Amicus Curiae Brief — Swedenburg v. Kelly, Chairman, New York Division of Alcoholic Beverage Control, State Liquor Authority

Supreme Court, US

A | FILED

No. 03-1274 | Sep 2 22004

OFFICEOT THECLERK |

In The

Supreme Court of the Anited States

Sd

JUANITA SWEDENBURG , et ai.,

Petitioners,

V.

EDWARD D. KELLY, et ai.,

Respondents.

S

On Writ Of Certiorari To The

United States Court Of Appeals

For The Second Circuit

+

BRIEF OF AMICUS CURIAE THE BEER

INSTITUTE IN SUPPORT OF RESPONDENTS

.

Of Counsel STEVEN G. BRopy*

ARTHUR J. DECELLE JAMES K. GOLDFARB

Executive Vice President KING & SPALDING LLP

and General Counsel 1185 Avenue of the Americas

The Beer Institute New York, NY 10036

122 C Street, NW (212) 556-2100

Suite 750

Washington, DC 20001

(202) 737-2337

Counsel for Amicus Curiae

The Beer Institute

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2851

il

TABLE OF CONTENTS - Continued ~

Page

2. Contrary to Petitioners’ View, this

Court’s More Recent Decisions Con-

firm that the Dormant Commerce

Clause Does Not Trump the Twenty-

Te7Ot ARRORENGUE .ccccccsonscsonsonsennes 14

Il. THE SECOND CIRCUIT CORRECTLY HELD

THAT NEW YORK’S DIRECT DISTRIBU-

TION LAW IS CONSTITUTIONAL.................. 21

[V. AN AFFIRMANCE OF THE SECOND CIR-

CUITSS DECISION WILL PRESERVE THE

“UNQUESTIONABLY LEGITIMATE” THREE-

TIER DISTRIBUTION SYSTEM ...................... 26

CONC LAIN 000000000sc0sccsccccsescndensnseienanenennnnnnannnnnnEn 28

TABLE OF AUTHORITIES

Page

CASES

44 Liquormart, Inc. v. Rhode Island,

EE 14, 20, 21

Bacchus Imports, Ltd. v. Dias,

a sscnsenooncce 19, 20, 21, 23

Bainbridge v. Turner,

BAR Fee BEOS CER Cie, BOGB)........ccccccccceccccccccceceeesss: ..12

Beskind v. Easley,

S20 F.cG GOS (4th Cir, BOOS) ............00c000ce0000000.. — FF

Bridenbaugh v. Freeman- Wilson,

227 F.3d 848 (7th Cir. 2000),

cert. denied sub nom.

Bridenbaugh v. Carter,

a cccsonrenen 1]

Brown-Forman Distillers Corp. v

N.Y. State Liquor Auth.,

a ccnseoes atta 19, 21

California Retail Liquor Dealers Ass'n v.

Midcal Aluminum, Inc.,

EE passim

Capital Cities Cable, Inc. v. Crisp,

ET passim

Connecticut Natl Bank v. Germain,

a cussooucnas 6

Craig v. Boren,

I crssceuncneey passim

Dep't of Revenue v. James B. Beam Distilling Co.,

a. enssmnnsncnsooncos 21

TABLE OF AUTHORITIES — Continued

Dickerson v. Bailey,

336 F.3d 388 (5th Cir. 2003) 12

Exxon Corp. v. Governor of Marviand.

f j

137 U.S. 117 (1978)

Heald 1 Engler,

342 F.3d 517 (6th Cir. 2003

Hi aly l Be r Institute.

191 U.S. 324 (1989

Host tter i Idi. li ild Bon Voyage Liquor ( ‘orp .

377 U.S. 324 (1964)

Dassli 71

i

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

109 U.S. 275 (1972

, ) .

Indianapolis Bri wing Lo

’ ’ ’

: ;

, ’ j (77 PF

Liquor ( Ontrol ( O77 ‘ ts

305 U.S. 391 (1939

Jame S Clark Distilli np C'o

242 U.S. 311 (1917

Lk isy Hardin.

135 U.S. 100 (1890

W. Marvland Ry. Co..

Minne SOTa Clover Leaf ( reamery ( he

449 U.S. 456 (1981

North Dakota v. United Sta

195 U.S. 423 (1990

299 U.S. 59 (1936

passim

Young's Mkt. Co..

passim

TABLE OF AUTHORITIES — Continued

Swedenburg v. Kelly,

358 F.3d 223 (2d Cir. 2004) ..

The License Cases,

46 U.S. 504 (1847)

Wilkerson v. Rahrer,

140 U.S. 545 (1891)

Wisconsin v. Constantineau,

100 U.S. 433 (1971)

Ziffrin v. Reeves,

308 U.S. 132 (1939)

CONSTITUTIONAL PROVISIONS

U.S. Const. amend. XX]

FEDERAL STATUTES

76 Cong. Rec. 4138 (1933)

76 Cong. Rec. 4143 (1933)

76 Cong. Rec. 4147 (1933)

76 Cong. Rec. 4172 (1933)

H.R. Rep. No. 1461 (1913)

27 U.S.C.A. § 121 (West 1927 & Supp. 2004)

27 U.S.C.A. § 122 (West 1927 & Supp. 2004)

Webb-Kenyon Act, 27 U.S.C.A. § 122

(West 1937 & Supp. 2004)

Page

passim

~]

13, 14

passim

Vi

TABLE OF AUTHORITIES — Continued

STATE STATUTES

N.Y. Aleohol Beverage Control Law § 3(37

)

N.Y. Alcohol Beverage Control Law § 100(1) 5, 22

N.Y. Aleohol Beverage Control Law § 102(1) 9,22, 26, 27

MISCELLANEOUS

Vijay Shanker, Alcohol Direct Shipment Laws, thé

’ | | l, TY : SS =

Commerce Clause, and the Twenty-first Amend

ata

Rev. 353 (1999

26

STATEMENT OF INTEREST’

Amicus, The Beer Institute, is the leading trade

association for the brewing industry and its suppliers. It is

recognized as the authoritative source of information on

all aspects of the industry. Since its inception in 1986, The

Beer Institute routinely has voiced its members’ concerns

to Congress and the Court over matters concerning the

regulation of the alcohol beverage industry, commercial

speech, and responsible consumption.

