Slip Opinion — Lingle v. Chevron USA Inc.

(Shp Opinion) OCTOBER TERM, 2004 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

being done in connection with this case, at the time the opinion is issued.

The syllabus constitutes no * of the opinion of the Court but has been

by the Reporter of Decisions for the convenience of the reader.

See United States v. Detroit Timber & Lumber Co. 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

LINGLE, GOVERNOR OF HAWAII, ET AL. v. CHEVRON

U.S. A. INC.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

No. 04-163. Argued February 22, 2005—Decided May 23, 2005

Concerned about the effects of market concentration on retail gasoline

ieés, the Hawaii Legislature passed Act 257, which limits the rent

oil companies may charge dealers leasing company-owned service

stations. Respondent Chevron U.S. A. Inc., then one of the largest

oil companies in Hawaii, brought this suit seeking a declaration that

the rent cap effected an unconstitutional taking of its property and

an injunction against application of the cap to its stations. Applying

Agins v. City of Tiburon, 447 U.S. 255, 260—where this Court de-

clared that government regulation of private property “effects a tak-

ing if lit] does not substantially advance legitimate state interests

the District Court held that the rent cap effects an uncompensated

taking in violation of the Fifth and Fourteenth Amendments because

it does not substantially advance Hawaii's asserted interest in con-

trolling retail gas prices. The Ninth Circuit affirmed.

Held: Agins’ “substantially advance[s]” formula is not an appropriate

test for determining whether a regulation effects a Fifth Amendment

taking. Pp. 6-19.

(a) The paradigmatic taking requiring just compensation is a direct

government appropriation or physical invasion of private property.

See, e.g., United States v. Pewee Coal Co., 341 U.S. 114. Beginning

with Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, however, the

Court recognized that government regulation of private property may

be so onerous that its effect is tantamount to a direct appropriation

or ouster. Regulatory actions generally will be deemed per se takings

for Fifth Amendment purposes (1) where government requires an

owner to suffer a permanent physical invasion of her property, see

Loretto v. Teleprompter Manhattan CATV Corp., 458 U. S. 419, or (2)

LINGLE v. CHEVRON U. S. A. INC.

Syllabus

where regulations completely deprive an owner of “all economically

ial usſel' of her property, Lucas v. South Carolina Coastal

ouncil, 505 U. S. 1003, 1019. Outside these two categories (and the

special context of land-use exactions discussed below), regulatory tak-

ings challenges are governed by Penn Central Transportation Co. v.

New York City, 438 U.S. 104, 124. Penn Central identified several

factors—including the regulation’s economic impact on the claimant,

the extent to which it interferes with distinct investment-backed ex-

pectations, and the character of the government action—that are par-

ticularly significant in determining whether a regulation effects a

taking. Because the three inquiries reflected in Loretto, Lucas, and

Penn Central all aim to identify regulatory actions that are function-

ally equivalent to a direct appropriation of or ouster from private

property, each of them focuses upon the severity of the burden that

government imposes upon property rights. Pp. 6-10.

(b) The “© bstantially advances” formula is not a valid method of

identifying compensable regulatory takings. It prescribes an inquiry

in the nature of a due process test, which has no proper place in the

Court's takings jurisprudence. The formula unquestionably was de-

rived from due process precedents, since Agins supported it with cita-

tions to Nectow v. Cambridge, 277 U.S. 183, 185, and Village of

Euclid v. Ambler Realty Co., 272 U. S. 365, 395. Although Agins re-

lance on those precedents is understandable when viewed in histori-

cal context, the language the Court selected was imprecise. It sug-

gests a means-ends test, asking, in essence, whether a regulation of

private property is effective in achieving some legitimate public pur-

pose. Such an inquiry is not a valid method of discerning whether

private property has been “taken” for Fifth Amendment purposes. In

stark contrast to the three regulatory takings tests discussed above,

the “substantially advances” inquiry reveals nothing about the mag-

nitude or character of the burden a particular regulation imposes

upon private property rights or how any regulatory burden is distrib-

uted among property owners. Thus, this test does not help to identify

those regulations whose effects are functionally comparable to gov-

ernment appropriation or invasion of private property; it is tethered

neither to the text of the Takings Clause nor to the basic justification

for allowing regulatory actions to be challenged under the Clause.

Moreover, the Agins formula’s application as a takings test would

present serious practical difficulties. Reading it to demand height-

ened means-ends review of virtually all regulation of private property

would require courts to scrutinize the efficacy of a vast array of state

and federal regulations—a task for which they are not well suited. It

would also empower—and might often require—courts to substitute

their predictive judgments for those of elected legislatures and expert

—

Cite as: 544 U. 8S. (2005) 3

Syllabus

agencies. Pp. 1015.

(e) The Court's holding here does not require it to disturb any of its

prior holdings. Although it applied a “substantially advances” in-

quiry in Agins itself, see 447 U. S., at 261-262, and arguably in Key-

stone Bituminous Coal Assn. v. DeBenedictis, 480 U. S. 470, 485-492.

it has never found a compensable taking based on such an inquiry.

Moreover, in most of the cases reciting the Agins formula, the Court

has merely assumed its validity when referring to it in dicta. See,

e.g., Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Plan-

ning Agency, 535 U.S. 302, 334. Although Nollan v. California

Coastal Commission, 483 U. S. 825, 834, and Dolan v. City of Tigard,

512 U.S. 374, 385, drew upon Agins’ language, the rule those cases

established is entirely distinct from the “substantially advances” test:

They involved a special application of the “doctrine of unconstitu-

tional conditions,” which provides that the government may not re-

quire a person to give up the constitutional right to receive just com-

pensation when property is taken for a public use in exchange for a

discretionary benefit that has little or no relationship to the property.

Ibid. Pp. 16-18.

(d) A plaintiff seeking to challenge a government regulation as an

uncompensated taking of private property may proceed by alleging a

“physical” taking, a Lucas-type total regulatory taking, a Penn Cen-

tral taking, or a land-use exaetion violating the Nollan and Dolan

standards. Because Chevron argued only a “substantially advances”

theory, it was not entitled to summary judgment on its takings claim.

Pp. 18-19.

363 F. 3d 846, reversed and remanded.

O'Connor, J., delivered the opinion for a unanimous Court. KEN.

NEDY, J., filed a concurring opinion.

Cite as: 544 U. 8. (2005) 1

Opinion of the Court

NOTICE. This opinion is subject to formal revision before publication in the

preliminary print of the Umted States s. Readers are requested to

notify the Reporter of Decisions. Supreme Court of the United States, Wash-

ington, D C. 20543. of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

No. 04-163

LINDA LINGLE, GOVERNOR OF HAWAII. ET Al.

PETITIONERS U CHEVRON U. S. A. INC.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE NINTH CIRCUIT

[May 23, 2005]

JUSTICE O'CONNOR delivered the opinion of the Court.

On occasion, a would-be doctrinal rule or test finds its

way into our case law through simple repetition of a

phrase—however fortuitously coined. A quarter century

ago, in Agins v. City of Tiburon, 447 U. S. 255 (1980), the

Court declared that government regulation of private

property “effects a taking if [such regulation] does not

substantially advance legitimate state interests. Id.,

at 260. Through reiteration in a half dozen or so decisions

since Agins, this language has been ensconced in our Fifth

Amendment takings jurisprudence. See Monterey v. Del

Monte Dunes at Monterey, Ltd., 526 U. S. 687, 704 (1999)

(citing cases).

In the case before us, the lower courts applied Agins’

“substantially advances” formula to strike down a Hawaii

statute that limits the rent that oil companies may charge

to dealers who lease service stations owned by the compa-

nies. The lower courts held that the rent cap effects an

uncompensated taking of private property in violation of

the Fifth and Fourteenth Amendments because it does not

substantially advance Hawaii's asserted interest in con-

aah

2 LINGLE v. CHEVRON U. S. A. INC.

Opinion of the Court

trolling retail gasoline prices. This case requires us to

decide whether the “substantially advances” formula

announced in Agins is an appropriate test for determining

whether a regulation effects a Fifth Amendment taking.

We conclude that it is not.

I

The State of Hawaii, whose territory comprises an

archipelago of 132 islands clustered in the midst of the

Pacific Ocean, is located over 1,600 miles from the U. S.

mainland and ranks among the least populous of the 50

States. Because of Hawaiis small size and geographic

isolation, its wholesale market for oil products is highly

concentrated. When this lawsuit began in 1997, only two

refineries and six gasoline wholesalers were doing busi-

ness in the State. As of that time, respondent Chevron

U. S. A. Inc. was the largest refiner and marketer of gaso-

line in Hawaii: It controlled 60 percent of the market for

gasoline produced or refined in-state and 30 percent of the

wholesale market on the States most populous island,

Oahu.

Gasoline is sold at retail in Hawaii from about 300

different service stations. About half of these stations are

leased from oil companies by independent lessee-dealers,

another 75 or so are owned and operated by “open” deal-

ers, and the remainder are owned and operated by the oil

companies. Chevron sells most of its product through 64

independent lessee-dealer stations. In a typical lessee-

dealer arrangement, Chevron buys or leases land from a

third party, builds a service station, and then leases the

station to a dealer on a turnkey basis. Chevron charges

the lessee-dealer a monthly rent, defined as a percentage

of the dealer's margin on retail sales of gasoline and other

goods. In addition, Chevron requires the lessee-dealer to

enter into a supply contract, under which the dealer

agrees to purchase from Chevron whatever is necessary to

Cite as 544 U. 8. (2005) 3

Opinion of the Court

satisfy demand at the station for Chevron’s product. Chev-

ron unilaterally sets the wholesale price of its product.

The Hawaii Legislature enacted Act 257 in June 1997,

apparently in response to concerns about the effects of

market concentration on retail gasoline prices. See 1997

Haw. Sess. Laws no. 257, §1. The statute seeks to protect

independent dealers by imposing certain restrictions on

the ownership and leasing of service stations by oil com-

panies. It prohibits oil companies from converting existing

lessee-dealer stations to company-operated stations and

from locating new company-operated stations in close

proximity to existing dealer-operated stations. Haw. Rev.

Stat. §§486H-10.4(a), (b) (1998 Cum. Supp.). More impor-

tantly for present purposes, Act 257 limits the amount of

rent that an oil company may charge a lessee-dealer to 15

percent of the dealer's gross profits from gasoline sales

plus 15 percent of gross sales of products other than gaso-

line. §486H-10.4(c).

Thirty days after Act 257 enactment, Chevron sued the

Governor and Attorney General of Hawaii in their official

capacities (collectively Hawaii) in the United States Dis-

trict Court for the District of Hawaii, raising several fed-

eral constitutional challenges to the statute. As pertinent

here, Chevron claimed that the statute’s rent cap provi-

sion, on its face, effected a taking of Chevron’s property in

violation of the Fifth and Fourteenth Amendments. Chev-

ron sought a declaration to this effect as well as an injunc-

tion against the application of the rent cap to its stations.

Chevron swiftly moved for summary judgment on its

takings claim, arguing that the rent cap does not substan-

tially advance any legitimate government interest. Ha-

waii filed a cross-motion for summary judgment on all of

Chevron’s claims.

To facilitate resolution of the summary judgment mo-

tions, the parties jointly stipulated to certain relevant

facts. They agreed that Act 257 reduces by about

—,

ee a . tn ee

1 LINGLE v. CHEVRON U. S. A INC.

Opinion of the Court

$207,000 per year the aggregate rent that Chevron would

otherwise charge on 11 of its 64 lessee-dealer stations. On

the other hand, the statute allows Chevron to collect more

rent than it would otherwise charge at its remaining 53

lessee-dealer stations, such that Chevron could increase

its overall rental income from all 64 stations by nearly

$1.1 million per year. The parties further stipulated that,

over the past 20 years, Chevron has not fully recovered

the costs of maintaining lessee-dealer stations in any

State through rent alone. Rather, the company recoups its

expenses through a combination of rent and product sales.

Finally, the joint stipulation states that Chevron has

earned in the past, and anticipates that it will continue to

earn under Act 257, a return on its investment in lessee-

dealer stations in Hawaii that satisfies any constitutional

standard.

The District Court granted summary judgment to Chev-

ron, holding that “Act 257 fails to substantially advance a

legitimate state interest, and as such, effects an unconsti-

tutional taking in violation of the Fifth and Fourteenth

Amendments.” Chevron U.S.A. Inc. v. Cayetano, 57

F. Supp. 2d 1003, 1014 (1998). The District Court ac-

cepted Hawaiis argument that the rent cap was intended

to prevent concentration of the retail gasoline market—

and, more importantly, resultant high prices for consum-

ers—by maintaining the viability of independent lessee-

dealers. Id., at 1009-1010. The court concluded that the

statute would not substantially advance this interest,

however, because it would not actually reduce lessee-

dealers’ costs or retail prices. It found that the rent cap

would allow incumbent lessee-dealers, upon transferring

occupancy rights to a new lessee, to charge the incoming

lessee a premium reflecting the value of the rent reduc-

tion. Accordingly, the District Court reasoned, the incom-

ing lessee’s overall expenses would be the same as in the

absence of the rent cap, so there would be no savings to

Cite as: 544 U. 8. (2005) 5

Opinion of the Court

pass along to consumers. Id., at 1010-1012. Nor would

incumbent lessees benefit from the rent cap, the court

found, because the oil company lessors would unilaterally

raise wholesale fuel prices in order to offset the reduction

in their rental income. Id., at 1012-1014.

On appeal, a divided panel of the Court of Appeals for

the Ninth Circuit held that the District Court had applied

the correct legal standard to Chevron’s takings claim.

