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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2004
- **Citation:** 542 U.S. 935

## Text

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
Liquor ¢ 7 U.S. 324 (1964), the | rt
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j I Ame ment t re te tne
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15

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0747%3A14. Public record. Not legal advice.