The Beer Institute’s members include domestic and

international brewers, who produce 90 percent of the beer

consumed in the United States. They directly employ over

400,000 Americans who receive over $13 billion in wages and

benefits. For nearly 70 years, The Beer Institute’s members

have relied on the three-tier distribution system that most

States have established to regulate and control the distribu-

tion, sale, and consumption of alcohol beverages. The rea-

sonable restrictions in the direct distribution law at issue

here are integral to that “unquestionably legitimate” regula-

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

432 (1990) (plurality opinion). Accordingly, amicus has a

strong interest in the outcome of this matter. Amicus urges

the Court to affirm the decision of the Court of Appeals for

the Second Circuit, and hold that New York’s direct distribu-

tion law is a proper exercise of that State’s express powers

under the Twenty-first Amendment.

+

‘ No counsel for any party authored this brief in whole o» in part,

and no person or entity, other than the amicus curiae, its members, or

its counsel, made a monetary contribution to the preparation or

submission of the brief. The written consent of the parties to the filing

of this brief has been filed with the Clerk of Court

SUMMARY OF ARGUMENT

This case is about the right of States to regulate the

importation of alcohol beverages — a right expressly

embedded in the Constitution and federal law. See U.S.

Const. amend. XXI, § 2; Webb-Kenyon Act, 27 U.S.C.A.

§ 122 (West 1927 & Supp. 2004). The court below affirmed

that right, upholding a New York law that permits out-of-

state wineries to ship wine directly to New York consum-

ers provided that those wineries comply with New York’s

licensing requirement, including a requirement that those

wineries have a physical presence in New York, just as in-

state wineries must do. See Swedenburg v. Kelly, 358 F.3d

223 (2d Cir. 2004). The lower court correctly rejected

Petitioners’ argument that this physical presence re-

quirement ran afoul of dormant Commerce Clause princi-

ples by discriminating against out-of-state wineries. See

id. at 233-37. However, the court did not even have to

consider the dormant Commerce Clause because the

Twenty-first Amendment’s plain language is conclusive.

Pe.itioners seek to reverse the decision below. They

maintain that the direct distribution law violates the

dormant Commerce Clause, and that the powers conferred

upon the States by the Twenty-first Amendment are

insufficient to “save” the law. Petitioners are wrong.

The first step of any constitutional law analysis must

be consideration of the express language of the constitu-

tional provision in question. The Twenty-first Amendment

expressly gives each State the power to regulate the

“transportation and importation” of alcohol beverages for

“delivery and use” within that State. U.S. Const. amend.

XXI, §2. New York exercised its express Twenty-first

Amendment powers when it enacted its direct distribution

law. As a matter of strict constitutional interpretation,

that law is immune from challenge under the dormant

Commerce Clause. That should be the end of the analysis

in this case.

Furthermore, even if the Court were to review the

legislative history underlying the Twenty-first Amend-

ment, it would find that the unequivocal intent was to

insulate the States from Commerce Clause challenges

when the States exercise their express Twenty-first

Amendment powers. Both the events leading up to pas-

sage of the Amendment, as well as the statements made

by members of Congress at the time they were considering

the Amendment, show that the Amendment was drafted

for the purpose of eliminating any Commerce Clause

impediment from a State’s efforts to regulate the alcohol

beverage distribution system within its borders.

Consistently, this Court has held that a State’s exer-

cise of its express Twenty-first Amendment powers may

not be subjected to a Commerce Clause challenge. Peti-

tioners do not and cannot identify a single decision of this

Court that contravenes that principle. Rather, every case

that Petitioners rely upon involved alcohol beverage

regulations that, unlike the New York law in question,

were not enacted pursuant to a State’s express Twenty-

first Amendment powers.

Finally, even if the Court were to abandon the literal

language of the Twenty-first Amendment, as well as 60

years of its precedent, and instead adopt the new test

proposed by Petitioners, the New York statute would still

be upheld. According to Petitioners, the statute can only be

upheld if it is “closely related” to the purposes of the

Twenty-first Amendment, such that Commerce Clause

concerns could be overcome. Here, there can be no doubt

that the New York statute is closely related to the pur-

poses of the Twenty-first Amendment. Most significantly,

the statute helps to prevent underage drinking by creating

a scheme by which the State can enforce its ban on inter-

net sales of alcohol beverages te minors.

This should not be a difficult case. The decision below

was mandated by the plain language of the Twenty-first

Amendment, as well as an unbroken line of decisions

issued by this Court. The Second Circuit’s decision uphold-

ing the New York statute should be affirmed.

¢

ARGUMENT

I. THE PLAIN LANGUAGE OF THE TWENTY-

FIRST AMENDMENT RESOLVES THIS CASE

“In determining state powers under the Twenty-first

Amendment, the Court has focused primarily on the

language of the provision rather than the history behind

it.” California Retail Liquor Dealers Ass'n v. Midcal

Aluminum, Inc., 445 U.S. 97, 106-107 (1980) (emphasis

supplied). The Court has focused on the language of the

Twenty-first Amendment because it is clear and unambi-

guous:

The transportation or importation into any State,

Territory, or possession of the United States for

delivery or use therein of intoxicating liquors, in

violation of the laws thereof, is hereby prohib-

ited.

U.S. Const. amend. XX], § 2.