Chevron U.S.A. Inc. v. Cayetano, 224 F. 3d 1030, 1033-

1037 (2000). The Court of Appeals vacated the grant of

summary judgment, however, on the ground that a genu-

ine issue of material fact remained as to whether the Act

would benefit consumers. Id., at 1037-1042. Judge Wil-

ham Fletcher concurred in the judgment, maintaining that

the “reasonableness” standard applicable to “ordinary rent

and price control laws” should instead govern Chevron's

claim. /d., at 1048.

On remand, the District Court entered judgment for

Chevron after a 1-day bench trial in which Chevron and

Hawaii called competing expert witnesses (both econo-

mists) to testify. 198 F.Supp. 2d 1182 (2002). Finding

Chevron's expert witness to be “more persuasive” than the

State’s expert, the District Court once again concluded

that oil companies would raise wholesale gasoline prices to

offset any rent reduction required by Act 257, and that the

result would be an increase in retail gasoline prices. Id.,

at 1187-1189. Even if the rent cap did reduce lessee-

dealers’ costs, the court found, they would not pass on any

savings to consumers. /d., at 1189. The court went on to

reiterate its determination that Act 257 would enable

incumbent lessee-dealers to sell their leaseholds at a

premium, such that incoming lessees would not obtain any

of the benefits of the rent cap. Id., at 1189-1190. And

while it acknowledged that the rent cap could preclude oil

companies from constructively evicting dealers through

excessive rents, the court found no evidence that Chevron

6 LINGLE v. CHEVRON U. S. A. INC.

Opinion of the Court

or any other oil company would attempt to charge such

rents in the absence of the cap. Id., at 1191. Finally, the

court concluded that Act 257 would in fact decrease the

number of lessee-dealer stations because the rent cap

would discourage oil companies from building such sta-

tions. Id., at 1191-1192. Based on these findings, the

District Court held that “Act 257 effectſed] an unconstitu-

tional regulatory taking given its failure to substantially

advance any legitimate state interest.” Id., at 1193.

The Ninth Circuit affirmed, holding that its decision in

the prior appeal barred Hawaii from challenging the

application of the “substantially advances” test to Chev-

ron’s takings claim or from arguing for a more deferential

standard of review. 363 F. 3d 846, 849-855 (2004). The

panel majority went on to reject Hawaii's challenge to the

application of the standard to the facts of the case. Id., at

855-858. Judge Fletcher dissented, renewing his conten-

tion that Act 257 should not be reviewed under the “sub-

stantially advances” standard. Id., at 859-861. We

granted certiorari, 543 U. 8. (2004), and now reverse.

Il

A —

The Takings Clause of the Fifth Amendment, made

applicable to the States through the Fourteenth, see Chi-

cago, B. & Q. R. Co. v. Chicago, 166 U.S. 226 (1897),

provides that private property shall not be taken for

public use, without just compensation.” As its text makes

plain, the Takings Clause “does not prohibit the taking of

private property, but instead places a condition on the

exercise of that power.” First English Evangelical Lu-

theran Church of Glendale v. County of Los Angeles, 482

U. S. 304, 314 (1987). In other words, it “is designed not

to limit the governmental interference with property

rights per se, but rather to secure compensation in the

event of otherwise proper interference amounting to a

Cite as: 544 U. 8. (2005) 7

Opinion of the Court

taking.” Id., at 315 (emphasis in original). While scholars

have offered various justifications for this regime, we have

emphasized its role in “bar[{ring] Government from forcing

some people alone to bear public burdens which, in all

fairness and justice, should be borne by the public as a

whole.” Armstrong v. United States, 364 U.S. 40, 49

(1960); see also Monongahela Nav. Co. v. United States,

148 U. S. 312, 325 (1893).

The paradigmatic taking requiring just compensation is

a direct government appropriation or physical invasion of

private property. See, e.g., United States v. Pewee Coal

Co., 341 U.S. 114 (1951) (Government's seizure and op-

eration of a coal mine to prevent a national strike of coal

miners effected a taking); United States v. General Motors

Corp., 323 U.S. 373 (1945) (Government's occupation of

private warehouse effected a taking). Indeed, until the

Court's watershed decision in Pennsylvania Coal Co. v.

Mahon, 260 U.S. 393 (1922), “it was generally thought

that the Takings Clause reached only a ‘direct appropria-

tion’ of property, or the functional equivalent of a ‘practi-

cal ouster of [the owner's] possession.” Lucas v. South

Carolina Coastal Council, 505 U.S. 1003, 1014 (1992)

(citations omitted and emphasis added; brackets in origi-

nal); see also id., at 1028, n. 15 (“[E]arly constitutional

theorists did not believe the Takings Clause embraced

regulations of property at all”).

Beginning with Mahon, however, the Court recognized

that government regulation of private property may, in

some instances, be so onerous that its effect is tantamount

to a direct appropriation or ouster—and that such “regula-

tory takings” may be compensable under the Fifth Amend-

ment. In Justice Holmes’ storied but cryptic formulation,

“while property may be regulated to a certain extent, if

regulation goes too far it will be recognized as a taking.”

260 U.S., at 415. The rub, of course, has been—and re-

mains—how to discern how far is “too far.” In answering

8 LINGLE v. CHEVRON U. S. A. INC.

Opinion of the Court

that question, we must remain cognizant that “govern-

ment regulation—by definition—involves the adjustment

of rights for the public good,” Andrus v. Allard, 444 U. 8.

51, 65 (1979), and that “Government hardly could go on if

to some extent values incident to property could not be

diminished without paying for every such change in the

general law,” Mahon, supra, at 413.

Our precedents stake out two categories of regulatory

action that generally will be deemed per se takings for

Fifth Amendment purposes. First, where government

requires an owner to suffer a permanent physical invasion

of her property—however minor—it must provide just

compensation. See Loretto v. Teleprompter Manhattan

CATV Corp., 458 U.S. 419 (1982) (state law requiring

landlords to permit cable companies to install cable facili-

ties in apartment buildings effected a taking). A second

categorical rule applies to regulations that completely

deprive an owner of “all economically beneficial us[e]” of

her property. Lucas, 505 U.S., at 1019 (emphasis in

original). We held in Lucas that the government must pay

just compensation for such “total regulatory takings,”

except to the extent that “background principles of nui-

sance and property law” independently restrict the

owner's intended use of the property. Id., at 1026-1032.

Outside these two relatively narrow categories (and the

special context of land-use exactions discussed below, see

infra, at 16-18), regulatory tekings challenges are gov-

erned by the standards set forth in Penn Central Transp.

Co. v. New York City, 438 U. 8. 104 (1978). The Court in

Penn Central acknowledged that it had hitherto been

“unable to develop any ‘set formula’” for evaluating regu-

latory takings claims, but identified “several factors that

have particular significance.” Id., at 124. Primary among

those factors are “|t]he economic impact of the regulation

on the claimant and, particularly, the extent to which the

regulation has interfered with distinct investment-backed

Cite as: 544 U. 8. (2005) 9

Opinion of the Court

expectations.” Jbid. In addition, the “character of the

governmental action for instance whether it amounts to

a physical invasion or instead merely affects property

interests through “some public program adjusting the

benefits and burdens of economic life to promote the com-

mon good —- may be relevant in discerning whether a

taking has occurred. Jbid. The Penn Central factors—

though each has given rise to vexing subsidiary ques-

tions—have served as the principal guidelines for resolv-

ing regulatory takings claims that do not fall within the

physical takings or Lucas rules. See, e.g., Palazzolo v.

Rhode Island, 533 U. S. 606, 617-618 (2001); id., at 632—

634 (O'CONNOR, J., concurring).

Although our regulatory takings jurisprudence cannot

be characterized as unified, these three inquiries (reflected

in Loretto, Lucas, and Penn Central) share a common

touchstone. Each aims to identify regulatory actions that

are functionally equivalent to the classic taking in which

government directly appropriates private property or

ousts the owner from his domain. Accordingly. each of

these tests focuses directly upon the severity of the burden

that government imposes upon private property rights.

The Court has held that physical takings require compen-

sation because of the unique burden they impose: A per-

manent physical invasion, however minimal the economic

cost it entails, eviscerates the owner's right to exclude

others from entering and using her property—perhaps the

most fundamental of all property interests. See Dolan v.

City of Tigard, 512 U.S. 374, 384 (1994); Nollan v. Cali-

fornia Coastal Comm'n, 483 U.S. 825, 831-832 (1987);

Loretto, supra, at 433; Kaiser Aetna v. United States, 444

U. S. 164, 176 (1979). In the Lucas context, of course, the

complete elimination of a property's value is the determi-

native factor. See Lucas, supra, at 1017 (positing that

“total deprivation of beneficial use is, from the landowner's

point of view, the equivalent of a physical appropriation”).

10 LINGLE v. CHEVRON U. S. A. INC.

Opinion of the Court

And the Penn Central inquiry turns in large part, albeit

not exclusively, upon the magnitude of a regulation’s

economic impact and the degree to which it interferes with

legitimate property interests.

B

In Agins v. City of Tiburon, a case involving a facial

takings challenge to certain municipal zoning ordinances,

the Court declared that “[t]he application of a general

zoning law to particular property effects a taking if the

ordinance does not substantially advance legitimate state

interests, see Nectow v. Cambridge, 277 U.S. 183, 188

(1928), or denies an owner economically viable use of his

land, see Penn Central Transp. Co. v. New York City, 438

U.S. 104, 138, n. 36 (1978).” 447 U. S., at 260. Because

this statement is phrased in the disjunctive, Agins’ “sub-

stantially advances” language has been read to announce

a stand-alone regulatory takings test that is wholly inde-

pendent of Penn Central or any other test. Indeed, the

lower courts in this case struck down Hawaii's rent control

statute as an “unconstitutional regulatory taking,” 198

F. Supp. 2d, at 1193, based solely upon a finding that it

does not substantially advance the State’s asserted inter-

est in controlling retail gasoline prices. See supra, at 6-7.

Although a number of our takings precedents have recited

the “substantially advances” formula minted in Agins, this

is our first opportunity to consider its validity as a free-

standing takings test. We conclude that this formula

prescribes an inquiry in the nature of a due process, not a

takings, test, and that it has no proper place in our tak-

ings jurisprudence.

There is no question that the “substantially advances”

formula was derived from due process, not takings, prece-

dents. In support of this new language, Agins cited Nec-

tow v. Cambridge, 277 U. S. 183, a 1928 case in which the

plaintiff claimed that a city zoning ordinance “deprived

Cite as: 544 U. 8. (2005) 11

Opinion of the Court

him of his property without due process of law in contra-

vention of the Fourteenth Amendment,” id., at 185. Agins

then went on to discuss Village of Euclid v. Ambler Realty

Co., 272 U. S. 365 (1926), a historic decision holding that a

municipal zoning ordinance would survive a substantive

due process challenge so long as it was not “clearly arbi-

trary and unreasonable, having no substantial relation to

the public health, safety, morals, or general welfare.” Id.,

at 395 (emphasis added); see also Nectow, supra, at 188

(quoting the same “substantial relation” language from

Euclid).

When viewed in historical context, the Court’s reliance

on Nectow and Euclid is understandable. Agins was the

Court's first case involving a challenge to zoning regula-

tions in many decades, so it was natural to turn to these

seminal zoning precedents for guidance. See Brief for

United States as Amicus Curiae in Agins v. City of Tibu-

ron, O. T. 1979, No. 602, pp. 12-13 (arguing that Euclid

“set out the principles applicable to a determination of the

facial validity of a zoning ordinance attacked as a violation

of the Takings Clause of the Fifth Amendment”). More-

over, Agins’ apparent commingling of due process and

takings inquiries had some precedent in the Court's then-

recent decision in Penn Central. See 438 U.S., at 127

(stating in dicta that “[iJt is .. implicit in Goldblatt [v.

Hempstead, 369 U. S. 590 (1962),] that a use restriction on

real property may constitute a ‘taking’ if not reasonably

necessary to the effectuation of a substantial public pur-

pose, see Nectow v. Cambridge, supra”). But see Gold-

blatt, supra, at 594-595 (quoting reasonably necessary’”

language from Lawton v. Steele, 152 U.S. 133, 137 (1894),

a due process case, and applying a deferential “‘reason-

ableness standard to determine whether a challenged

regulation was a “valid exercise of the ... police power”

under the Due Process Clause). Finally, when Agins was

decided, there had been some history of referring to depri-

12 LINGLE v. CHEVRON U. S. A. INC.

Opinion of the Court

vations of property without due process of law as “tak-

ings,” see, e.g., Rowan v. Post Office Dept., 397 U. S. 728,

740 (1970), and the Court had yet to clarify whether “regu-

latory takings” claims were properly cognizable under the

Takings Clause or the Due Process Clause, see Williamson

County Regional Planning Comm'n v. Hamilton Bank of

Jefferson City, 473 U. S. 172, 197-199 (1985).

Although Agins’ reliance on due process precedents is

understandable, the language the Court selected was

regrettably imprecise. The “substantially advances” for-

mula suggests a means-ends test: It asks, in essence,

whether a regulation of private property is effective in

achieving some legitimate public purpose. An inquiry of

this nature has some logic in the context of a due process

challenge, for a regulation that fails to serve any legitimate

governmental objective may be so arbitrary or irrational

that it runs afoul of the Due Process Clause. See, e.g.,

County of Sacramento v. Lewis, 523 U. S. 833, 846 (1998)

(stating that the Due Process Clause is intended, in part,

to protect the individual against “the exercise of power

without any reasonable justification in the service of a

legitimate governmental objective”). But such a test is not

a valid method of discerning whether private property has

been “taken” for purposes of the Fifth Amendment.

In stark contrast to the three regulatory takings tests

discussed above, the “substantially advances” inquiry

reveals nothing about the magnitude or character of the

burden a particular regulation imposes upon private

property rights. Nor does it provide any information about

how any regulatory burden is distributed among property

owners. In consequence, this test does not help to identify

those regulations whose effects are functionally compara-

ble to government appropriation or invasion of private

property; it is tethered neither to the text of the Takings

Clause nor to the basic justification for allowing regula-

tory actions to be challenged under the Clause.

