawed reasoning
that it was a nullity in light of the Twenty-first Amendment's pas-
sage, even though this legislation was reenacted thereafter.
Bainbridge, 311 F.3d at 1110-11. To the extent that other circuits
(including the Sixth Circuit in Heald) ignored these federal statutes
and looked first to the dormant Commerce Clause, they erred be-
cause the Twenty-first Amendment and statutes such as the Webb-
Kenyon Act preclude application of the dormant Commerce
Clause here.
19
the state.” Pet. App. 25a. “Thus, unlike in other states, out-
of-state wineries are permitted to seek and obtain a New
York license to distribute and sell alcohol. They must, how-
ever, comply with the licensing requirements of the ABC
Law, including establishing and maintaining a physical pres-
ence in New York.” /d. at 8a (footnote omitted). As the
Second Circuit explained in upholding New York’s identical
cigarette distribution laws, “neither the [s]tatute’s closure of
a sales channel . . . nor the [s]tatute’s delivery exemption dis-
criminates against interstate commerce, facially or other-
wise,” Brown & Williamson Tobacco, 320 F.3d at 210, and
the fact that out-of-state suppliers may find it “‘unworkable’
and ‘uneconomic’ for them to establish brick-and-mortar out-
lets in New York . . . is insufficient to establish a discrimina-
tory effect,” id. at 212 (citing Exxon Corp. v. Governor of
Md., 437 U.S. 117, 127-28 (1978) (stating that “the [Com-
merce] Clause protects the interstate market, not particular
interstate firms, from prohibitive or burdensome regulations”
and that “interstate commerce is not subjected to an imper-
missible burden simply because an otherwise valid regulation
causes some business to shift from one interstate supplier to
another”)).'°
‘Moreover, as even petitioners’ experts acknowledged, the
New York wine market is “already served by more competition
than nearly any other.” Jt. App. 851-52. Out-of-state wineries can
distribute their products here by using any of New York’s more
than 200 licensed wholesalers, obtaining their own New York
wholesale or winery license, or distributing through a licensed
winery. Jd. at 1459-60, 9 57, 1564-66, 19 43-44. Asa result, more
than 90% of all wine sold in New York comes from out-of-state.
fd. at 851-54, 860, 862, 866, 1039-40, 1083-84, 1444-45, 99 26-27
& n.25. In fact, less than 1% of the wine sold in New York is di-
rect shipped. Jd. at 1444-46, 9] 26, 28, 3936, 4 2, 3938-39, 4 10.
Indeed, petitioners conceded below that New York’s ABC Law
20
Furthermore, for the reasons previously explained, the
Twenty-first Amendment saves New York’s statute in any
event. Indeed, as this Court has recognized, the States’ “le-
gitimate” interests protected by the Twenty-first Amendment
include “promoting temperance, ensuring orderly market
conditions, and raising revenue.” North Dakota v. United
States, 495 U.S. 423, 432 (1990).'* “Accordingly, under a
proper analysis of the Commerce Clause and Twenty-first
Amendment issues, New York’s system would unquestiona-
does not affect the “volume” of wine flowing into New York. Pls.’
Br. at 33. That acknowledgement is ultimately fatal to their dor-
mant Commerce Clause claim. See Exxon, 437 U.S. at 123 (find-
ing that challenged Maryland statute did not burden interstate
commerce because it did not affect “the total quantity
of... products shipped into Maryland”).
'* The ample record below demonstrated that New York’s
three-tier system furthers all of those “legitimate” state “interests”
protected by the Twenty-first Amendment. /d. at 432. By its very
terms, New York’s ABC Law effectuates “the policy of the state”
of “fostering and promoting temperance” and “obedience to law.”
N.Y. Alco. Bev. Cont. Law § 2. It is undisputed here that New
York’s three-tier system provides an “extremely effective” means
of ensuring tax collection, which increases the price to consumers
and thereby reduces consumption among all drinkers, especially
minors. Jt. App. 1418, § 22, 1525, 4 25, 1376-78, {¥ 22-28, 867-
68, 892-93. Moreover, the stricter a State’s regulations regarding
the distribution and sale of alcohol within the State, the lower the
incidence of binge drinking among both minors and all drinkers.