5

Petitioners are trying to do precisely what the Twenty-

first Amendment prohibits. They are trying to “import”

alcohol beverages for “delivery or use” within the State of

New York “in violation of the laws” of that State. As such,

their challenge to the New York law must be rejected. See

State Bd. of Equalization v. Young’s Mkt. Co., 299 U.S. 59,

62 (1936) (upholding California law that imposed an impor-

tation fee on alcohol beverages: “The words used [in 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”).

As this Court has stated, “[t]he Twenty-first Amend-

ment grants States virtually complete control over whether

to permit importation or sale of liquor and how to structure

the liquor distribution system.” Midcal, 445 U.S. at 110.

There can be no doubt that New York’s direct distribution

law asserts control in precisely those areas. Specifically, the

law mandates that wine may be imported into New York by

out-of-state wineries, and distributed within the State, only

if (i) the wineries obtain a license, which in turn requires

having a physical presence or location within the State, and

(ii) the wine is imported to that physical location for direct

distribution to consumers. See N.Y. Alcohol Bev. Cont. Law

(“ABC Law”) § 100(1) (McKinney’s 2000 & Supp. 2004) (“No

person shall ... sell at wholesale or retail any alcoholic

beverage within the state without obtaining the appropriate

license therefore required by this chapter”); id. § 102(1)(c)

(“[njo alcoholic beverages shall be shipped into the state

unless the same shall be consigned to a person duly licensed

hereunder to traffic in alcohol beverages”); id. § 3(37) (out-

of-state wineries must “maintain[] a branch factory, office or

storeroom within the state of New York and receive wine in

this state”).

6

The plain language of the Twenty-first Amendment

endorses the validity of statutes — such as the New York law

— that regulate the importation and transportation of alcohol

beverages. Where, as here, the words of a constitutional

amendment are unambiguous, “judicial inquiry is complete.”

Connecticut Natl Bank v. Germain, 503 U.S. 249, 259 (1992)

(citation omitted); Midcal, 445 U.S. at 106-107. The Second

Circuit’s decision should be affirmed based solely on the

literal language of the Twenty-first Amendment.

II. PETITIONERS’ DORMANT COMMERCE CLAUSE

ARGUMENT IS CONTRADICTED BY THE

TWENTY-FIRST AMENDMENT’S LEGISLA-

TIVE HISTORY AND RELEVANT PRECEDENT

Notwithstanding the literal language of the Twenty-

first Amendment, Petitioners contend that New York’s

direct distribution law should be struck down under the

dormant Commerce Clause. That contention is directly

refuted by the legislative history of the Twenty-first

Amendment, as well as this Court’s Twenty-first Amend-

ment jurisprudence, which make clear that the Twenty-

first Amendment removed any dormant Commerce Clause

obstacle to state regulation of the transportation and

importation of alcohol beverages.

A. The Legislative History Demonstrates that

Dormant Commerce Clause Concerns Do

Not Trump the Twenty-first Amendment

1. The Nation’s Experience Before the

Twenty-first Amendment

In order to understand what the Twenty-first

Amendment accomplished, it is helpful to consider the

evolution of this Court’s case law predating the Amend-

ment. During our nation’s first century, the Commerce

Clause was not interpreted as a limitation on the States’

police powers over the importation and sale of alcohol

beverages. See Craig v. Boren, 429 U.S. 190, 205 (1976). As

Chief Justice Taney wrote in 1847, “I see nothing in the

constitution of the United States to prevent [a State] from

regulating and restraining the traffic, or from prohibiting

it altogether, if it thinks proper.” The License Cases, 46

U.S. 504, 577 (1847).

But in 1890, the Court rejected Chief Justice Taney’s

reasoning as too narrowly construing the reach of the

Commerce Clause. See Leisy v. Hardin, 135 U.S. 100, 118

(1890). The Court ruled that the Commerce Clause places

the power to regulate interstate commerce in alcohol

beverages exclusively with Congress. See id. Because

Congress had not regulated such commerce, the Court

reasoned that Congress intended such commerce to re-

main “free and untrammeled.” Jd. at 109-10. As a result,

the Court held that a State could not exercise its police

power over any alcohol beverage shipped into the State

from outside its borders until that product lost its charac-

teristics as interstate commerce by either removal from its

original package or sale. See id. at 124-25.

The Leisy Court’s interpretation of the Commerce

Clause made it virtually impossible fur States to prevent

the importation and initial sale of any beverage alcohol

product in its original package. The Court, however, did

suggest a solution to this problem:

[T]he responsibility is upon congress, so far as

the regulation of interstate commerce is con-

cerned, to remove the restriction upon the state

in dealing with imported articles of trade within

its limits, which have not been mingled with the

common mass of property therein, if in its judg-

ment the end to be secured justifies and requires

such action.

Id. at 123-24.

Almost immediately after Leisy, Congress enacted the

Wilson Act, which provided that a State could exercise its

police powers over alcohol beverages as soon as the alcohol

beverages arrived in that State. See 27 U.S.C.A. § 121

(West 1927 & Supp. 2004). The Court upheld the Wilson

Act in Wilkerson v. Rahrer, 140 U.S. 545 (1891), rejecting

an argument that Congress had unconstitutionally dele-

gated its Commerce Clause power to the States. Rather,

Congress had “imparted no power to the state not then

possessed,” but had “simply removed an impediment to the

enforcement of the state laws.” Id. at 564. The Wilson Act,

however, proved ineffective because it did not remove the

Commerce Clause’s impediment to state regulation until

after the packages had entered the State. See Rhodes v.

Jowa, 170 U.S. 412 (1898).

To address the deficiency in the Wilson Act, Congress

passed the Webb-Kenyon Act, which was intended “to

withdraw the protecting hand of interstate commerce from

intoxicating liquors.” H.R. Rep. 1461, 62d Cong., 3d Sess. 1

1913). The language of the Webb-Kenyon Act prefigured

Section 2 of the Twenty-first Amendment:

The shipment or transportation, in any manner

or by any means whatsoever, of ... intoxicating

liquor of any kind, from one State, Territory, or

District of the United States ... into any other

State, Territory, or District of the United States

intended, by any person interested therein, to

be received, possessed, sold, or in any manner

9

used, either in the original package or otherwise,

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

District of the United States... is he eby prohib-

ited.