Cite as: 544U.S.___ (2005) 13

Opinion of the Court

Chevron appeals to the general principle that the Tak-

ings Clause is meant “‘to bar Government from forcing

some people alone to bear public burdens which, in all

fairness and justice, should be borne by the public as a

whole.” Brief for Respondent 17-21 (quoting Armstrong,

364 U. S., at 49). But that appeal is clearly misplaced, for

the reasons just indicated. A test that tells us nothing

about the actual burden imposed on property rights, or

how that burden is allocated cannot tell us when justice

might require that the burden be spread among taxpayers

through the payment of compensation. The owner of a

property subject to a regulation that effectively serves a

legitimate state interest may be just as singled out and

just as burdened as the owner of a property subject to an

ineffective regulation. It would make little sense to say

that the second owner has suffered a taking while the first

has not. Likewise, an ineffective regulation may not

significantly burden property rights at all, and it may

distribute any burden broadly and evenly among property

owners. The notion that such a regulation nevertheless

“takes” private property for public use merely by virtue of

its ineffectiveness or foolishness is untenable.

Instead of addressing a challenged regulation’s effect on

private property, the “substantially advances” inquiry

probes the regulation’s underlying validity. But such an

inquiry is logically prior to and distinct from the question

whether a regulation effects a taking, for the Takings

Clause presupposes that the government has acted in

pursuit of a valid public purpose. The Clause expressly

requires compensation where government takes private

property “for public use.” It does not bar government from

interfering with property rights, but rather requires com-

pensation “in the event of otherwise proper interference

amounting to a taking.” First English Evangelical Lu-

theran Church, 482 U.S., at 315 (emphasis added). Con-

versely, if a government action is found to be impermissi-

14 LINGLE v. CHEVRON U. S. A. INC.

Opinion of the Court

ble—for instance because it fails to meet the “public use”

requirement or is so arbitrary as to violate due process—

that is the end of the inquiry. No amount of compensation

can authorize such action.

Chevron’s challenge to the Hawaii statute in this case

illustrates the flaws in the “substantially advances” the-

ory. To begin with, it is unclear how significantly Hawaii's

rent cap actually burdens Chevron’s property rights. The

parties stipulated below that the cap would reduce Chev-

ron’s aggregate rental income on 11 of its 64 lessee-dealer

stations by about $207,000 per year, but that Chevron

nevertheless expects to receive a return on its investment

in these stations that satisfies any constitutional stan-

dard. See supra, at 4. Moreover, Chevron asserted below,

and the District Court found, that Chevron would recoup

any reductions in its rental income by raising wholesale

gasoline prices. See supra, at 5. In short, Chevron has

not clearly argued—let alone established—that it has been

singled out to bear any particularly severe regulatory

burden. Rather, the gravamen of Chevron’s claim is sim-

ply that Hawaii’s rent cap will not actually serve the

State’s legitimate interest in protecting consumers against

high gasoline prices. Whatever the merits of that claim, it

does not sound under the Takings Clause. Chevron

plainly does not seek compensation for a taking of its

property for a legitimate public use, but rather an injunc-

tion against the enforcement of a regulation that it alleges

to be fundamentally arbitrary and irrational.

Finally, the “substantially advances” formula is not only

doctrinally untenable as a takings test—its application as

such would also present serious practical difficulties. The

Agins formula can be read to demand heightened means-

ends review of virtually any regulation of private property.

If so interpreted, it would require courts to scrutinize the

efficacy of a vast array of state and federal regulations—a

task for which courts are not well suited. Moreover, it

Cite as: 544 U. 8S. (2005) 15

Opinion of the Court

would empower—and might often require courts to

substitute their predictive judgments for those of elected

legislatures and expert agencies.

Although the instant case is only the tip of the prover-

bial iceberg, it foreshadows the hazards of placing courts

in this role. To resolve Chevron’s takings claim, the Dis-

trict Court was required to choose between the views of

two opposing economists as to whether Hawaii’s rent

control statute would help to prevent concentration and

supracompetitive prices in the State’s retail gasoline

market. Finding one expert to be “more persuasive” than

the other, the court concluded that the Hawaii Legisla-

ture’s chosen regulatory strategy would not actually

achieve its objectives. See 198 F. Supp. 2d, at 1187-1193.

Along the way, the court determined that the State was

not entitled to enact a prophylactic rent cap without actual

evidence that oil companies had charged, or would charge,

excessive rents. See id., at 1191. Based on these findings,

the District Court enjoined further enforcement of Act

257’s rent cap provision against Chevron. We find the

proceedings below remarkable, to say the least, given that

we have long eschewed such heightened scrutiny when

addressing substantive due process challenges to govern-

ment regulation. See, e.g., Exxon Corp. v. Governor of

Maryland, 437 U.S. 117, 124-125 (1978); Ferguson v.

Skrupa, 372 U.S. 726, 730-732 (1963). The reasons for

deference to legislative judgments about the need for, and

likely effectiveness of, regulatory actions are by now well

established, and we think they are no less applicable here.

For the foregoing reasons, we conclude that the “sub-

stantially advances” formula announced in Agins is not a

valid method of identifying regulatory takings for which

the Fifth Amendment requires just compensation. Since

Chevron argued only a “substantially advances” theory in

support of its takings claim, it was not entitled to sum-

mary judgment on that claim.

16 LINGLE v. CHEVRON U.S. A. INC.

Opinion of the Court

III

We emphasize that our holding today that the sub-

stantially advances” formula is not a valid takings test—

does not require us to disturb any of our prior holdings.

To be sure, we applied a “substantially advances” inquiry

in Agins itself, see 447 U. S., at 261-262 (finding that the

challenged zoning ordinances “substantially advanceſd]

legitimate governmental goals”), and arguably also in

Keystone Bituminous Coal Assn. v. DeBenedictis, 480 U. S.

470, 485-492 (1987) (quoting substantially advance([s]’”

language and then finding that the challenged statute was

intended to further a substantial public interest). But in

no case have we found a compensable taking based on

such an inquiry. Indeed, in most of the cases reciting the

“substantially advances” formula, the Court has merely

assumed its validity when referring to it in dicta. See

Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional

Planning Agency, 535 U.S. 302, 334 (2002); Del Monte

Dunes, 526 U. S., at 704; Lucas, 505 U. S., at 1016; Yee v.

Escondido, 503 U.S. 519, 534 (1992); United States v.

Riverside Bayview Homes, Inc., 474 U. 8. 121, 126 (1985).

It might be argued that this formula played a role in our

decisions in Nollan v. California Coastal Comm'n, 483

U. S. 825 (1987), and Dolan v. City of Tigard, 512 U.S.

374 (1994). See Brief for Respondent 21-23. But while

the Court drew upon the language of Agins in these cases,

it did not apply the “substantially advances” test that is

the subject decision. Both Nollan and Dolan

involved Fifth Amendment takings challenges to adjudica-

tive land-use exactions—specifically, government demands

that a landowner dedicate an easement allowing public

access to her property as a condition of obtaining a devel-

opment permit. See Dolan, supra, at 379-380 (permit to

expand a store and parking lot conditioned on the dedica-

tion of a portion of the relevant property for a “greenway,”

including a bike/pedestrian path); Nollan, supra, at 828

Cite as: 544 U. 8. (2005) 17

Opinion of the Court

(permit to build a larger residence on beachfront property

conditioned on dedication of an easement allowing the

public to traverse a strip of the property between the

owner's seawall and the mean high-tide line).

In each case, the Court began with the premise that,

had the government simply appropriated the easement in

question, this would have been a per se physical taking.

Dolan, supra, at 384; Nollan, supra, at 831-832. The

question was whether the government could, without

paying the compensation that would otherwise be required

upon effecting such a taking, demand the easement as a

condition for granting a development permit the govern-

ment was entitled to deny. The Court in Nolan answered

in the affirmative, provided that the exaction would sub-

stantially advance the same government interest that

would furnish a valid ground for denial of the permit. 483

U.S., at 834-837. The-Court further refined this re-

quirement in Dolan, holding that an adjudicative exaction

requiring dedication of private property must also be

“‘rough[ly] proportiona[l]’ ... both in nature and extent to

the impact of the proposed development.” 512 U.S., at

391; see also Del Monte Dunes, supra, at 702 (emphasizing

that we have not extended this standard “beyond the

special context of [such] exactions’).

Although Nollan and Dolan quoted Agins’ language, see

Dolan, supra, at 385; Nollan, supra, at 834, the rule those

decisions established is entirely distinct from the “sub-

stantially advances” test we address today. Whereas the

“substantially advances” inquiry before us now is uncon-

cerned with the degree or type of burden a regulation

places upon property, Nollan and Dolan both involved

dedications of property so onerous that, outside the exac-

tions context, they would be deemed per se physical tak-

ings. In neither case did the Court question whether the

exaction would substantially advance some legitimate

state interest. See Dolan, supra, at 387-388, Nollan,

18 LINGLE v. CHEVRON U. S. A. INC.

Opinion of the Court

supra, at 841. Rather, the issue was whether the exac-

tions substantially advanced the same interests that land-

use authorities asserted would allow them to deny the

permit altogether. As the Court explained in Dolan, these

cases involve a special application of the “doctrine of ‘un-

constitutional conditions, which provides that “the gov-

ernment may not require a person to give up a constitu-

tional right—here the right to receive just compensation

when property is taken for a public use—in exchange for a

discretionary benefit conferred by the government where

the benefit has little or no relationship to the property.”

512 U.S., at 385. That is worlds apart from a rule that

says a regulation affecting property constitutes a taking

on its face solely because it does not substantially advance

a legitimate government interest. In short, Nollan and

Dolan cannot be characterized as applying the “substan-

tially advances” test we address today, and our decision

should not be read to disturb these precedents.

* * *

Twenty-five years ago, the Court posited that a regula-

tion of private property “effects a taking if ſit] does not

substantially advance [a] legitimate state interes|t].”

Agins, supra, at 260. The lower courts in this case took

that statement to its logical conclusion, and in so doing,

revealed its imprecision. Today we correct course. We

hold that the “substantially advances” formula is not a

valid takings test, and indeed conclude that it has no

proper place in our takings jurisprudence. In so doing, we

reaffirm that a plaintiff seeking to challenge a government

regulation as an uncompensated taking of private prop-

erty may proceed under one of the other theories discussed

above—by alleging a “physical” taking, a Lucas-type “total

regulatory taking,” a Penn Central taking, or a land-use

exaction violating the standards set forth in Nollan and

Dolan. Because Chevron argued only a “substantially

Cite as: 544 U. 8. (2005) 19

Opinion of the Court

advances” theory in support of its takings claim, it was

not entitled to summary judgment on that claim. Accord-

ingly, we reverse the judgment of the Ninth Circuit and

remand the case for further proceedings consistent with

this opinion.

It is so ordered.

Cite as: 544 U. 8. (2005) 1

KENNEDY, J., concurring

SUPREME COURT OF THE UNITED STATES

No. 04-163

LINDA LINGLE, GOVERNOR OF HAWAII, ET AL.,

PETITIONERS v. CHEVRON U. S. A. INC.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF. .

APPEALS FOR THE NINTH CIRCUIT

[May 23, 2005]

JUSTICE KENNEDY, concurring.

This separate writing is to note that today’s decision

does not foreclose the possibility that a regulation might

be so arbitrary or irrational as to violate due process.

Eastern Enterprises v. Apfel, 524 U.S. 498, 539 (1998)

(KENNEDY, J., concurring in judgment and dissenting in

part). The failure of a regulation to accomplish a stated or

obvious objective would be relevant to that inquiry. Chev-

ron voluntarily dismissed its due process claim without

prejudice, however, and we have no occasion to consider

whether Act 257 of the 1997 Hawaii Session Laws “repre-

sents one of the rare instances in which even such a permis-

sive standard has been violated.” Apfel, supra, at 550. With

these observations, I join the opinion of the Court.

(Shp Opinion) OCTOBER TERM, 2004 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

the convenience of

wt) AS Detroit Timber & Lumber Co, 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

GRANHOLM, GOVERNOR OF MICHIGAN, ETAL. v.

HEALD ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SIXTH CIRCUIT

No. 03-1116. Argued December 7, 2004—Decided May 16, 2005*

Michigan and New York regulate the sale and importation of wine

through three-tier systems requiring separate licenses for producers,

wholesalers, and retailers. These schemes allow in-state, but not out-

of-state, wineries to make direct sales to consumers. This differential

treatment explicitly discriminates against interstate commerce by

limiting the emerging and significant direct-sale business. Influ-

enced by an increasing number of small wineries and a decreasing

number of wine wholesalers, direct sales have grown because small

wineries may not produce enough wine or have sufficient consumer

demand for their wine to make it economical for wholesalers to carry

their products. In Nos. 03-1116 and 03-1120, Michigan residents,

joined by an intervening out-of-state winery, sued Michigan officials,

claiming that the State's laws violate the Commerce Clause. The

State and an intervening in-state wholesalers association responded

that the direct-shipment ban was a valid exercise of Michigan's

power under the Twenty-first Amendment. The District Court sus-

tained the scheme, but the Sixth Circuit reversed, rejecting the ar-

gument that the Twenty-first Amendment immunizes state liquor

laws from Commerce Clause strictures and holding that there was no

showing that the State could not meet its proffered policy objectives

through nondiscriminatory means. In No. 03-1274, out-of-state win-

*Together with No. 03-1120, Michigan Beer & Wine Wholesalers

Assn. v. Heald et al., also on certiorari to the same court, and No. 03

1274, Swedenburg et al. v. Kelly, Chairman, New York Division of Alco-

holic Beverage Control, State Liquor Authority, et al., on certiorari to

the United States Court of Appeals for the Second Circuit.