Id. at 763-64, J 30-37, 1366-67. Conversely, total wine consump-
tion per capita is a whopping 40% higher in States that permit di-
rect shipping than in States such as New York that ban direct ship-
ping of alcohol imports. Jd. at 763-66, 4] 30-39, 1252-1363, 1368-
69.
21
bly be found constitutional even if this Court were to require
examination of both issues.'°
Il. The Fourth, Fifth, Sixth, And Eleventh Circuits Mis-
apply This Court’s Twenty-first Amendment Juris-
prudence
The Second Circuit’s decision below and the Seventh
Circuit’s decision in Bridenbaugh are the only two decisions
of the six that properly interpret and apply this Court’s
Twenty-first Amendment jurisprudence.
From the earliest days of the Twenty-first Amendment,
this Court recognized that that Amendment created an excep-
tion to the normal operation of the dormant Commerce
Clause with respect to alcohol imports. For example, in State
Board of Equalization v. Young’s Market Co., 299 U.S. 59
(1936), a unanimous Court, upholding a California statute
that imposed a licensing fee on those seeking to import beer
into the State, stated: “The words used [in Section 2 of the
Twenty-first Amendment] are apt to confer upon the State
the power to forbid all importations which do not comply
with the conditions which it prescribes.” Jd. at 62. Likewise,
in Mahoney v. Joseph Triner Corp., 304 U.S. 401 (1938), the
Court, again unanimously, upheld a Minnesota statute that
imposed a maximum alcohol-content requirement on im-
ported liquor, but not on liquor produced within the State,
noting that “under the [Twenty-first] amendment, discrimina-
tion against imported liquor is permissible although it is not
15
As previously explained, the circuits applying this two-tier
analysis are themselves split over the level of scrutiny to be ap-
plied in reviewing a Commerce Clause challenge to a State’s alco-
hol importation law. There is no support whatsoever in this
Court’s jurisprudence for a “strict scrutiny” standard in this cir-
cumstance. In any event, New York’s statute would have to be
found constitutional under any of these standards of review.
22
an incident of reasonable regulation of the liquor traffic.” Jd.
at 403 (citing Young's Market, 299 U.S. at 62, 63).
The Court reiterated this basic proposition three decades
later in Hostetter v. Idlewild Bon Voyage Liquor Corp., 377
U.S. 324 (1964):
This Court made clear in the early years following
adoption of the Twenty-first Amendment that by
virtue of its provisions a State is totally unconfined
by traditional Commerce Clause limitations when it
restricts the importation of intoxicants destined for
use, distribution, or consumption within its bor-
ders... . This view of the scope of the Twenty-first
Amendment with respect to a State’s power to re-
strict, regulate, or prevent the traffic and distribution
of intoxicants within its borders has remained un-
questioned.
Id. at 330 (citing, inter alia, Young’s Market, 299 U.S. at
62).
More recently, in California Retail Liquor Dealers As-
sociation v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), a
unanimous Court stated: “The 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.” Jd. at 110 (striking wine-pricing
statute on Sherman Act grounds).'’
'© Although the Court invalidated the statute at issue in
Hostetter on dormant Commerce Clause grounds, it did so because
the alcohol subject to the challenged regulation was not destined
for “delivery or use” within the State and, thus, the Twenty-first
Amendment was inapplicable. Hostetter, 377 U.S. at 325, 332-33.
'7 Other cases by this Court where it expressly recognized
the States’ power to regulate the importation of alcohol for deliv-
23
Thus, as the Second Circuit recognized, this Court has
repeatedly and “unequivocally reaffirmed the principle that
insofar as section 2 permits each state to regulate alcohol
traffic within its borders it ‘primarily created an exception to
the normal operation of the Commerce Clause.’” Pet. App.
23a (quoting Craig v. Boren, 429 U.S. 190, 206 (1976))
(footnote omitted).'* This stands in sharp contrast to the
ery or use within their borders include: /ndianapolis Brewing Co.
v. Liquor Control Comm'n, 305 U.S. 391, 394 (1939); Joseph S.
Finch & Co. v. McKittrick, 305 U.S. 395, 398 (1939); Ziffrin, Inc.
v. Reeves, 308 U.S. 132, 138 (1939); Carter v. Virginia, 321 U.S.
131, 137 (1944); Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691,
712 (1984); 44 Liguormart, Inc. v. Rhode Island, 517 U.S. 484,
516 (1996).