27 U.S.C.A. § 122 (West 1927 & Supp. 2004). The Court

upheld the Webb-Kenyon Act in James Clark Distilling Co.

v. Western Maryland Railway Co., 242 U.S. 311 (1917),

stating that the Act “took the protection of interstate

commerce away from all receipt and possession of liquor

prohibited by state law.” Jd. at 325. Two years after James

Clark Distilling, the States ratified the Eighteenth

Amendment and ushered in the Prohibition Era. Prohibi-

tion lasted until the States ratified the Twenty-first

Amendment in 1933.

2. The Amendment’s Legislative History

In addition to repealing the Eighteenth Amendment,

see U.S. Const. amend. XXI, § 1, the Twenty-first Amend-

ment was intended to create an exception to the Com-

merce Clause whereby States could regulate the

importation and transportation of alcohol beverages. As

the Court explained in Craig v. Boren:

The wording of § 2 of the Twenty-first Amend-

ment closely follows the Webb-Kenyon and Wil-

son Acts, expressing the framers’ clear intention

of constitutionalizing the Commerce Clause

framework established under those statutes.

This Court’s decisions since have confirmed that

the Amendment primarily created an exception

to the normal operation of the Commerce Clause.

429 U.S. at 205-206 (citations omitted); accord Capital

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

10

The Court’s conclusion in Craig concerning the

Amendment’s intent is amply supported by the legislative

history of the Twenty-first Amendment. The Resolution

that became the Twenty-first Amendment originated in

the Senate. Senator Blaine, chairman of the subcommittee

that held hearings on the Resolution and floor manager of

the Resolution in the Senate, stated that the purpose of

Section 2 was “to restore to the States .. . absolute control

in effect over interstate commerce affecting intoxicating

liquors.” 76 Cong. Rec. 4143 (1933) (emphasis added).

Similarly, Senator Borah, who was known as an “authori-

tative” advocate of Prohibition, described Section 2 as

“incorporating [the Webb-Kenyon Act] permanently in the

Constitution of the United States.” Jd. at 4172.

Confirming the intent of the Amendment to withdraw

any impediments from the Commerce Clause, the Senate

rejected proposed Section 3. That Section provided that

“Congress shall have concurrent power to regulate or

prohibit the sale of intoxicating liquors to be drunk on the

premises where sold.” 76 Cong. Rec. 4138 (1933). In urging

the rejection of Section 3, Senator Blaine argued that what

Section 2 gave the States, Section 3 took away: “Thus

(under Section 2] the States are granted larger power in

effect and are given greater protection, while under

Section 3 the proposal is to take away from the States the

power that the States would have in the absence of the

eighteenth amendment.” See id. at 4143; see also id. at

4147 (remarks of Senator Wagner) (“if sales may be

regulated, so may transportation and manufacture. If

that is to be the history of the proposed amendment

then obviously we have expelled the system of national

contro] through the front door of section 1 and readmitted

it forthwith through the back door of section 3”)

11

After the States ratified the Twenty-first Amendment,

Congress reenacted the Webb-Kenyon Act. See Act of Aug.

27, 1935, c. 740, § 202(b), 49 Stat. 877. In so doing, Con-

gress made clear that it had withdrawn any Commerce

Clause impediment to state laws regulating the distribu-

tion of alcohol beverages.

B. Precedent Confirms that the Powers Con-

ferred Upon the States by the Twenty-first

Amendment Are Not Constrained by Dor-

mant Commerce Clause Principles

The Amendment’s plain language and legislative

history notwithstanding, lower court decisions addressing

direct distribution laws have turned on interpretations of

the Court’s Twenty-first Amendment jurisprudence. Those

lower courts that have upheld direct distribution laws

have correctly understood this Court’s decisions as con-

firming that the States may regulate the importation of

alcohol beverages free of any dormant Commerce Clause

concerns. See Swedenburg v. Kelly, 358 F.3d 223 (2d Cir.

2004); Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th

Cir. 2000) (upholding Indiana direct distribution law), cert.

denied sub nom. Bridenbaugh v. Carter, 532 U.S. 1002

(2001).

In contrast, those lower courts that have struck down

direct distribution laws have incorrectly interpreted this

Court’s decisions as elevating dormant Commerce Clause

principles over the plain text of the Twenty-first Amend-

ment. See Heald v. Engler, 342 F.3d 517, 522-23 (6th Cir.

2003) (striking down Michigan direct distribution law;

acknowledging the earlier decisions in which “the Su-

preme Court afforded states broad power to regulate

alcohol under the [Twenty-first] Amendment,” but stating

12

that “lals early as the 1960s, the Supreme Court signaled

a break with (this! line of reasoning”), cert. granted sub

nom. Granholm v. Heald, 124 S.Ct. 2389 (2004) (Case No

03-1116) & Michigan Beer & Wine Wholesalers Ass’n v

Heald. 124 S.Ct. 2389 (2004) (Case No 03-1120). Accord

Dickerson v. Bailey, 336 F.3d 388 (5th Cir. 2003) (striking

down Texas direct distribution law); Beskind v. Easley, 325

F.3d 506 (4th Cir. 2003) (striking down North Carolina

direct distribution law); see also Bainbridge v. Turner, 311

F.3d 1104 (11th Cir. 2002) (reviewing Florida direct distri-

bution law; remanding for further fact finding). As demon-

strated below, the Courts of Appeals for the Fourth, Fifth,

Sixth, and Eleventh Circuits mistakenly relied upon this

Court's cases that unlike the instant case — did not

involve exercises of state powers squarely within the

Twenty-first Amendment

1. The Court’s Decisions Immediately Fol-

lowing Ratification Recognized that the

Dormant Commerce Clause Does Not

Trump the Twenty-first Amendment

,

.