GRANHOLM v. HEALD

Syllabus

eries and their New York customers filed suit against state officials,

seeking. inter alia, a declaration that the State's direct-shipment

laws violate the Commerce Clause. State liquor wholesalers and re-

tailers representatives intervened in support of the State. The Dis-

trict Court granted the plaintiffs summary judgment, but the Second

Circuit reversed, holding that New York's laws fell within the ambit

of its powers under the Twenty-first Amendment. Here, respondents

in the Michigan cases and petitioners in the New York case are re-

ferred to as the wineries, while the opposing parties are referred to as

the States.

Held: Both States’ laws discriminate against interstate commerce in

violation of the Commerce Clause, and that discrimination is neither

authorized nor permitted by the Twenty-first Amendment. Pp. 8-30.

(a) This Court has long held that, in all but the narrowest circum-

stances, state laws violate the Commerce Clause if they mandate “dif-

ferential treatment of in-state and out-of-state economic interests

that benefits the former and burdens the latter.” Oregon Waste Sys-

tems, Inc. v. Department of Environmental Quality of Ore., 511 U. S.

93, 99. Laws such as those at issue contradict the principles underly-

ing this rule by depriving citizens of their right to have access to

other States markets on equal terms. The Michigan system's dis-

criminatory character is obvious. It allows in-state wineries to ship

directly to consumers, subject only to a licensing requirement, but

out-of-state wineries, even if licensed, must go through a wholesaler

and retailer. The resulting price differential, plus the possible inabil-

ity to secure a wholesaler for small shipments, can effectively bar

small wineries from Michigan's market. New York's scheme also

grants in-state wineries access to state consumers on preferential

terms. It allows in-state wineries to ship directly to consumers, but

requires an out-of-state winery to open a New York branch office and

warehouse, which drives up its costs. Out-of-state wineries are also

ineligible for a “farm winery” license, which provides the most direct

means of shipping to New York consumers. Pp. 8-12.

(b) Section 2 of the Twenty-first Amendment does not allow States

to regulate direct shipment of wine on terms that discriminate in fa-

vor of in-state producers. The States’ position is inconsistent with

this Court's precedents and the Amendment's history. Pp. 12-26.

(1) This Court invalidated many state liquor regulations before

the Eighteenth Amendment's ratification, finding either that the

Commerce Clause prevented States from discriminating against im-

ported liquor, Scott v. Donald, 165 U. S. 58, or that States could not

pass facially neutral laws that placed an impermissible burden on in-

terstate commerce, Bowman v. Chicago & Northwestern R. Co., 125

U.S. 465. While States could ban domestic liquor production, Mugler

Cite as: 544 U. 8S. (2005) 3

Syllabus

v. Kansas, 123 U.S. 623, such laws were ineffective because they

could not regulate imported liquor in its original package, Leisy v.

Hardin, 135 U.S. 100. To resolve this matter, Congress passed the

Wilson Act, which empowered the States to regulate imported liquor

on the same terms as domestic liquor. After this Court narrowly con-

strued the Act to permit regulation of the resale of imported liquor,

not its direct shipment to consumers, Rhodes v. Iowa, 170 U. S. 412,

Congress passed the Webb-Kenyon Act to close the direct-shipment

loophole, see Clark Distilling Co. v. Western Maryland R. Co., 242

U.S. 311. The States argue that the Webb-Kenyon Act went further,

removing any barrier to discriminatory state liquor regulations, but

that reading conflicts with Clark Distilling’s description of the Webb-

Kenyon Act's purpose, which was simply to extend the Wilson Act.

Nor does the statute's text compel a different response. At the very

least, it expresses no clear congressional intent to depart from the

principle disfavoring discrimination against out-of-state goods. Last,

and most importantly, the Webb-Kenyon Act did not purport to re-

peal the Wilson Act, which expressly precludes state discrimination.

The Wilson Act reaffirmed, and the Webb-Kenyon Act did not dis-

place, the Court's Commerce Clause cases striking down state laws

that discriminated against out-of-state liquor. States were required

to regulate domestic and imported liquor on equal terms. Pp. 12-21.

(2) A brief respite from these legal battles brought on by the

Eighteenth Amendment's ratification ended with the Twenty-first

Amendment. The States contend that §2 of the Twenty-first

Amendment transfers to States the authority to discriminate against

out-of-state goods, but the pre-Amendment history recited here pro-

vides strong support for the view that §2 only restored to the States

the powers they had under the Wilson and Webb-Kenyon Acts. The

Twenty-first Amendment's aim was to allow States to maintain an ef-

fective and uniform system for controlling liquor by regulating its

transportation, importation, and use. It did not give States the au-

thority to pass nonuniform laws in order to discriminate against out-

of-state goods, a privilege they never enjoyed. Cases decided soon af-

ter the Twenty-first Amendment's ratification did not take account of

the underlying history and were inconsistent with this view, e.g.,

State Bd. of Equalization of Cal. v. Young's Market Co., 299 U. S. 59,

but the Court’s reluctance to consider this history did not reflect a

consensus that such evidence was irrelevant or that prior history was

unsupportive of the principle that the Amendment did not authorize

discrimination against out-of-state liquor. More recent cases confirm

that the Twenty-first Amendment does not supersede other provi-

sions of the Constitution and, in particular, does not displace the rule

that States may not give a discriminatory preference to their own

4 GRANHOLM v. HEALD

Syllabus

producers. Pp. 21-23.

(3) This Court has held, in the modern §2 cases, (1) that state

laws violating other provisions of the Constitution are not saved by

the Twenty-first Amendment, e.g., 44 Liquormart, Inc. v. Rhode Is-

land, 517 U.S. 484, (2) that §2 does not abrogate Congress’ Com-

merce Clause powers with regard to liquor, e.g., Capital Cities Cable,

Inc. v. Crisp, 467 U. S. 691, and (3) as most relevant here, that state

regulation of alcohol is limited by the Commerce Clause's nondis-

crimination principle, e.g., Bacchus Imports, Ltd. v. Dias, 468 U. S.

263, 276. Bacchus, which dealt with a Hawaii excise tax exempting

some in-state alcoholic beverages, provides a particularly telling ex-

ample of this last proposition, and this Court declines the States’

suggestion to overrule or limit that case. The decision to invalidate

the instant direct-shipment laws also does not call into question their

three-tier systems constitutionality, see North Dakota v. United

States, 495 U.S. 423, 432. State policies are protected under the

Twenty-first Amendment when they treat liquor produced out of

state the same as its domestic equivalent. In contrast, the instant

cases involve straightforward attempts to discriminate in favor of lo-

cal producers. Pp. 23-26.

(c) Concluding that the States’ direct-shipment laws are not au-

thorized by the Twenty-first Amendment does not end the inquiry,

for this Court must still consider whether either State’s regime “ad-

vances a legitimate local purpose that cannot be adequately served by

reasonable nondiscriminatory alternatives,” New Energy Co. of Ind.

Limbach, 486 U. S. 269, 278. The States provide little evidence for

their claim that purchasing wine over the Internet by minors is a

problem. The 26 States now permitting direct shipments report no

such problem, and the States can minimize any risk with less restric-

tive steps, such as requiring an adult signature on delivery. The

States’ tax evasion justification is also insufficient. Increased direct

shipment, whether in or out of state, brings the potential for tax eva-

sion. However, this argument is a diversion with regard to Michigan,

which does not rely on in-state wholesalers to collect taxes on out-of-

state wines. New York's tax collection objectives can be achieved

without discriminating against interstate commerce, e.g., by requir-

ing a permit as a condition of direct shipping, which is what it does

for in-state wineries. Both States also benefit from federal laws that

supply incentives for wineries to comply with state regulations.

Other rationales—facilitating orderly market conditions, protecting

public health and safety, and ensuring regulatory accountability—

can also be achieved through the alternative of an evenhanded licens-

ing requirement. Pp. 26-29.

Nos. 03-1116 and 03-1120, 342 F. 3d 517, affirmed; No. 03-1274, 358

Cite as: 544 U. 8. (2005) 5

Syllabus

F. 3d 223, reversed and remanded.

KENNEDY, J., delivered the opinion of the Court, in which SCALIA,

Souter, GINSBURG, and BREYER, JJ., joined. STEVENS, J., filed a dis-

senting opinion, in which O'CONNOR, J., joined. THOMAS, J., filed a dis-

senting opinion, in which REHNQUIST, C.J., and STEVENS and

O'Connor, JJ., joined.

Cite as: 544 U. 8S. (2005) 1

Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the

prehminary print of the United States Re . Readers are requested to

notify the Reporter of Decisions, Supreme Court of the United States, Wash-

ington, D C. 20543, of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

Nos. 03-1116. 03-1120 and 03-1274

JENNIFER M. GRANHOLM, GOVERNOR OF

MICHIGAN, ET AL., PETITIONERS

03-1116 v.

ELEANOR HEALD Er AL.

MICHIGAN BEER & WINE WHOLESALERS

ASSOCIATION, PETITIONER

03-1120 v.

ELEANOR HEALD Er AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

JUANITA SWEDENBURG, Er AL., PETITIONERS

03-1274 v.

EDWARD D. KELLY, CHAIRMAN, NEW YORK

DIVISION OF ALCOHOLIC BEVERAGE

CONTROL, STATE LIQUOR

AUTHORITY, ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

[May 16, 2005]

JUSTICE KENNEDY delivered the opinion of the Court.

These consolidated cases present challenges to state

laws regulating the sale of wine from out-of-state wineries

to consumers in Michigan and New York. The details and

2 GRANHOLM v. HEALD

Opinion of the Court

mechanics of the two regulatory schemes differ, but the

object and effect of the laws are the same: to allow in-state

wineries to sell wine directly to consumers in that State

but to prohibit out-of-state wineries from doing so, or, at

the least, to make direct sales impractical from an eco-

nomic standpoint. It is evident that the object and design

of the Michigan and New York statutes is to grant in-state

wineries a competitive advantage over wineries located

beyond the States’ borders.

We hold that the laws in both States discriminate

against interstate commerce in violation of the Commerce

Clause, Art. I, §8, cl. 3, and that the discrimination is

neither authorized nor permitted by the Twenty-first

Amendment. Accordingly, we affirm the judgment of the

Court of Appeals for the Sixth Circuit, which invalidated

the Michigan laws; and we reverse the judgment of the

Court of Appeals for the Second Circuit, which upheld the

New York laws. .

I

Like many other States, Michigan and New York regu-

late the sale and importation of alcoholic beverages, in-

cluding wine, through a three-tier distribution system.

Separate licenses are required for producers, wholesalers,

and retailers. See FTC, Possible Anticompetitive Barri-

ers to E-Commerce: Wine 5-7 (July 2003) (hereinafter

FTC Report), available at http://www.ftc.gov/os/2003/07/

winereport2.pdf (all Internet materials as visited May 11,

2005, and available in Clerk of Court’s case file). The

three-tier scheme is preserved by a complex set of over-

lapping state and federal regulations. For example, both

state and federal laws limit vertical integration between

tiers. Id., at 5; 27 U.S.C. §205; see, e.g., Bainbridge v.

Turner, 311 F. 3d 1104, 1106 (CA11 2002). We have held

previously that States can mandate a three-tier distribu-

tion scheme in the exercise of their authority under the

Cite as: 544 U. 8. (2005) 3

Opinion of the Court

Twenty-first Amendment. North Dakota v. United States,

495 U.S. 423, 432 (1990); id., at 447 (SCALIA, J., concurring

in judgment). As relevant to today’s cases, though, the

three-tier system is, in broad terms and with refinements

to be discussed, mandated by Michigan and New York

only for sales from out-of-state wineries. In-state winer-

ies, by contrast, can obtain a license for direct sales to

consumers. The differential treatment between in-state

and out-of-state wineries constitutes explicit discrimina-

tion against interstate commerce.

This discrimination substantially limits the direct sale of

wine to consumers, an otherwise emerging and significant

business. FTC Report 7. From 1994 to 1999, consumer

spending on direct wine shipments doubled, reaching $500

million per year, or three percent of all wine sales. Id., at 5.

The expansion has been influenced by several related

trends. First, the number of small wineries in the United

States has significantly increased. By some estimates there

are over 3,900 wineries in the country, WineAmerica, The

National Association of American Wineries, Wine Facts 2004,

http://www.americanwineries.org/newsroom/winefacts04.htm,

more than three times the number 30 years ago, FTC Re-

port 6. At the same time, the wholesale market has con-

solidated. Between 1984 and 2002, the number of li-

censed wholesalers dropped from 1,600 to 600. Riekhof &

Sykuta, Regulating Wine by Mail, 27 Regulation, No. 3,

pp. 30, 31 (Fall 2004), available at http://www.cato.org/

pubs/regulation/regv27n3/v27n3-3.pdf. The increasing

winery-to-wholesaler ratio means that many small winer-

ies do not produce enough wine or have sufficient con-

sumer demand for their wine to make it economical for

wholesalers to carry their products. FTC Report 6. This

has led many small wineries to rely on direct shipping to

reach new markets. Technological improvements, in

particular the ability of wineries to sell wine over the

Internet, have helped make direct shipments an attractive

sales channel.

4 GRANHOLM v. HEALD

Opinion of the Court

Approximately 26 States allow some direct shipping of

wine, with various restrictions. Thirteen of these States

have reciprocity laws, which allow direct shipment from

wineries outside the State, provided the State of origin

affords similar nondiscriminatory treatment. Id., at 7-8.

In many parts of the country, however, state laws that

prohibit or severely restrict direct shipments deprive

consumers of access to the direct market. According to the

Federal Trade Commission (FTC), “[s}tate bans on inter-

state direct shipping represent the single largest regula-

tory barrier to expanded e-commerce in wine.” Id., at 3.