'® See also id. at 23a n.11 (“Accord, Healy [v. Beer Inst.,
Inc., 491 U.S. 324, 342 (1989)] (noting that section 2 authorizes
state regulation of intrastate liquor traffic, and thus does not permit
state laws that attempt to prescribe prices for out-of-state liquor
sales); Brown-Forman [Distillers Corp. v. New York State Liquor
Auth., 476 U.S. 573, 585 (1986)} (“Section 2 of the Twenty-first
Amendment...speaks only to state regulation of the
transportation or importation into any State . . . for delivery or use
therein of alcoholic beverages.”) (internal quotation marks
omitted); Bacchus, 468 U.S. at 282 (noting “we have consistently
reaffirmed that understanding of the Amendment, repeatedly
acknowledging the broad nature of state authority to regulate
commerce in intoxicating liquors”); Midcal, 445 U.S. at 110
(acknowledging 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” within the state); Capital Cities Cable, Inc.,
467 U.S. at 713 (noting that “the core § 2 power” concerns the
regulation of alcohol within the state’s borders); [Department of
Revenue v.] James B. Beam Distilling Co., 377 U.S. (341, 344
(1964)] (“[B)y virtue of [section 2 of the Twenty-first
24
Sixth Circuit, which concluded that Michigan’s reliance on
this Court’s decisions in cases such as Young's Market and
Ziffrin was “disingenuous at best.” Heald, 342 F.3d at 522.
Moreover, as the Second Circuit explained, the Fourth,
Fifth, Sixth, and Eleventh Circuits apparently adopted their
two-step analysis based on a misinterpretation of this Court’s
decision in Bacchus Imports, Lid. v. Dias, 468 U.S. 263
(1984). Pet. App. 22a n.10 (citing Heald, 342 F.3d at 523-
24; Dickerson, 336 F.3d at 400; Beskind, 325 F.3d at 514;
Bainbridge, 311 F.3d at 1108). Striking down a Hawaii law
that granted special tax exemptions for locally produced
pineapple wine, this Court made clear in Bacchus that the test
for application of the dormant Commerce Clause to state
statutes involving alcoholic beverages rests on “‘whether the
interests implicated by a state regulation are so closely re-
lated to the powers reserved by the Twenty-first Amendment
that the regulation may prevail, notwithstanding that its re-
quirements directly conflict with express federal policies.””
Bacchus, 468 U.S. at 275-76 (quoting Capital Cities Cable,
Inc., 467 U.S. at 714). A threshold question under this test is
what are those “reserved” “powers.” The answer is found in
the plain language of the Twenty-first Amendment: It re-
serves to the States the power to regulate the “transportation
or importation into any State . . . for delivery or use therein of
intoxicating liquors.” U.S. Const. amend. XXjI, § 2.
Thus, in Bacchus, the tax exemption for Hawaiian pine-
apple wine was struck on dormant Commerce Clause
grounds because it was not at all related to the State’s “re-
served” “power” to regulate the “transportation or importa-
Amendment] a State is totally unconfined by traditional Commerce
Clause limitations when it restricts the importation of intoxicants
destined for use, distribution, or consumption within its borders.”)
(internal quotation marks omitted); Jdlewild, 377 U.S. at 330
(same).”).
25
tion” of alcohol in the State. Furthermore, Hawaii did not
even seek to justify its tax on temperance or any other ground
protected by the Twenty-first Amendment “but instead ac-
knowledge[d] that the purpose was ‘to promote a local indus-
try.” Jd. at 276 (citation omitted).'? In contrast, New
York’s statute challenged here promotes such legitimate state
interests as temperance, tax collection, and orderly market
conditions and, thus, falls squarely within the State’s “re-
served” “power” to regulate the “transportation or importa-
tion” of alcoholic beverages “for delivery or use” in the
State.