In the years immedia following ratification, the

Court repeatedly held that the Twenty-first Amendment

empowered States to regulate the importation and trans-

portation of alcohol beverages into and within their

borders, even when doing so offended dormant Commerce

Clause principles. For example, in State Board of Equali

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

upheld a California statute that imposed a $500 license fee

for the privilege of importing beer into the State. Relying

on the plain language of the Amendment, the Court

, ‘ , - » , . . . ; , ae . :

expressly rejected plaintifis argument that the licensing

13

fee impermissibly discriminated against out-of-state

interests:

The words lof 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. The plaintiffs ask

us to limit this broad command. They request us

to construe the amendment as saying, in effect:

The state may prohibit the importation of intoxi-

cating liquors provided it prohibits the manufac-

ture and sale within its borders; but if it permits

such manufacture and sale, it must let imported

liquors compete with the domestic on equal

terms. To say that, would involve not a construc-

tion of the amendment, but a rewriting of it

Id. at 62

This Court’s cases that followed Young’s Market

reiterated that, when States exercise their powers under

the Twenty-first Amendment, they are immune from

Commerce Clause challenges. See Indianapolis Brewing

Co. v. Liquor Control Comm'n, 305 U.S. 391, 394 (1939

upholding Michigan’s retaliatory statute prohibiting

liquor importation from States that discriminated against

beer manufactured in Michigan: “the right of a state to

prohibit or regulate the importation of intoxicating liquor

is not limited by the commerce clause”); Ziffrin v. Reeves,

308 U.S. 132, 138 (1939) (upholding Kentucky regulation

of the production and distribution of alcohol beverages

“The Twenty-first Amendment sanctions the right of the

state to legislate concerning intoxicating liquors brought

from without, unfettered by the Commerce Clause’);

Mahoney v. Joseph Triner Corp., 304 U.S. 401, 403 (1938)

upholding Minnesota law that prevented importation of

liquor containing more than 25 percent alcohol unless

14

liquor was registered with the U.S. Patent Office: “dis-

crimination against imported liquor is permissible al-

a ‘

though it is not an incident of reasonable regulation of the

Petitioners, apparently realizing that the Young’s

Market line of cases is dispositive here, argue that those

cases have been overruled. See Pet. Br. at 33 n.22. But this

Court continues to cite Young's Market and the decisions

that followed it, and those cases remain good law today

See, e.p 14 Liquormart Ine [ Rhods Island. 517 U Ss

184, 514-15 (1996 quoting Ziffrin). North Dakot

United States, 495 U.S. 423, 431-32 (1990) (citing Young

\f rRet ert | (our 5s never suggested tl it

hose cast e been overruled respect. Young

Market 1 its progeny requir iltirn e or the

Sy ( ecisio

2. Contrary to Petitioners’ View, this Court’s

More Recent Decisions Confirm that th

Dormant Commerce Clause Does Not

Trump the Twenty-first Amendment

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confirmed that a State is not constrained by the dormant

Commerce Clause when it regulates the distribution of

alcohol beverages for use within its borders, such as New

York has done with its direct shipping law

Hostetter did not involve a State’s regulation of alcohol

beverages “for delivery or use” within that State. Rather,

the Court struck down on Commerce Clause grounds a

New York law that prohibited a retailer located at John F

Kennedy Airport from selling alcohol beverages that were

“not delivered to the customer until he arriveld! at his

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16

More to the point, the Hostetter Court itself confirmed

that where, as here, a State regulates the importation and

transportation of alcohol beverages for delivery or use

within that State, the State is not constrained by the

dormant Commerce Clause

This Court made clear in the early years follow-

ing adoption of the Twenty-first Amendment that

by virtue of its provisions a State is totally un-

confined by traditional Commerce Clause limita

ions when it restricts the importation of

intoxicants destined for use, distribution, or con-

mption within its borders This view of the

scope of the Twenty-first Amendment with re

spect to a State's power to restrict regulate, or

prevent the traffic and distribution of intoxicants

, .

within its borders has remained unaus lioned

See Hostetter, 377 U.S. at 330-31. Thus, far fror inder-

mining Young's Market and its progeny, Hostetter con

firmed the holding of those decisions

Petitioners fare no better with the other decisions

upon which they rely for their misguided notion that this

Court has abandoned the literal language of the Twenty-

first Amendment. See Pet. Br. at 33-36. Those decisions do

not involve laws regulating the “transportation or impor

tation” of alcoho. beverages. For example, in California

tetail Liquor Dealers Association v. Mid Alui im,

Inc., 445 U.S. 97 (1980), the Court upheld a Sherman Act

challenge to California’s liquor resale price maintenan¢

statute. In so doing, the Court acknowledged that the

challenged statute was not enacted pursuant to the State's

express Twenty-first Amendment powers. See id. at 111-

14

Moreover, the Court reiterated that when a State does

pass a law pursuant to its express Twenty-first Amend-

ment powers, that law cannot be subjected to a Commerce

Clause challenge. The Midcal 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. Although states

retain substantial discretion to establish other

liquor regulations, those controls may be subject

to the federal commerce power in appropriate

situations

Id. at 110 (emphasis added). The Court concluded that the

California statute was not so closely connected to the

importation and distribution of alcohol beverages such

that it could trump the federal governments interest 1

enforcing a “national policy in favor of local competition.”