The wine producers in the cases before us are small

wineries that rely on direct consumer sales as an impor-

tant part of their businesses. Domaine Alfred, one of the

plaintiffs in the Michigan suit, is a small winery located in

San Luis Obispo, California. It produces 3,000 cases of

wine per year. Domaine Alfred has received requests for

its wine from Michigan consumers but cannot fill the

orders because of the State’s direct-shipment ban. Even if

the winery could find a Michigan wholesaler to distribute

its wine, the wholesaler’s markup would render shipment

through the three-tier system economically infeasible.

Similarly, Juanita Swedenburg and David Lucas, two of

the plaintiffs in the New York suit, operate small wineries

in Virginia (the Swedenburg Estate Vineyard) and Cali-

fornia (the Lucas Winery). Some of their customers are

tourists, from other States, who purchase wine while

visiting ‘he wineries. If these customers wish to obtain

Sweden. urg or Lucas wines after they return home, they

will be unable to do so if they reside in a State with re-

strictive direct-shipment laws. For example, Swedenburg

and Lucas are unable to fill orders from New York, the

Nation's second-largest wine market, because of the limits

that State imposes on direct wine shipments.

Cite as: 544 U. 8. (2005) 5

Opinion of the Court

A

We first address the background of the suit challenging

the Michigan direct-shipment law. Most alcoholic bev er-

ages in Michigan are distributed through the State's

three-tier system. Producers or distillers of alcoholic

beverages, whether located in state or out of state, gener-

ally may sell only to licensed in-state wholesalers. Mich.

Comp. Laws Ann. §§436.1109(1), 436.1305, 436.1403,

436.1607(1) (West 2000); Mich. Admin. Code Rules

436.1705 (1990), 436.1719 (2000). Wholesalers, in turn,

may sell only to in-state retailers. Mich. Comp. Laws Ann.

§§436.1113(7), 436.1607(1) (West 2001). Licensed retail-

ers are the final link in the chain, selling alcoholic bever-

ages to consumers at retail locations and, subject to cer-

tain restrictions, through home delivery. §§436.1111(5),

436.1203(2)-(4).

Under Michigan law, wine producers, as a general mat-

ter, must distribute their wine through wholesalers.

There is, however, an exception for Michigan’s approxi-

mately 40 in-state wineries, which are eligible for “wine

maker” licenses that allow direct shipment to in-state

consumers. §436.1113(9) (West 2001); §§436.1537(2)(3)

(West Supp. 2004); Mich. Admin. Code Rule 436.1011(7)(b)

(2003). The cost of the license varies with the size of the

winery. For a small winery, che license is $25. Mich.

Comp. Laws Ann. §436.1525(1)(d) (West Supp. 2004).

Out-of-state wineries can apply for a $300 “outside seller

of wine” license, but this license only allows them to sell to

in-state wholesalers. §§436.1109(9) (West 2001), 436.1525(1)(e)

(West Supp. 2004); Mich. Admin. Code Rule 436.1719(5)

(2000).

Some Michigan residents brought suit against various

state officials in the United States District Court for the

Eastern District of Michigan. Domaine Alfred, the San

Luis Obispo winery, joined in the suit. The plaintiffs con-

tended that Michigan's direct-shipment laws discriminated

——— eee

6 GRANHOLM v. HEALD

Opinion of the Court

against interstate commerce in violation of the Commerce

Clause. The trade association Michigan Beer & Wine

Wholesalers intervened as a defendant. Both the State and

the wholesalers argued that the ban on direct shipment

from out-of-state wineries is a valid exercise of Michigan's

power under §2 of the Twenty-first Amendment.

On cross-motions for summary judgment the District

Court sustained the Michigan scheme. The Court of Ap-

peals for the Sixth Circuit reversed. Heald v. Engler, 342

F. 3d 517 (2003). Relying on Bacchus Imports, Ltd. v. Dias,

468 U.S. 263 (1984), the court rejected the argument that

the Twenty-first Amendment immunizes all state liquor

laws from the strictures of the Commerce Clause, 342 F. 3d,

at 524, and held the Michigan scheme was unconstitutional

because the defendants failed to demonstrate the State

could not meet its proffered policy objectives through non-

discriminatory means, id., at 527.

New York’s licensing scheme is somewhat different. It

channels most wine sales through the three-tier system,

but it too makes exceptions for in-state wineries. As in

Michigan, the result is to allow local wineries to make

direct sales to consumers in New York on terms not avail-

able to out-of-state wineries. Wineries that produce wine

only from New York grapes can apply for a license that

allows direct shipment to in-state consumers. N. Y. Alco.

Bev. Cont. Law Ann. §76—a(3) (West Supp. 2005) (herein-

after N. V. ABC Law). These licensees are authorized to

deliver the wines of other wineries as well, §76—a(6)(a),

but only if the wine is made from grapes “at least seventy-

five percent the volume of which were grown in New York

state,” §3(20—a). An out-of-state winery may ship directly

to New York consumers only if it becomes a licensed New

York winery, which requires the establishment of “a

branch factory, office or storeroom within the state of New

York.” §3(37).

Cite as: 544 U. 8. (2005) 7

Opinion of the Court

Juanita Swedenburg and David Lucas, joined by three

of their New York customers, brought suit in the Southern

District of New York against the officials responsible for

administering New Vork's Alcoholic Beverage Control Law

seeking, inter alia, a declaration that the State's limita-

tions on the direct shipment of out-of-state wine violate

the Commerce Clause. New York liquor wholesalers and

representatives of New York liquor retailers intervened in

support of the State.

The District Court granted summary judgment to the

plaintiffs. 232 F. Supp. 2d 135 (2002). The court first

determined that, under established Commerce Clause

principles, the New York direct-shipment scheme dis-

criminates against out-of-state wineries. Id., at 146-147.

The court then rejected the State’s Twenty-first Amend-

ment argument, finding that the “[djefendants have not

shown that New York’s ban on the direct shipment of out-

of-state wine, and particularly the in-state exceptions to

the ban, implicate the State’s core concerns under the

Twenty-first Amendment.” Id., at 148.

The Court of Appeals for the Second Circuit reversed.

358 F. 3d 223 (2004). The court “recognize[d] that the

physical presence requirement could create substantial

dormant Commerce Clause problems if this licensing

scheme regulated a commodity other than alcohol.” Id., at

238. The court nevertheless sustained the New York

statutory scheme because, in the court's view, “New York's

desire to ensure accountability through presence is aimed

at the regulatory interests directly tied to the importation

and transportation of alcohol for use in New York,” ibid.

As such, the New York direct shipment laws were “within

the ambit of the powers granted to states by the Twenty-

first Amendment.” Id., at 239.

C

We consolidated these cases and granted certiorari on

8 GRANHOLM v. HEALD

Opinion of the Court

the following question: Does a State’s regulatory scheme

that permits in-state wineries directly to ship alcohol to

consumers but restricts the ability of out-of-state wineries

to do so violate the dormant Commerce Clause in light of

§2 of the Twenty-first Amendment?” 541 U.S. 1062

(2004).

For ease of exposition, we refer to the respondents from

the Michigan challenge (Nos. 03-1116 and 03-1120) and

the petitioners in the New York challenge (No. 03-1274)

collectively as the wineries. We refer to their opposing

parties—Michigan, New York, and the wholesalers and

retailers—simply as the States.

II

A

Time and again this Court has held that, in all but the

narrowest circumstances, state laws violate the Commerce

Clause if they mandate “differential treatment of in-state

and out-of-state economic interests that benefits the former

and burdens the latter.” Oregon Waste Systems, Inc. v.

Department of Environmental Quality of Ore., 511 U. S. 93,

99 (1994). See also New Energy Co. of Ind. v. Limbach, 486

U. S. 269, 274 (1988). This rule is essential to the founda-

tions of the Union. The mere fact of nonresidence should

not foreclose a producer in one State from access to mar-

kets in other States. H. P. Hood & Sons, Inc. v. Du Mond,

336 U. S. 525, 539 (1949). States may not enact laws that

burden out-of-state producers or shippers simply to give a

competitive advantage to in-state businesses. This man-

date “reflect[s] a central concern of the Framers that was

an immediate reason for calling the Constitutional Con-

vention: the conviction that in order to succeed, the new

Union would have to avoid the tendencies toward eco-

nomic Balkanization that had plagued relations among

the Colonies and later among the States under the Articles

of Confederation.” Hughes v. Oklahoma, 441 U.S. 322,

325-326 (1979).

Cite as: 544 U. 8. (2005) 9

Opinion of the Court

The rule prohibiting state discrimination against inter-

state commerce follows also from the principle that States

should not be compelled to negotiate with each other

regarding favored or disfavored status for their own citi-

zens. States do not need, and may not attempt, to negoti-

ate with other States regarding their mutual economic

interests. Cf. U.S. Const., Art. I. §10, cl. 3. Rivalries

among the States are thus kept to a minimum, and a

proliferation of trade zones is prevented. See C & A Car-

bone, Inc. v. Clarkstown, 511 U.S. 383, 390 (1994) (citing

The Federalist No. 22, pp. 143-145 (C. Rossiter ed. 1961) (A.

Hamilton); Madison, Vices of the Political System of the

United States, in 2 Writings of James Madison 362-363 (G.

Hunt ed. 1901)).

Laws of the type at issue in the instant cases contradict

these principles. They deprive citizens of their right to

have access to the markets of other States on equal terms.

The perceived necessity for reciprocal sale privileges risks

generating the trade rivalries and animosities, the alli-

ances and exclusivity, that the Constitution and, in par-

ticular, the Commerce Clause were designed to avoid.

State laws that protect local wineries have led to the

enactment of statutes under which some States condition

the right of out-of-state wineries to make direct wine sales

to in-state consumers on a reciprocal right in the shipping

State. California, for example, passed a reciprocity law in

1986, retreating from the State’s previous regime that

allowed unfettered direct shipments from out-of-state

wineries. Riekhof & Sykuta, 27 Regulation, No. 3, at 30.

Prior to 1986, all but three States prohibited direct-

shipments of wine. The obvious aim of the California

statute was to open the interstate direct-shipping market

for the State’s many wineries. Jbid. The current patch-

work of laws—with some States banning direct shipments

altogether, others doing so only for out-of-state wines, and

still others requiring reciprocity—is essentially the prod-

10 GRANHOLM vu. HEALD

Opinion of the Court

uct of an ongoing, low-level trade war. Allowing States to

discriminate against out-of-state wine “invite[s] a multi-

plication of preferential trade areas destructive of the very

purpose of the Commerce Clause.” Dean Milk Co. v. Madi-

son, 340 U. S. 349, 356 (1951). See also Baldwin v. G. A. F.

Seelig. Inc., 294 U. S. 511, 521-523 (1935).

The discriminatory character of the Michigan system is

obvious. Michigan allows in-state wineries to ship directly

to consumers, subject only to a licensing requirement.

Out-of-state wineries, whether licensed or not, face a

complete ban on direct shipment. The differential treat-

ment requires all out-of-state wine, but not all in-state

wine, to pass through an in-state wholesaler and retailer

before reaching consumers. These two extra layers of

overhead increase the cost of out-of-state wines to Michi-

gan consumers. The cost differential, and in some cases

the inability to secure a wholesaler for small shipments,

can effectively bar small wineries from the Michigan

market.

The New York regulatory scheme differs from Michi-

gan’s in that it does not ban direct shipments altogether.

Out-of-state wineries are instead required to establish a

distribution operation in New York in order to gain the

privilege of direct shipment. N. V. ABC Law §§3(37), 96.

This, though, is just an indirect way of subjecting out-of-

state wineries, but not local ones, to the three-tier system.

New York and those allied with its interests defend the

scheme by arguing that an out-of-state winery has the

same access to the State’s consumers as in-state wineries:

All wine must be sold through a licensee fully accountable

to New York; it just so happens that in order to become a

licensee, a winery must have a physical presence in the

State. There is some confusion over the precise steps out-

of-state wineries must take to gain access to the New York

Cite as: 544 U. 8. (2005) 11

Opinion of the Court

market, in part because no winery has run the State's

regulatory gauntlet. New York’s argument, in any event,

is unconvincing.

The New York scheme grants in-state wineries access to

the State’s consumers on preferential terms. The sugges-

tion of a limited exception for direct shipment from out-of- —

state wineries does nothing to eliminate the discrimina-

tory nature of New York’s regulations. In-state producers,

with the applicable licenses, can ship directly to consum-

ers from their wineries. §§76—a(3), 76(4) (West Supp.

2005), and §77(2) (West 2000). Out-of-state wineries must

open a branch office and warehouse in New York, addi-

tional steps that drive up the cost of their wine. §§3(37),

96 (West Supp. 2005). See also App. in No. 03-1274, pp.

159-160 (Affidavit of Thomas G. McKeon, General Coun-

sel to the New York State Liquor Authority). For most

wineries, the expense of establishing a bricks-and-mortar

distribution operation in 1 State, let alone all 50, is pro-

hibitive. It comes as no surprise that not a single out-of-

state winery has availed itself of New York’s direct-

shipping privilege. We have “viewed with particular

suspicion state statutes requiring business operations to

be performed in the home State that could more efficiently

be performed elsewhere.” Pike v. Bruce Church, Inc., 397

U.S. 137, 145 (1970). New York’s in-state presence re-

quirement runs contrary to our admonition that States

cannot require an out-of-state firm “to become a resident

in order to compete on equal terms.” Halliburton Oil Well

Cementing Co. v. Reily, 373 U.S. 64, 72 (1963). See also

Ward v. Maryland, 12 Wall. 418 (1871).