Indeed, more recently, in North Dakota v. United States,
495 U.S. 423 (1990), this Court upheld the constitutionality
of state “three-tier” systems because state laws prohibiting
alcohol shipments from out-of-state producers to anyone
other than in-state licensed wholesalers “fall within the core
of the State’s power under the Twenty-first Amendment” to
regulate the “transportation or importation” of alcoholic bev-
erages within the State’s borders. /d. at 431 n.4, 432. The
Court expressly ruled that any state exercise within that
“core” power is “unquestionably legitimate.” /d. at 432. It
explained:
[T]he State has “virtually complete control” over the
importation and sale of liquor and the structure of
the liquor distribution system. The Court has made
clear that the States have the power to control ship-
'° Even with that concession on Hawaii’s part, three Mem-
bers of this Court believed that Hawaii’s statute was within the
State’s rights under the Twenty-first Amendment. Bacchus, 468
U.S. at 279 (Stevens, J., dissenting, joined by Rehnquist, C.J., and
O’Connor, J.) (stating that appellants’ “Commerce Clause claim is
squarely foreclosed by the Twenty-first Amendment to the United
States Constitution”).
26
ments of liquor during their passage through their
territory and to take appropriate steps to prevent the
unlawful diversion of liquor into their regulated in-
trastate markets.
Id. at 431 (quoting Midcal, 445 U.S. at 110) (citations omit-
ted). That is because a State’s “legitimate” interests pro-
tected under the Twenty-first Amendment include “promot-
ing temperance, ensuring orderly market conditions, and rais-
ing revenue.” /d. at 432. As Justice Scalia succinctly put it,
the Twenty-first Amendment “empowers” each State “to re-
quire that all liquor sold for use in the State be purchasea
from a licensed in-state wholesaler.” Jd. at 447 (Scalia, J.,
concurring).”°
III. The Issues Raised By The Petition Are Of Nationwide
Importance
The issues raised by the petitions in this case are closely
related to the issues raised in the petitions in Heald, Nos. 03-
1116, 03-1120. These petitions raise issues of nationwide
importance, and lower courts, state liquor authorities, and
alcoholic beverage suppliers need clear guidance on these
issues. Most States have statutes barring out-of-state
suppliers from directly shipping alcohol to in-state
consumers. See Heald, No. 03-1120, Pet. at 15 & n.7.
Moreover, in addition to the six States whose alcohol
regulatory systems already have been challenged in circuit
20 North Dakota was a plurality opinion written by Justice
Stevens and joined by Chief Justice Rehnquist and Justices White
and O’Connor. Justice Scalia concurred in all respects material to
the case, making it clearly the majority view. Moreover, every
Member of this Court agreed that a State may require all imports
intended for residents of the State to go through licensed in-state
wholesalers.
—n ki ee ee ee ee ee eS
27
courts, four other States are now facing similar challenges to
their laws in federal district court actions in Arizona, New
Jersey, Ohio, and Rhode Island. See id. at 15 & n.8.'
These challenges to state alcoholic beverage regulatory
systems raise serious federalism concerns. The Twenty-first
Amendment, which was ratified in 1933 to repeal Prohibi-
tion, was expressly intended to grant States control over the
“transportation or importation” of alcohol “for delivery or
use” within their borders. In response to this grant of author-
ity, most States adopted three-tier regulatory systems for dis-
tribution of alcoholic beverages. These systems, which have
been-in place for 70 years, are now in jeopardy because some
circuit courts have fundamentally misapplied the law regard-
ing the relationship between the Twenty-first Amendment
and the dormant Commerce Clause.
Moreover, although there is some overlap between the
issues raised by the petitions in Heald and by the petition in
this case, this case does raise somewhat different issues and,
thus, the Court may benefit from having two well-developed
factual records before it, each of the cases having been de-
cided on summary judgment. For example, under New
York’s ABC Law, out-of-state wineries may obtain licenses
that would allow them to ship their wines directly to in-state
consumers, so long as they establish a physical presence in
New York and comply with its laws. In contrast, the Sixth
Circuit found that there was no such license available to out-
of-state wineries under Michigan’s alcoholic beverage con-
trol law. See Heald, 342 F.3d at 521.” In addition, while the
*! On March 11, 2004, the plaintiffs in the Arizona action
voluntarily dismissed their case and agreed not to refile it until af-
ter this Court’s decisions regarding this petition and the Heald pe-
titions.
22
Petitioners in Heald contend that Michigan does not pre-
vent out-of-state wineries from obtaining a “winemakers” license
28
Second Circuit found New York’s statutory scheme not to be
discriminatory, the Sixth Circuit found Michigan’s statute
discriminatory on its face. Compare Pet. App. 25a, 29a, with
Heald, 342 F.3d at 525. Accordingly, this Court’s considera-
tion of the issues raised by all currently pending petitions
may be illuminated by reviewing both the Second and Sixth
Circuits’ judgments in these cases.