Id. Here, in contrast, New York’s law plainly falls into th

areas of importation and distribution — the areas in which

the States have “virtually complete control.”* Jd.; see Point

I, supra

The same point was made again in Capital Citie

Cable, Inc. v. Crisp, 467 U.S. 691 (1984), another cas:

mistakerily relied upon by Petitioners. At issue was an

Oklahoma statute that required cable service providers to

instant case does not involve the category of “other liquor

stions” described in Midcal, and so there is no need to decide what

est should be applied by the courts when such a regulation conflicts

with the Commerce Clause. Based on Midcal, it appears that some sort

of balancing test should be applied, which would acknowledge that,

hen States are not exercising their express Twenty-first Amend

ent powers, the Amendment imparts heightened powers (relative to

the Commerce Clause) for regulating in the alcohol beverage area

18

delete all advertisements for alcohol beverages contained

in the out-of-state signals they transmitted to their Okla-

homa customers. The Court stated:

The central question presented in [Hostetter and

Midcal] is essentially the same as the one before

us here: whether the interests implicated by a

state regulation are so closely related to the pow-

ers reserved by the Twenty-first Amendment that

the regulation may prevail, notwithstanding that

its requirements directly conflict with express

federal policies.

Id. at 714; see also id. at 713 (“we have held that when a

state has not attempted to directly regulate the sale or use

of liquor within its borders — the core §2 powers — a

conflicting exercise of federal authority may prevail”). The

Court voided the broadcasting ban, concluding that it was

not closely related to the powers conferred on the States by

the Twenty-first Amendment to regulate importation or

sale of liquor. See id. at 715. But, as with Hostetter and

Midcal, the Court confirmed that when a State regulates

within the literal terms of the Twenty-first Amendment,

the State is acting with full authority. See Crisp, 467 U.S.

at 712 (“The States enjoy broad power under § 2 of the

Twenty-first Amendment to regulate the importation and

use of intoxicating liquors within their borders. . . . Indeed,

‘It}his Court’s decisions ... have confirmed that the

Amendment primarily created an exception to the normal

operation of the Commerce Clause’”) (quoting Craig, 429

U.S. at 206).’

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

(plurality opinion) (upholding North Dakota’s reporting and labeling

regulations as a valid exercise of that State’s Twenty-first Amendment

(Continued on following page)

19

Petitioners also mistakenly rely on a line of cases in

which the Court struck down liquor price affirmation

statutes under the Commerce Clause. See Brown-Forman

Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573,

585 (1986) (striking down New York statute that required

liquor distillers to sell to wholesalers at a price no higher

than the lowest price the distiller charged wholesalers

anywhere else in the United States); Healy v. Beer Inst.,

491 U.S. 324, 341-42 (1989) (striking down Connecticut

statute that required out-of-state shippers of beer to affirm

that their posted prices for products sold to Connecticut

wholesalers were, as of the moment of posting, no higher

than the prices at which those products were sold in

bordering states). Like Hostetter, those cases are inappo-

site because the challenged statutes regulated sales in

other states and, therefore, did not fall within the State’s

express Twenty-first Amendment powers to regulate

within its own borders.

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

the last case relied upon by Petitioners, see Pet. Br. at 35-

37, also did not involve a State’s exercise of its express

Twenty-first Amendment powers. There, the Court invali-

dated on dormant Commerce Clause grounds a Hawaii

statute that exempted locally-produced liquor from a

wholesale tax. See Bacchus, 468 U.S. at 265. As in Crisp,

the Court asked “whether the principles underlying the

Twenty-first Amendment are sufficiently implicated by the

{local] exemption,” or, put another way, whether the local

powers: “within the area of its jurisdiction, the State has ‘virtually

complete control’ over the importation and sale of liquor and the

structure of the liquor distribution system”) (citing Midcal, 445 U.S. at

110).

20

exemption is “closely related to the powers reserved by the

Twenty-first Amendment.” Jd. at 275.

The Court answered these questions in the negative.

In what seems almost a visceral reaction to Hawaii's

admitted desire to favor a local industry, see id. at 266, the

Court simply held that “State 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.” Jd. at 276; see also id.

(noting that the “central purpose of the [Twenty-first

Amendment} was not to favor local liquor industries by

erecting barriers to competition”).

In stark contrast to Hawaii's statute, New York’s

direct shipment statute regulates the “importation” of

alcohol beverages — a subject matter within the literal

language of the Twenty-first Amendment — rather than the

taxation of locally-produced liquor. And, unlike Hawaii’s

statute, which served only economic protectionism, New

York’s statute is designed to combat the “perceived evils of

an unrestricted traffic in liquor,” particularly underage

consumption. See Point III, infra. Thus, Bacchus is no

more helpful to Petitioners than any of the other cases

upon which they rely because it, too, did not involve a

State’s exercise of its express Twenty-first Amendment

powers.

Importantly, amicus is not suggesting that the States’

exercise of their express powers under the Twenty-first

Amendment is without limitation. As this Court has held,

state regulations of alcohol beverages may be struck down

when those regulations conflict with constitutional provi-

sions other than the Commerce Clause. See, e.g., 44

Liquormart, 517 U.S. 484 (First Amendment); Craig, 429

21

U.S. 190 (Equal Protection). But even in those cases, the

Court described the States’ Twenty-first Amendment

powers over the “importation of intoxicants” as a “regula-

tory area where the State’s authority under the Twenty-

first Amendment is transparently clear.” Craig, 429 U.S.

at 207.

In sum, this Court consistently has held that when a

State exercises its express Twenty-first Amendment

powers, it is immune from a dormant Commerce Clause

attack. Petitioners do not and cannot identify a single

decision that contradicts this principle. Indeed, the deci-

sions upon which they rely only serve to reinforce that rule

of law, which is dispositive in this case.

Ill. THE SECOND CIRCUIT CORRECTLY HELD

THAT NEW YORK’S DIRECT DISTRIBUTION

LAW IS CONSTITUTIONAL

New York’s direct distribution law fits squarely within

the ambit of the Twenty-first Amendment. It regulates the

importation of alcohol beverages into the State for use

within the State. Cf. Crisp, 467 U.S. 691; Midcal, 445 U.S.