In addition to its restrictive in-state presence require-

ment, New York discriminates against out-of-state winer-

ies in other ways. Out-of-state wineries that establish the

requisite branch office and warehouse in New York are

still ineligible for a “farm winery” license, the license that

provides the most direct means of shipping to New York

12 GRANHOLM v. HEALD

Opinion of the Court

consumers. N. V. ABC Law §76—a(5) (“No licensed farm

winery shall manufacture or sell any wine not produced

exclusively from grapes or other fruits or agricultural

products grown or produced in New York state”). Out-of-

state wineries may apply only for a commercial winery

license. See §§3(37), 76. Unlike farm wineries, however,

commercial wineries must obtain a separate certificate

from the state liquor authority authorizing direct ship-

ments to consumers, §77(2) (West 2000); and, of course, for

out-of-state wineries there is the additional requirement of

maintaining a distribution operation in New York. New

York law also allows in-state wineries without direct-

shipping licenses to distribute their wine through other

wineries that have the applicable licenses. §76(5) (West

Supp. 2005). This is another privilege not afforded out-of-

state wineries.

We have no difficulty concluding that New York, like

Michigan, discriminates against interstate commerce

through its direct-shipping laws.

III

State laws that discriminate against interstate com-

merce face a virtually per se rule of invalidity.” Philadel-

phia v. New Jersey, 437 U. S. 617, 624 (1978). The Michi-

gan and New York laws by their own terms violate this

proscription. The two States, however, contend their

statutes are saved by §2 of the Twenty-first Amendment,

which provides:

“The transportation or importation into any State,

Territory, or possession of the United States for deliv-

ery or use therein of intoxicating liquors, in violation

of the laws thereof, is hereby prohibited.”

The States’ position is inconsistent with our precedents

and with the Twenty-first Amendment’s history. Section 2

does not allow States to regulate the direct shipment of

Cite as: 544 U. 8. (2005) 13

Opinion of the Court

wine on terms that discriminate in favor of in-state

producers.

A

Before 1919, the temperance movement fought to curb

the sale of alcoholic beverages one State at a time. The

movement made progress, and many States passed laws

restricting or prohibiting the sale of alcohol. This Court

upheld state laws banning the production and sale of

alcoholic beverages, Mugler v. Kansas, 123 U. S. 623 (1887),

but was less solicitous of laws aimed at imports. In a series

of cases before ratification of the Eighteenth Amendment

the Court, relying on the Commerce Clause, invalidated a

number of state liquor regulations.

These cases advanced two distinct principles. First, the

Court held that the Commerce Clause prevented States

from discriminating against imported liquor. Scott v.

Donald, 165 U.S. 58 (1897); Walling v. Michigan, 116

U. S. 446 (1886); Tiernan v. Rinker, 102 U. S. 123 (1880).

In Walling, for example, the Court invalidated a Michigan

tax that discriminated against liquor imports by exempt-

ing sales of local products. The Court held that States

were not free to pass laws burdening only out-of-state

products:

“A discriminating tax imposed by a State operating

to the disadvantage of the products of other States

when introduced into the first mentioned State, is, in

effect, a regulation in restraint of commerce among

the States, and as such is a usurpation of the power

conferred by the Constitution upon the Congress of

the United States.” 116 U. S., at 455.

Second, the Court held that the Commerce Clause pre-

vented States from passing facially neutral laws that

placed an impermissible burden on interstate commerce.

Rhodes v. lowa, 170 U. S. 412 (1898); Vance v. W. A. Van-

14 GRANHOLM v. HEALD

Opinion of the Court

dercook Co., 170 U.S. 438 (1898); Leisy v. Hardin, 135

U. S. 100 (1890); Bowman v. Chicago & Northwestern R.

Co., 125 U.S. 465 (1888). For example, in Bowman v.

Chicago & Northwestern R. Co., 125 U. S. 465 (1888), the

Court struck down an Iowa statute that required all liquor

importers to have a permit. Bowman and its progeny

rested in part on the since-rejected original-package doc-

trine. Under this doctrine goods shipped in interstate

commerce were immune from state regulation while in

their original package. As the Court explained in Vance,

“the power to ship merchandise from one State into

another carries with it, as an incident, the right in the

receiver of the goods to sell them in the original pack-

ages, any state regulation to the contrary notwith-

standing; that is to say, that the goods received by In-

terstate Commerce remain under the shelter of the

Interstate Commerce clause of the Constitution, until

by a sale in the original package they have been com-

mingled with the general mass of property in the

state.” 170 U. S., at 444-445.

Bowman reserved the question whether a State could

ban the sale of imported liquor altogether. 125 U. S., at

499-500. Iowa responded to Bowman by doing just that

but was thwarted once again. In Leisy, supra, the Court

held that Iowa could not ban the sale of imported liquor in

its original package.

Leisy left the States in a bind. They could ban the pro-

duction of domestic liquor, Mugler, supra, but these laws

were ineffective because out-of-state liquor was immune

from any state regulation as long as it remained in its

original package, Leisy, supra. To resolve the matter,

Congress passed the Wilson Act (so named for Senator

Wilson of Iowa), which empowered the States to regulate

imported liquor on the same terms as domestic liquor:

“That all fermented, distilled, or other intoxicating liq-

Cite as: 544 U. 8. (2005) 15

Opinion of the Court

uors or liquids transported into any State or Territory

or remaining therein for use, consumption, sale or

storage therein, shall upon arrival in such State or

Territory be subject to the operation and effect of the

laws of such State or Territory enacted in the exercise

of its police powers, to the same extent and in the

same manner as though such liquids or liquors had

been produced in such State or Territory, and shall

not be exempt therefrom by reason of being intro-

duced therein in original packages or otherwise.” Ch.

728, 26 Stat. 313 (codified at 27 U. S. C. §121).

By its own terms, the Wilson Act did not allow States to

discriminate against out-of-state liquor; rather, it allowed

States to regulate imported liquor only “to the same extent

and in the same manner’ as domestic liquor.

The Court confirmed this interpretation in Scott, supra.

Scott involved a constitutional challenge to South Caro-

lina’s dispensary law, 1895 S.C. Acts p. 721, which re-

quired that all liquor sales be channeled through the state

liquor commissioner. 165 U.S., at 92. The statute dis-

criminated against out-of-state manufacturers in two

primary ways. First, §15 required the commissioner to

“purchase his supplies from the brewers and distillers in

this State when their product reaches the standard re-

quired by this Act: Provided, Such supplies can be pur-

chased as cheaply from such brewers and distillers in this

State as elsewhere.” 1895 S.C. Acts p. 732. Second, §23

of the statute limited the State’s markup on locally pro-

duced wines to a 10-percent profit but provided “no such

limitation of charge in the case of imported wines.” 165

U.S., at 93. Based on these discriminatory provisions, the

Court rejected the argument that the South Carolina

dispensary law was authorized by the Wilson Act. Id., at

100. It explained that the Wilson Act was “not intended to

confer upon any State the power to discriminate injuri-

16 GRANHOLM v. HEALD

Opinion of the Court

ously against the products of other States in articles

whose manufacture and use are not forbidden, and which

are therefore the subjects of legitimate commerce.” Ibid.

To the contrary, the Court said, the Wilson Act mandated

“equality or uniformity of treatment under state laws,”

ibid., and did not allow South Carolina to provide “an

unjust preference” to its products “as against similar

products of the other States,” id., at 101. The dissent also

understood the validity of the dispensary law to turn in

large part on §§15 and 23, but argued that even if these

provisions were discriminatory the correct remedy was to

sever them from the rest of the Act. Id., at 104—106 (opin-

ion of Brown, J.).

Although the Wilson Act increased the States’ authority

to police liquor imports, it did not solve all their problems.

In Vance and Rhodes—two cases decided soon after

Scott—the Court made clear that the Wilson Act did not

authorize States to prohibit direct shipments for personal

use. In Vance, the Court characterized Scott as embodying

two distinct holdings: First, the South Carolina dispensary

law “amount[ed] to an unjust discrimination against liq-

uors, the products of other States.” 170 U.S., at 442. This

aspect of the Scott holding, which confirmed the Wilson

Act’s nondiscrimination principle, was based “on particu-

lar provisions of the law by which the discrimination was

brought about.” 170 U. S., at 442. Second, “in so far as

the law then in question forbade the sending . . of intoxi-

cating liquors for the use of the person to whom it was

shipped, the statute was repugnant to [the Commerce

Clause].” Jbid. (citing Scott, 165 U.S. 58). See also 170

U.S., at 443 (distinguishing between the provisions at

issue in Scott “which were held to operate a discrimina-

tion” and those which barred direct shipment for personal

use).

This second holding, that consumers had the right to

receive alcoholic beverages shipped in interstate commerce

Cite as: 544 U. 8. (2005) 17

Opinion of the Court

for personal use, was only implicit in Scott. 165 U. S., at

78, 99-100. The Court expanded on this point, however,

not only in Vance but again in Rhodes. Rhodes construed

the Wilson Act narrowly to avoid interference with this

right. The Act, the Court said, authorized States to regu-

late only the resale of imported liquor, not direct shipment

to consumers for personal use. 170 U.S., at 421. Without

a clear indication from Congress that it intended to allow

States to ban such shipments, the Rhodes Court read the

words “upon arrival” in the Wilson Act as authorizing “the

power of the State to attach to an interstate commerce

shipment,” only after its arrival at the point of destination

and delivery there to the consignee.” Id., at 426. See also

id., at 424; Bridenbaugh v. Freeman-Wilson, 227 F. 3d

848, 852 (CA7 2000). The Court interpreted the Wilson

Act to overturn Leisy but leave Bowman intact. Rhodes,

supra, at 423-424. The right to regulate did not attach

until the liquor was in the hands of the customer. As a

result, the mail-order liquor trade continued to thrive.

Rogers, Interstate Commerce in Intoxicating Liquors-

Before the Webb-Kenyon Act, 4 Va. L. Rev. 353, 364-365

(1917).

After considering a series of bills in response to the

Court's reading of the Wilson Act, Congress responded to

the direct-shipment loophole in 1913 by enacting the

Webb-Kenyon Act, 37 Stat. 699, 27 U.S.C. §122. See

Rogers, supra, at 363-370. The Act, entitled “An Act

Divesting intoxicating liquors of their interstate character

in certain cases,” provides:

“That the shipment or transportation. of any spiri-

tuous, vinous, malted, fermented, or other intoxicat-

ing liquor of any kind, from one State ... into any

other State ... which said spirituous, vinous, malted,

fermented, or other intoxicating liquor is intended, by

any person interested therein, to be received, pos-

18 GRANHOLM v. HEALD

Opinion of the Court

sessed, sold, or in any manner used, either in the

original package or otherwise, in violation of any law

of such State ... is hereby prohibited.” 37 Stat., at

699700.

The constitutionality of the Webb-Kenyon Act itself was in

doubt. Vance and Rhodes implied that any law authoriz-

ing the States to regulate direct shipments for personal

use would be an unlawful delegation of Congress’ Com-

merce Clause powers. Indeed, President Taft, acting on

the advice of Attorney General Wickersham, vetoed the

Act for this specific reason. S. Rep. No. 103, 63 Cong., Ist

Sess., 3-6 (1913); 30 Op. Atty. Gen. 88 (1913). Congress

overrode the veto and in Clark Distilling Co. v. Western

Maryland R. Co., 242 U.S. 311 (1917), a divided Court

upheld the Webb-Kenyon Act against a constitutional

challenge.

The Court construed the Act to close the direct-shipment

gap left open by the Wilson Act. States were now empow-

ered to forbid shipments of alcohol to consumers for per-

sonal use, provided that the States treated in-state and

out-of-state liquor on the same terms. Id., at 321-322

(noting that the West Virginia law at issue in Clark Dis-

tilling “forbade the shipment into or transportation of

liquor in the State whether from inside or out”). The

Court understood that the Webb-Kenyon Act “was enacted

simply to extend that which was done by the Wilson Act.”

Id., at 324. The Act’s purpose “was to prevent the immu-

nity characteristic of interstate commerce from being used

to permit the receipt of liquor through such commerce in

States contrary to their laws, and thus in effect afford a

means by subterfuge and indirection to set such laws at

naught.” Ibid. The Court thus recognized that the Act

was an attempt to eliminate the regulatory advantage, i.e.

its immunity characteristic, afforded imported liquor

under Bowman and Rhodes.

Cite as: 544 U. 8. (2005) 19

Opinion of the Court

Michigan and New York now argue the Webb-Kenyon

Act went even further and removed any barrier to dis-

criminatory state liquor regulations. We do not agree.

First, this reading of the Webb-Kenyon Act conflicts with

that given the statute in Clark Distilling. Clark Distilling

recognized that the Webb-Kenyon Act extended the Wilson

Act to allow the States to intercept liquor shipments be-

fore those shipments reached the consignee. The States’

contention that the Webb-Kenyon Act also reversed the

Wilson Act's prohibition on discriminatory treatment of

out-of-state liquors cannot be reconciled with Clark Distill-

ings description of the Webb-Kenyon Act's purpose

“simply to extend that which was done by the Wilson Act.”

242 U. S., at 324. See also McCormick & Co. v. Brown, 286

U. S. 131, 140-141 (1932).

The statute’s text does not compel a different result.

The Webb-Kenyon Act readily can be construed as forbid-

ding “shipment or transportation” only where it runs afoul

of the State’s generally applicable laws governing receipt,

possession, sale, or use. Cf. id., at 141 (noting that the Act

authorized enforcement of “valid” state laws). At the very

least, the Webb-Kenyon Act expresses no clear congres-

sional intent to depart from the principle, unexceptional at

the time the Act was passed and still applicable today,

Hillside Dairy Inc. v. Lyons, 539 U.S. 59, 66 (2003), that

discrimination against out-of-state goods is disfavored. Cf.