Given the number of issues raised by both judgments,
the number of public and private parties in each case, and the
differences between New York’s and Michigan’s statutory
schemes, private respondents respectfully request that the
Court agree to review both cases and set the two cases for ar-
gument in tandem.”
that would allow them to ship directly to in-state consumers, pro-
vided they establish a physical presence in the State. Heald,
No. 03-1116, Pet. at 23; No. 03-1120, Pet. at 5 n.2, 10. The Sixth
Circuit found otherwise. See Heald, 342 F.3d at 521 (“[RJeading a
number of provisions in conjunction with each other . . . [a]t pre-
sent, there is no procedure [in Michigan] whereby an out-of-state
retailer or winery can obtain a license or approval to deliver wine
directly to Michigan residents.”) (internal quotation marks omit-
ted) (second alteration in original); see also id. at 525-27.
3 Although private respondents do not oppose petitioners’
request that this Court also review their Article IV Privileges and
Immunities Clause claim, private respondents question whether
that issue warrants this Court’s review at this time. The courts of
appeals, other than the Second Circuit below, have not even ad-
dressed, let alone split on, the Privileges and Immunities Clause
issue. Pet. 24. Indeed, the district court below did not even ad-
dress that issue. Pet. App. 66a-67a. Thus, while petitioners con-
tend that the Court should review their Privileges and Immunities
Clause claim precisely because it is unique to this case, that
uniqueness actually makes it less worthy of review at this time.
Moreover, because petitioners’ Privileges and Immunities Clause
29
CONCLUSION
For the foregoing reasons, the petition for a writ of cer-
tiorari should be granted.
Respectfully submitted.
HOWARD GRAFF MIGUEL A. ESTRADA
DEBORAH A. SKAKEL Counsel of Record
VICTORIA A. KUMMER MARK A. PERRY
DICKSTEIN SHAPIRO GIBSON, DUNN & CRUTCHER LLP
MORIN & OSHINSKY LLP 1050 Connecticut Avenue, N.W.
1177 Avenue of the Americas Washington, DC 20036
New York, NY 10036 (202) 955-8500
(212) 835-1400 RANDY M. MASTRO
MICHAEL G. HONEYMAR, JR.
GIBSON, DUNN & CRUTCHER LLP
200 Park Avenue
New York, NY 10166
(212) 351-4000
claim closely parallels their dormant Commerce Clause claim — a
point that petitioners concede (Pet. 25-26) — the Twenty-first
Amendment would trump that claim in any event. Finally, none of
the petitioners has standing to raise this claim in the first instance.
The New York consumer petitioners lack standing because the
Privileges and Immunities Clause does not protect citizens from
allegedly discriminatory actions taken by the State of which they
are citizens. Pet. App. 30a n.14 (citing Zobel v. Williams, 457 U.S.
55, 59 n.5 (1982)). The winery petitioners lack standing because,
as business entities or sole proprietorships, they are not “citizens”
within the meaning of the Privileges and Immunities Clause of Ar-
ticle IV, see Paul v. Virginia, 75 U.S. (8 Wall.) 168, 177 (1868),
overruled in part on other grounds by United States v. South-
Eastern Underwriters Ass'n, 322 U.S. 533 (1944), and, even if
they were, they are not in-state complaining of unequal treatment
within the State, see Saenz v. Roe, 526 U.S. 489, 500-01 (1999);
Toomer v. Witsell, 334 U.S. 385, 395 (1948).
30
ROBERT M. HELLER ALAN J. GARDNER
KRAMER LEVIN NAFTALIS VERINI & GARDNER
& FRANKEL LLP 225 Broadway
919 Third Avenue New Yok NY 10007
New York, NY 10022 (212) 227-1700
(212) 715-9100
J. WARREN MANGAN JOHN O’MARA
O’CONNOR & MANGAN P.C. DAVIDSON & O’MARA, P.C.
One Hunter Street 243 Lake Street
Long Island City, NY 11101 Elmira, NY 14901
(718) 361-7950 (607) 733-4635
Counsel for Private Respondents
March 19, 2004
wT Gon he os ee ee x *
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