97. The law was not passed for the exclusive purpose of

protecting the local wine market. See Swedenburg v. Kelly,

358 F.3d 223, 237 (2d Cir. 2004) (“[Wle find no indication

... that the regulatory scheme is intended to favor local

interests over out-of-state interests”); cf Bacchus, 468 U.S.

263. It does not regulate commercial activity occurring

entirely outside the State. Cf. Healy, 491 U.S. 324; Brown-

Forman -Distillers, 476 U.S 573 (1986). And it does not

encroach upon rights protected by other provisions of the

Constitution. Cf. 44 Liquormart, 517 U.S. 484; Craig, 429

U.S. 190; Wisconsin v. Constantineau, 400 U.S. 433 (1971);

Dep't of Revenue v. James B. Beam Distilling Co., 377 U.S.

22

341 (1964). As such, the Second Circuit correctly held that

the New York law — as an exercise of the State’s express

Twenty-first Amendment powers — withstood Petitioners’

dormant Commerce Clause challenge. See Swedenburg,

358 F.3d at 238-39; see also Young’s Mkt., 299 U.S. at 62.

Further, even if the Second Circuit had needed to

consider the dormant Commerce Clause, its decision to

uphold the New York statute still would have been correct.

As a threshold matter, the New York law does not dis-

criminate against out-of-state wineries and, therefore,

does not implicate dormant Commerce Clause concerns.

See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456,

471-72 (1981) (rejecting a claim of discrimination because

the challenged statute “regulate[d] evenhandedly

without regard to whether the [commerce came] from

outside the State”), Exxon Corp. v. Governor of Maryland,

437 U.S. 117, 126 (1978). The law provides that any

alcohol beverages sold to consumers in New York, whether

produced within or without the State, must pass through

parties licensed by the State Liquor Authority. See ABC

Law §§ 100(1), 102(1)(c); Swedenburg, 358 F.3d at 237-38

(“New York treats wine importers the same as it treats

internal sellers”).

The record also demonstrates that New York’s wine

market does not prejudice out-of-state wineries. See JA

127 (Affidavit of Howard P. Kitt, dated August 16, 2001)

{ 78 (evaluating competition in the New York wine market

and concluding that, “by any reasonable economic test, the

wine market in New York State is one in which competi-

tion is open, intense, and effective, and in which access -

for both suppliers of wine and consumers of wine — is

unimpeded”). In light of New York’s nondiscriminatory

regulations, Petitioners’ argument is revealed for what it

23

really is: Petitioners simply do not want to comply with

New York’s regulations.

Putting aside the threshold inquiry, New York’s direct

distribution law would satisfy the higher burden that, in

Petitioners’ incorrect view, see Pet. Br. at 16-18, Bacchus

imposes on those state laws that discriminate against

interstate commerce. That hypothetical higher burden

would require that the interests implicated by the state

regulation be “so closely related to the powers reserved by

the Twenty-first Amendment that the regulation may

prevail,” notwithstanding that the regulation conflicts

with federal law. Crisp, 467 U.S. at 714.

State regulations that are integral to enforcing that

State’s liquor laws must be deemed “closely related” to the

Twenty-first Amendment. For example, in Heublein, Inc. v.

South Carolina Tax Commission, 409 U.S. 275 (1972), the

Court held that a South Carolina regulation that required

out-of-state liquor manufacturers to have a representative

resident within the State to receive alcohol beverage

shipments in-state on behalf of the manufacturer was

“unquestionably, reasonably related to the State’s purpose”

of enforcing the State’s ABC law, which was a legitimate

Twenty-first Amendment goal. Jd. at 283 (“By requiring

manufacturers to localize their sales, South Carolina

establishes a check on the accuracy of these records”).*

* See also North Dakota, 495 U.S. at 432 (plurality opinion)

(holding that labeling and reporting requirements were “necessary

components” of an “unquestionably legitimate” “regulatory regime”

designed to ensure that liquor destined for a federal enclave within a

State was not diverted into the State); Midcal, 445 U.S. at 107 (“|T}he

Amendment gives the States control over the ‘transportation or

importation’ of liquor into their territories. Of course, such control

(Continued on following page)

24

As with the regulation at issue in Heublein, New

York's direct distribution law is integral to enforcing the

States ABC Law. In approving the physical presence

requirement that is part of the direct distribution law, the

Second Circuit stated:

Presence ensures accountability. Records of sales

and compliance with New York’s regulatory re-

quirements must be available for inspection by

[State Liquor Authority (the “SLA”)] officials.

Violations are subject to disciplinary measures

carried out in New York, including fines imposed

against the bond all license holders are required

to post.... Requiring New York officials to trav-

erse the country to ensure that direct sales to

consumers ... comply with New York law would

render the regulatory scheme useless.

Swedenburg, 358 F.3d at 237-39 (footnote omitted). See

also JA 161 (Affidavit of Thomas G. McKeon, General

Counsel of the New York State Liquor Authority, dated

August 17, 2001) 9 4 (“If out-of-state wineries ... are

permitted to sell and ship directly to New York consumers

— without any licensee — the SLA will lose the ability to

investigate and control such shipments, to protect against

diversion of wine to unlawful purchasers (such as minors

below the drinking age) and to insure that alcoholic

beverages sold in this State are not adulterated”); JA 98-

101 (Kitt Aff.) 99 39-42 (stating that out-of-state wineries

(1.e., those with no physical presence in New York) have

less incentive to comply with New York regulations than

in-state wineries). Therefore, as in Heublein, the physical

logically entails considerable regulatory power not strictly limited to

importing and transporting alcohol”).

25

presénce requirement of New York’s direct distribution law

is “unquestionably, reasonably related to the State's

purpose” of enforcing its ABC Law. 409 US. at 283.