Western & Southern Life Ins. Co. v. State Bd. of Equaliza-

tion of Cal., 451 U.S. 648, 652-653 (1981) (holding that the

McCarran-Ferguson Act, 15 U.S. C. §1011 et seg., removed

all dormant Commerce Clause scrutiny of state insurance

laws; 15 U.S.C. §1011 provides: “Congress declares that

the continued regulation and taxation by the several States

of the business of insurance is in the public interest, and

that silence on the part of Congress shall not be construed to

impose any barrier to the regulation or taxation of such

business by the several States”).

20 GRANHOLM v. HEALD

Opinion of the Court

Last, and most importantly, the Webb-Kenyon Act did

not purport to repeal the Wilson Act, which expressly

precludes States from discriminating. If Congress’ aim in

passing the Webb-Kenyon Act was to authorize States to

discriminate against out-of-state goods then its first step

would have been to repeal the Wilson Act. It did not do so.

There is no inconsistency between the Wilson Act and the

Webb-Kenyon Act sufficient to warrant an inference that

the latter repealed the former. See Washington v. Miller,

235 U.S. 422, 428 (1914) (noting that implied repeals are

disfavored). Indeed, this Court has twice noted that the

Wilson Act remains in effect today. Hostetter v. Idlewild

Bon Voyage Liquor Corp., 377 U. S. 324, 333, n. 11 (1964);

Department of Revenue v. James B. Beam Distilling Co., 377

U. S. 341, 345, n. 7 (1964). See 27 U. S. C. §121.

The Wilson Act reaffirmed, and the Webb-Kenyon Act

did not displace, the Court's line of Commerce Clause

cases striking down state laws that discriminated against

liquor produced out of state. The rule of Tiernan, Walling,

and Scott remained in effect: States were required to

regulate domestic and imported liquor on equal terms.

“(T]he intent of the Webb-Kenyon Act was to take

from intoxicating liquor the protection of the interstate

commerce laws in so far as necessary to deny them an

advantage over the intoxicating liquors produced in the

state into which they were brought, yet, [the Act does not]

show an intent or purpose to so abdicate control over

interstate commerce as to permit discrimination against

the intoxicating liquor brought into one state from an-

other.” Pacific Fruit & Produce Co. v. Martin, 16 F. Supp.

34, 39-40 (WD Wash. 1936). See also Friedman, Constitu-

tional Law: State Regulation of Importation of Intoxicat-

ing Liquor Under Twenty-first Amendment, 21 Cornell

L. Q. 504, 509 (1936) (“The cases under the Webb-Kenyon

Act uphold state prohibition and regulation in the exercise

of the police power yet they clearly forbid laws which

Cite as: 544 U. 8. (2005) 21

Opinion of the Court

discriminate arbitrarily and unreasonably against liquor

produced outside of the state” (footnote omitted)).

B

The ratification of the Eighteenth Amendment in 1919

provided a brief respite from the legal battles over the

validity of state liquor regulations. With the ratification of

the Twenty-first Amendment 14 years later, however,

nationwide Prohibition came to an end. Section 1 of the

Twenty-first Amendment repealed the Eighteenth

Amendment. Section 2 of the Twenty-first Amendment is

at issue here.

Michigan and New York say the provision grants to the

States the authority to discriminate against out-of-state

goods. The history we have recited does not support this

position. To the contrary, it provides strong support for

the view that §2 restored to the States the powers they

had under the Wilson and Webb-Kenyon Acts. “The word-

ing of §2 of the Twenty-first Amendment closely follows the

Webb-Kenyon and Wilson Acts, expressing the framers’

clear intention of constitutionalizing the Commerce Clause

framework established under those statutes.” Craig v.

Boren, 429 U. S. 190, 205-206 (1976) (footnote omitted).

The aim of the Twenty-first Amendment was to allow

States to maintain an effective and uniform system for

controlling liquor by regulating its transportation, impor-

tation, and use. The Amendment did not give States the

authority to pass nonuniform laws in order to discriminate

against out-of-state goods, a privilege they had not enjoyed

at any earlier time.

Some of the cases decided soon after ratification of the

Twenty-first Amendment did not take account of this

history and were inconsistent with this view. In State Bd.

of Equalization of Cal. v. Young’s Market Co., 299 U. S. 59,

62 (1936), for example, the Court rejected the argument

that the Amendment did not authorize discrimination:

22 GRANHOLM v. HEALD

Opinion of the Court

“The plaintiffs ask us to limit this broad command [of

§2]. They request us to construe the Amendment as

saying, in effect: The State may prohibit the importa-

tion of intoxicating liquors provided it prohibits the

manufacture and sale within its borders; but if it

permits such manufacture and sale, it must let im-

ported liquors compete with the domestic on equal

terms. To say that, would involve not a construction

of the Amendment, but a rewriting of it.”

The Court reaffirmed the States’ broad powers under §2 in

a series of cases, see Mahoney v. Joseph Triner Corp., 304

U.S. 401 (1938); Indianapolis Brewing Co. v. Liquor

Control Comm n, 305 U.S. 391 (1939); Ziffrin, Inc. v.

Reeves, 308 U.S. 132 (1939); Joseph S. Finch & Co. v.

McKittrick, 305 U. S. 395 (1939), and unsurprisingly many

States used the authority bestowed on them by the Court

to expand trade barriers. T. Green, Liquor Trade Barri-

ers: Obstructions to Interstate Commerce in Wine, Beer,

and Distilled Spirits 4, and App. I (1940) (stating in the

wake of Young's Market that “[rjivalries and reprisals

have thus flared up”).

It is unclear whether the broad language in Young’s

Market was necessary to the result because the Court also

stated that “the case [did] not present a question of dis-

crimination prohibited by the commerce clause.” 299

U.S., at 62. The Court also declined, contrary to the

approach we take today, to consider the history underlying

the Twenty-first Amendment. Id., at 63-64. This reluc-

tance did not, however, reflect a consensus that such

evidence was irrelevant or that prior history was unsup-

portive of the principle that the Amendment did not au-

thorize discrimination against out-of-state liquors. There

was ample opinion to the contrary. See, e. g., Young's

Market Co. v. State Bd. of Equalization of Cal., 12 F. Supp.

140 (SD Cal. 1935), rev'd, 299 U. S. 59 (1936); Pacific Fruit

Cite as: 544 U. S. (2005) 23

Opinion of the Court

& Produce Co. v. Martin, supra, at 39; Joseph Triner Corp.

v. Arundel, 11 F. Supp. 145, 146-147 (Minn. 1935); Fried-

man, supra, at 511-512; Note, Recent Cases, Twenty-first

Amendment—Commerce Clause, 85 U. Pa. L. Rev. 322,

323 (1937); W. Hamilton, Price and Price Policies 426

(1938); Note, Legislation, Liquor Control, 38 Colum.

L. Rev. 644, 658 (1938); Wiser & Arledge, Does the Repeal

Empower a State to Erect Tariff Barriers and Disregard

the Equal Protection Clause in Legislating on Intoxicating

Liquors in Interstate Commerce? 7 Geo. Wash. L. Rev.

402, 407-409 (1939); de Ganahl, The Scope of Federal

Power Over Alcoholic Beverages Since the Twenty-first

Amendment, 8 Geo. Wash. L. Rev. 819, 822-828 (1940);

Note, 55 Yale L. J. 815, 819-820 (1946).

Our more recent cases, furthermore, confirm that the

Twenty-first Amendment does not supersede other provi-

sions of the Constitution and, in particular, does not dis-

place the rule that States may not give a discriminatory

preference to their own producers.

C

The modern §2 cases fall into three categories.

First, the Court has held that state laws that violate

other provisions of the Constitution are not saved by the

Twenty-first Amendment. The Court has applied this rule

in the context of the First Amendment, 44 Liquormart, Inc.

v. Rhode Island, 517 U.S. 484 (1996); the Establishment

Clause, Larkin v. Grendel's Den, Inc., 459 U.S. 116 (1982);

the Equal Protection Clause, Craig, supra, at 204 209, the

Due Process Clause, Wisconsin v. Constantineau, 400 U. S.

433 (1971); and the Import-Export Clause, Department of

Revenue v. James B. Beam Distilling Co., 377 U.S. 341

(1964).

Second, the Court has held that §2 does not abrogate

Congress’ Commerce Clause powers with regard to liquor.

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

24 GRANHOLM v. HEALD

Opinion of the Court

California Retail Liquor Dealers Assn. v. Midcal Alumi-

num, Inc., 445 U.S. 97 (1980). The argument that “the

Twenty-first Amendment has somehow operated to ‘repeal’

the Commerce Clause” for alcoholic beverages has been

rejected. Hostetter, 377 U.S., at 331-332. Though the

Court’s language in Hostetter may have come uncommonly

close to hyperbole in describing this argument as “an

absurd oversimplification,” “patently bizarre,” and “de-

monstrably incorrect,” ibid., the basic point was sound.

Finally, and most relevant to the issue at hand, the

Court has held that state regulation of alcohol is limited

by the nondiscrimination principle of the Commerce

Clause. Bacchus, 468 U. S., at 276; Brown-Forman Distill-

ers Corp. v. New York State Liquor Authority, 476 U. S. 573

(1986); Healy v. Beer Institute, 491 U. S. 324 (1989). “When

a state statute directly regulates or discriminates against

interstate commerce, or when its effect is to favor in-state

economic interests over out-of-state interests, we have

generally struck down the statute without further inquiry.”

Brown-Forman, supra, at 579.

Bacchus provides a particularly telling example of this

proposition. At issue was an excise tax enacted by Hawaii

that exempted certain alcoholic beverages produced in

that State. The Court rejected the argument that Ha-

waii's discrimination against out-of-state liquor was au-

thorized by the Twenty-first Amendment. 468 U. S., at

274-276. The central purpose of the [Amendment] was

not to empower States to favor local liquor industries by

erecting barriers to competition.” Id., at 276. Despite

attempts to distinguish it in the instant cases, Bacchus

forecloses any contention that §2 of the Twenty-first

Amendment immunizes discriminatory direct-shipment

laws from Commerce Clause scrutiny. See also Brown-

Forman, supra, at 576 (invalidating a New York price affir-

mation statute that required producers to limit the price of

liquor based on the lowest price they offered out of state);

Cite as: 544 U. 8. (2005) 25

Opinion of the Court

Healy, 491 U. S., at 328 (invalidating a similar Connecticut

statute); id., at 344 (SCALIA, J., concurring in part and

concurring in judgment) (“The Connecticut statute's inva-

lidity is fully established by its facial discrimination

against interstate commerce.... This is so despite the

fact that the law regulates the sale of alcoholic beverages,

since its discriminatory character eliminates the immu-

nity afforded by the Twenty-first Amendment’).

Recognizing that Bacchus is fatal to their position, the

States suggest it should be overruled or limited to its facts.

As the foregoing analysis makes clear, we decline their

invitation. Furthermore, Bacchus does not stand alone in

recognizing that the Twenty-first Amendment did not give

the States complete freedom to regulate where other

constitutional principles are at stake. A retreat from

Bacchus would also undermine Brown-Forman and Healy.

These cases invalidated state liquor regulations under the

Commerce Clause. Indeed, Healy explicitly relied on the

discriminatory character of the Connecticut price affirma-

tion statute. 491 U. S., at 340-341. Brown-Forman and

Healy lend significant support to the conclusion that the

Twenty-first Amendment does not immunize all laws from

Commerce Clause challenge.

The States argue that any decision invalidating their

direct-shipment laws would call into question the constitu-

tionality of the three-tier system. This does not follow

from our holding. “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.” Midcal, supra, at 110. A

State which chooses to ban the sale and consumption of

alcohol altogether cou'd bar its importation; and, as our

history shows, it would have to do so to make its laws

effective. States may also assume direct control of liquor

distribution through state-run outlets or funnel sales

through the three-tier system. We have previously recog-

/

26 GRANHOLM v. HEALD

Opinion of the Court

nized that the three-tier system itself is “unquestionably

legitimate.” North Dakota v. United States, 495 U.S., at

432. See also id., at 447 (SCALIA, J., concurring in judg-

ment) (“The Twenty-first Amendment . . . empowers North

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

be purchased from a licensed in-state wholesaler”). State

policies are protected under the Twenty-first Amendment

when they treat liquor produced out of state the same as

its domestic equivalent. The instant cases, in contrast,

involve straightforward attempts to discriminate in favor

of local producers. The discrimination is contrary to the

Commerce Clause and is not saved by the Twenty-first

Amendment.

IV

Our determination that the Michigan and New York

direct-shipment laws are not authorized by the Twenty-

first Amendment does not end the inquiry. We still must

consider whether either State regime “advances a legiti-

mate local purpose that cannot be adequately served by

reasonable nondiscriminatory alternatives.“ New Energy

Co. of Ind., 486 U. S., at 278. The States offer two primary

justifications for restricting direct shipments from out-of-

state wineries: keeping alcohol out of the hands of minors

and facilitating tax collection. We consider each in turn.

The States, aided by several amici, claim that allowing

direct shipment from out-of-state wineries undermines

their ability to police underage drinking. Minors, the

States argue, have easy access to credit cards and the

Internet and are likely to take advantage of direct wine

shipments as a means of obtaining alcohol illegally.

The States provide little evidence that the purchase of

wine over the Internet by minors is a problem. Indeed.

there is some evidence to the contrary. A recent study by

the staff of the FTC found that the 26 States currently

allowing direct shipments report no problems with minors’

Cite as: 544 U. S. (2005) 27

Opinion of the Court

increased access to wine. FTC Report 34. This is not

surprising for several reasons. First, minors are less

likely to consume wine, as opposed to beer, wine coolers,

and hard liquor. Id., at 12. Second, minors who decide to

disobey the law have more direct means of doing so.