Moreover, regulations aimed at promoting temperance

also must be deemed “closely related” to the Twenty-first

Amendment. North Dakota, 495 U.S. at 432 (approving

North Dakota regulation that promoted temperance). The

New York law clearly promotes temperance among minors.

As Ohe expert testified below:

Unlike out-of-state producers and sellers of alco-

holic beverages who are beyond the jurisdiction

of New York State regulations, in-state entities

licensed by the State Liquor Authority to traffic

in alcoholic beverages face civil and criminal

sanctions if they fail to comply with New York’s

alcoholic beverage control laws.... If the re-

quirement that all out-of-state alcoholic bever-

ages be imported through in-state licensed

wholesalers were to be struck down, the practical

means of enforcing the regulations would be lost,

and any unlicensed out-of-state producers or

sellers of alcoholic beverages would be able to sell

to minors with impunity.

See JA 165 (Decl. of Frederick P. Schaffer, dated August

17, 2001) 44 8, 10. See also Granholm v. Heald, Case Nos.

03-1116 & 03-1120, at 9-10, 13 (U.S. Jan. 29, 2004) (brief of

amicus curiae Michigan Association of Secondary School

Principals, et al.) (reviewing underage drinking sting

operation in Massachusetts, Michigan, and Tennessee that

demonstrated the ease with which minors can purchase

alcohol beverages sold over the internet without providing

proof of age). For this additional reason, even if the dor-

mant Commerce Clause were relevant here, and even if

26

Petitioners’ new “closely related” test were controlling, the

Second Circuit correctly upheld the New York statute.

IV. AN AFFIRMANCE OF THE SECOND CIR-

CUIT’S DECISION WILL PRESERVE THE

“UNQUESTIONABLY LEGITIMATE” THREE-

TIER DISTRIBUTION SYSTEM

After ratification of the Twenty-first Amendment, the

majority of States, including New York, established a

three-tier structure to regulate alcohol beverages: alcohol

must pass from a producer to a wholesaler, from a whole-

saler to a retailer, and from a retailer to a consumer. See

ABC Law § 102(1\c)-(d); Vijay Shanker, Alcohol Direct

Shipment Laws, the Commerce Clause, and the Twenty-

first Amendment, 95 Va. L. Rev. 353, 355-56 (1999). The

three-tier structure promotes orderly commerce, tax

collection, and control (over, for example, distribution to

minors). See JA 146 (McKeon Aff.) J 10 (“[T]he three-tier

system is designed to... establish and maintain balanced,

orderly markets for the distribution and sale of alcoholic

beverages”); JA 152 (McKeon Aff.) { 26 (stating that the

three-tier system is intended “to establish a level playing

field of evenhanded competition which provides each

licensee with a fair opportunity for economic success, but

which avoids the public evils caused by destructive compe-

tition in the sale of alcoholic beverages”). As the General

Counsel of the New York State Liquor Authority has said,

“(tlhe three-tier system is the critical foundation of the

regulatory scheme established by the State in 1934 and

continued without interruption ever since.” See JA 146

(McKeon Aff.) J 10.

This Court has endorsed the three-tier structure. In

North Dakota, 495 U.S. at 431-33, the Court stated: “In

27

the interest of promoting temperance, ensuring orderly

market conditions, and raising revenue, the State has

established a comprehensive system for the distribution of

liquor within its borders. That system is unquestionably

legitimate.”

In resolving this case, the Court should do no harm to

the longstanding and highly beneficial three-tier system.

Move to the point, reversal here could threaten this “un-

questionably legitimate” structure because the Petitioners

challenged not just the physical presence requirement of

New York's law that purportedly favors in-state wineries,

but the broader, three-tier structure. See Swedenburg v.

Kelly, Case No. 00 Civ. 778 (RMB) (S.D.N.Y. Dec. 10,

2002); JA 143-44 (McKeon Aff.) | 2 (noting that the plain-

tiffs challenge ABC Law § 102(a) & (c)).

The Court of Appeals for the Fourth Circuit recently

recognized the gravity of such a challenge. See Beskind v.

Easley, 325 F.3d 506 (4th Cir. 2003). Although the Fourth

Circuit incorrectly held that North Carolina’s direct

distribution statute violated the dormant Commerce

Clause, the court limited its remedy to striking the statu-

tory preference for in-state wineries, while leaving intact

the statutory prohibition against out-of-state direct distri-

bution. See id. at 517-20. The court held that “when

presented with the need to strike down one or more of

those laws as unconstitutional, we can assume that North

Carolina would wish us to take the course that least

destroys the [three-tier] scheme that it has put into place

pursuant to its powers under the Twenty-first Amend-

ment.” Jd. at 519.

Consequently, if the Court were to reverse the Second

Circuit’s decision, it should instruct the lower court to

28

strike only the provisions of New York's law that purport-

edly provide an advantage to in-state wineries, rather

than strike those provisions that underpin the three-tier

structure. In any event, amicus submits that the Court

should not need to reach that juncture because New York’s

law is a valid exercise of the State’s express Twenty-first

Amendment powers.

o

CONCLUSION

For the foregoing reasons, amicus respectfully re-

quests that the Court affirm the decision of the Court of

Appeals for the Second Circuit. Should the Court reverse,

amicus respectfully requests that the Court direct the

lower court to fashion a remedy that does the least harm

to New York’s three-tier structure of alcohol beverage

regulation.

Respectfully submitted,

Of Counsel STEVEN G. Bropy*

ARTHUR J. DECELLE JAMES K. GOLDFARB

Executive Vice President KING & SPALDING LLP

and General Counsel , 1185 Avenue of the Americas

The Beer Institute New York, NY 10036

122 C Street, NW (212) 556-2100

Suite 750

Counsel for Amicus Curiae

The Beer Institute

*Counsel of Record

Washington, DC 20001

(202) 737-2337