Third, direct shipping is an imperfect avenue of obtaining

alcohol for minors who, in the words of the past president

of the National Conference of State Liquor Administra-

tors, want instant gratification.” Id., at 33, and n. 137

(explaining why minors rarely buy alcohol via the mail or

the Internet). Without concrete evidence that direct ship-

ping of wine is likely to increase alcohol consumption by

minors, we are left with the States’ unsupported asser-

tions. Under our precedents, which require the “clearest

showing’ to justify discriminatory state regulation, C & A

Carbone, Inc., 511 U. S., at 393, this is not enough.

Even were we to credit the States’ largely unsupported

claim that direct shipping of wine increases the risk of

underage drinking, this would not justify regulations

limiting only out-of-state direct shipments. As the winer-

ies point out, minors are just as likely to order wine from

in-state producers as from out-of-state ones. Michigan, for

example, already allows its licensed retailers (over 7,000

of them) to deliver alcohol directly to consumers. Michi-

gan counters that it has greater regulatory control over in-

state producers than over out-of-state wineries. This does

not justify Michigan’s discriminatory ban on direct ship-

ping. Out-of-state wineries face the loss of state and

federal licenses if they fail to comply with state law. This

provides strong incentives not to sell alcohol to minors. In

addition, the States can take less restrictive steps to mini-

mize the risk that minors will order wine by mail. For

example, the Model Direct Shipping Bill developed by the

National Conference of State Legislatures requires an

adult signature on delivery and a label so instructing on

each package.

28 GRANHOLM v. HEALD

Opinion of the Court

The States’ tax-collection justification is also insuffi-

cient. Increased direct shipping, whether originating in

state or out of state, brings with it the potential for tax

evasion. With regard to Michigan, however, the tax-

collection argument is a diversion. That is because Michi-

gan, unlike many other States, does not rely on wholesal-

ers to collect taxes on wines imported from out-of-state.

Instead, Michigan collects taxes directly from out-of-state

wineries on all wine shipped to in-state wholesalers.

Mich. Admin. Code Rule 436.1725(2) (1°89) (“Each outside

seller of wine shall submit . . a wine tax report of all wine

sold, delivered, or imported into this state during the

preceding calendar month”). If licensing and self-

reporting provide adequate safeguards for wine distrib-

uted through the three-tier system, there is no reason to

believe they will not suffice for direct shipments.

New York and its supporting parties also advance a tax-

collection justification for the State’s direct-shipment laws.

While their concerns are not wholly illusory, their regula-

tory objectives can be achieved without discriminating

against interstate commerce. In particular, New York

could protect itself against lost tax revenue by requiring a

permit as a condition of direct shipping. This is the ap-

proach taken by New York for in-state wineries. The

State offers no reason to believe the system would prove

ineffective for out-of-state wineries. Licensees could be

required to submit regular sales reports and to remit

taxes. Indeed, various States use this approach for taxing

direct interstate wine shipments, e.g., N. H. Rev. Stat.

Ann. §178.27 (Lexis Supp. 2004), and report no problems

with tax collection. See FTC Report 38-40. This is also

the procedure sanctioned by the National Conference of

State Legislatures in their Model Direct Shipping Bill.

See, e.g., S. C. Code Ann. §61—4—747(C) (West Supp. 2004).

Michigan and New York benefit, furthermore, from

provisions of federal law that supply incentives for winer-

Cite as: 544 U.S.___ (2005) 29

Opinion of the Court

ies to comply with state regulations. The Tax and Trade

Bureau (formerly the Bureau of Alcohol, Tobacco, and

Firearms) has authority to revoke a winery’s federal

license if it violates state law. BATF Industry Circular

96-3 (1997). Without a federal license, a winery cannot

operate in any State. See 27 U.S.C. §204. In addition

the Twenty-first Amendment Enforcement Act gives state

attorneys general the power to sue wineries in federal

court to enjoin violations of state law. §122a(b).

These federal remedies, when combined with state licens-

ing regimes, adequately protect States from lost tax reve-

nue. The States have not shown that tax evasion from

out-of-state wineries poses such a unique threat that it

justifies their discriminatory regimes.

Michigan and New York offer a handful of other ration-

ales, such as facilitating orderly market conditions, pro-

tecting public health and safety, and ensuring regulatory

accountability. These objectives can also be achieved

through the alternative of an evenhanded licensing re-

quirement. FTC Report 40-4 1. Finally, it should be noted

that improvements in technology have eased the burden of

monitoring out-of-state wineries. Background checks can

be done electronically. Financial records and sales data

can be mailed, faxed, or submitted via e-mail.

In summary, the States provide little concrete evi-

dence for the sweeping assertion that they cannot police

direct shipments by out-of-state wineries. Our Com-

merce Clause cases demand more than mere speculation

to support discrimination against out-of-state goods. The

“burden is on the State to show that ‘the discrimination is

demonstrably justified,” Chemical Waste Management,

Inc. v. Hunt, 504 U. S. 334, 344 (1992) (emphasis in origi-

nal). The Court has upheld state regulations that dis-

criminate against interstate commerce only after finding,

based on concrete record evidence, that a State’s nondis-

criminatory alternatives will prove unworkable. See, e.g.,

SPE FOS EBS NT APT S

— —

30 GRANHOLM v. HEALD

Opinion of the Court —

Maine v. Taylor, 477 U. S. 131, 141-144 (1986). Michigan

and New York have not satisfied this exacting standard.

V

States have broad power to regulate liquor under 52 of

the Twenty-first Amendment. This power, however, does

not allow States to ban, or severely limit, the direct ship-

ment of out-of-state wine while simultaneously authoriz-

ing direct shipment by in-state producers. If a State

chooses to allow direct shipment of wine, it must do so on

evenhanded terms. Without demonstrating the need for

discrimination, New York and Michigan have enacted

regulations that disadvantage out-of-state wine producers.

Under our Commerce Clause jurisprudence, these regula-

tions cannot stand.

We affirm the judgment of the Court of Appeals for the

Sixth Circuit; and we reverse the judgment of the Court of

Appeals for the Second Circuit and remand the case for

further proceedings consistent with our opinion.

It is so ordered.

Cite as: 544 U. 8. (2005) 1

STEVENS, J., dissenting

SUPREME COURT OF THE UNITED STATES

Nos. 03-1116. 03-1120 and 03-1274

JENNIFER M. GRANHOLM, GOVERNOR OF

MICHIGAN, ET AL., PETITIONERS

03-1116 v.

ELEANOR HEALD Er AL.

MICHIGAN BEER & WINE WHOLESALERS

ASSOCIATION, PETITIONER

03-1120 v.

ELEANOR HEALD Er AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

JUANITA SWEDENBURG, ET AL., PETITIONERS

03-1274 v.

EDWARD D. KELLY, CHAIRMAN, NEW YORK

DIVISION OF ALCOHOLIC BEVERAGE

CONTROL, STATE LIQUOR

AUTHORITY, ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

[May 16, 2005

JUSTICE STEVENS, with whom JUSTICE O' CON NOR joins,

dissenting.

Congress’ power to regulate commerce among the States

includes the power to authorize the States to place bur-

dens on interstate commerce. Prudential Ins. Co. v. Ben-

jamin, 328 U.S. 408 (1946). Absent such congressional

approval, a state law may violate the unwritten rules

described as the “dormant Commerce Clause” either by

ny

2 GRANHOLM v. HEALD

STEVENS, J., dissenting

imposing an undue burden on both out-of-state and local

producers engaged in interstate activities or by treating

out-of-state producers less favorably than their local com-

petitors. See, e.g., Pike v. Bruce Church, Inc., 397 U. S. 137

(1970); Philadelphia v. New Jersey, 437 U.S. 617 (1978).

A state law totally prohibiting the sale of an ordinary

article of commerce might impose an even more serious

burden on interstate commerce. If Congress may never-

theless authorize the States to enact such laws, surely the

people may do so through the process of amending our

Constitution.

The New York and Michigan laws challenged in these

cases would be patently invalid under well settled dor-

mant Commerce Clause principles if they regulated sales

of an ordinary article of commerce rather than wine. But

ever since the adoption of the Eighteenth Amendment and

the Twenty-first Amendment, our Constitution has placed

commerce in alcoholic beverages in a special category.

Section 2 of the Twenty-first Amendment expressly pro-

vides that “[t]he transportation or importation into any

State, Territory, or possession of the United States for

delivery or use therein of intoxicating liquors, in violation

of the laws thereof, is hereby prohibited.”

Today many Americans, particularly those members of

the younger generations who make policy decisions, re-

gard alcohol as an ordinary article of commerce, subject to

substantially the same market and legal controls as other

consumer products. That was definitely not the view of

the generations that made policy in 1919 when the Eight-

eenth Amendment was ratified or in 1933 when it was

repealed by the Twenty-first Amendment.' On the con-

In the words of Justice Jackson: “The people of the United States

knew that liquor is a lawlessness unto itself. They determined that it

should be governed by a specific and particular Constitutional provi-

sion. They did not leave it to the courts to devise special distortions of

the general rules as to interstate commerce to curb liquor’s ‘tendency to

Cite as: 544 U. 8. (2005) 3

STEVENS, J., dissenting

trary, the moral condemnation of the use of alcohol as a

beverage represented not merely the convictions of our

religious leaders, but the views of a sufficiently large

majority of the population to warrant the rare exercise of

the power to amend the Constitution on two occasions.

The Eighteenth Amendment entirely prohibited commerce

in “intoxicating liquors” for beverage purposes throughout

the United States and the territories subject to its juris-

diction. While §1 of the Twenty-first Amendment repealed

the nationwide prohibition, §2 gave the States the option

to maintain equally comprehensive prohibitions in their

respective jurisdictions.

The views of judges who lived through the debates that

led to the ratification of those Amendments are entitled to

special deference. Foremost among them was Justice

Brandeis, whose understanding of a State's right to dis-

criminate in its regulation of out-of-state alcohol could not

have been clearer:

“The plaintiffs ask us to limit [§2’s] broad command.

They request us to construe the Amendment as say-

ing, in effect: The State may prohibit the importation

of intoxicating liquors provided it prohibits the manu-

facture and sale within its borders; but if it permits

such manufacture and sale, it must let imported liq-

uors compete with the domestic on equal terms. To

say that, would involve not a construction of the

Amendment, but a rewriting of it.... Can it be

doubted that a State might establish a state monopoly

of the manufacture and sale of beer, and either pro-

hibit all competing importations, or discourage impor-

get out of legal bounds.” It was their unsatisfactory experience with

that method that resulted in giving liquor an exclusive place in consti-

tutional law as a commodity whose transportation is governed by a

special, constitutional provision.” Duckworth v. Arkansas, 314 U. S.

390. 398-399 (1941) (opinion concurring in result).

4 GRANHOLM v. HEALD

STEVENS, J., dissenting

tation by laying a heavy impost, or channelize desired

importations by confining them to a single consignee?”

State Bd. of Equalization of Cal. v. Young’s Market Co.,

299 U. S. 59, 62-63 (1936).?

In the years following the ratification of the Twenty-first

Amendment, States adopted manifold laws regulating

commerce in alcohol, and many of these laws were dis-

criminatory.’ So-called “dry states” entirely prohibited

such commerce; others prohibited the sale of alcohol on

Sundays; others permitted the sale of beer and wine but

not hard liquor; most created either state monopolies or

distribution systems that gave discriminatory preferences

to local retailers and distributors. The notion that dis-

criminatory state laws violated the unwritten prohibition

against balkanizing the American economy—while per-

suasive in contemporary times when alcohol is viewed as

an ordinary article of commerce—would have seemed

strange indeed to the millions of Americans who con-

demned the use of the “demon rum” in the 1920's and

1930’s. Indeed, they expressly authorized the “balkaniza-

tion” that today’s decision condemns. Today's decision

may represent sound economic policy and may be consis-

tent with the policy choices of the contemporaries of Adam

Smith who drafted our original Constitution;* it is not,

2 According to Justice Black, who participated in the passage of the

Twenty-first Amendment in the Senate, §2 was intended to return

absolute control’ of liquor traffic to the States, free of all restrictions

which the Commerce Clause might before that time have imposed.”

Hostetter v. Idlewild Bon Voyage Liquor Corp. 377 U. S. 324, 338 (1964)

(dissenting opinion).

See generally Green, Interstate Barriers in the Alcoholic Beverage

Field, 7 Law & Contemp. Prob. 717 (1940); post, at 22-25 (TOM. J.

Cf. Knickerbocker Ice Co. v. Stewart, 253 U. S. 149, 169 (1920) (Holmes,

J., dissenting) (I cannot for a moment believe that apart from the

Eighteenth Amendment special constitutional principles exist against

special drink. The fathers of the Constitution so far as I know ap-

Cite as: 544 U. 8S. (2005) 5

STEVENS, J., dissenting

however, consistent with the policy choices made by those

who amended our Constitution in 1919 and 1933.

My understanding (and recollection) of the historical

context reinforces my conviction that the text of §2 should

be “broadly and colloquially interpreted.” Carter v. Vir-

ginia, 321 U.S. 131, 141 (1944) (Frankfurter, J., concur-

ring)“ Indeed, the fact that the Twenty-first Amendment

was the only Amendment in our history to have been

ratified by the people in state conventions, rather than by

state legislatures, provides further reason to give its terms

their ordinary meaning. Because the New York and

Michigan laws regulate the “transportation or importa-

tion” of “intoxicating liquors” for “delivery or use therein,”

they are exempt from dormant Commerce Clause scrutiny.

As JUSTICE THOMAS has demonstrated, the text of the

Twenty-first Amendment is a far more reliable guide to its

meaning than the unwritten rules that the majority en-

forces today. I therefore join his persuasive and compre-

hensive dissenting opinion. -

proved it”).

As he added in that case, “since Virginia derives the power to legis-

late as she did from the Twenty-first Amendment, the Commerce

Clause does not come into play.” Carter v. Virginia, 321 U. S., at 143.