Amicus Curiae Brief — Tenn. Wine & Spirits Retailers Ass'n v. Byrd, 139 S. Ct. 52 (2018) (No. 18-96)

No. 18-96

In The

Supreme Court of the Anited States

,

-

TENNESSEE WINE AND

SPIRITS RETAILERS ASSOCIATION,

Petitioner,

Vv.

CLAYTON BYRD, et al.,

Respondents.

»

4

On Writ Of Certiorari To The

United States Court Of Appeals

For The Sixth Circuit

BRIEF OF AMICUS CURIAE

KHBC PARTNERS II, LTD.

IN SUPPORT OF PETITIONER

HARRY HERZOG

HERZOG & CARP

427 Mason Park Blvd.

Katy, Texas 77450

Telephone: (713) 781-7500

HHerzog@hcmlegal.com

Counsel for KHBC Partners II, Lid.

COCKLE LEGAL BRIEFS (800) 225-6964

www. COM

TABLE OF CONTENTS

Page

Disclosure Statement and Interest of Amici Cu-

ilsisialancicidiidonteiaiaetingndistipiabienitnmtetetanintnasenanuanineeeimssnes 1

Summary of the Argument ..............................00+- 1

I iiiick iaitinicessincitaceesetinsietncidsieinsdininehaienetbiansieiemtibiiciatlds 4

he — ennttnens 4

2. The uniqueness of alcohol regulations ...... 6

A. State police powers...........................++ 6

B. Adding the 21st Amendment to state

police powers creates unique and ex-

ceptional state powers......................... 6

1. States have broad regulatory pow-

a 7

2. Broad regulatory power includes

ce cetesctintencedsnsernnnevinniiens 7

3. Broad regulatory power, with wide

latitude within the constitutionally

sanctioned zone of state control, cre-

ates special power in the states...... 8

4. The 21st Amendment grants states

virtually complete control over lo-

cal alcohol sales .............................. 8

C. The three-tier system.......................... 9

D. Strong presumption of validity ........... 9

3. Congress wants the power over local alco-

hol sales vested in the states..................... 9

4. The rationale for the dormant Commerce

Se iiitlcdinttimnaincdbicoininnisiegindiisbataideslaniatess 12

i

‘3

TABLE OF CONTENTS -— Continued

Page

5. U.S. Supreme Court analysis and stand-

i cnsectiomissosseuindincansinpiinibinunionmmevanaventenie 14

A. Improper state legislation or regula-

I dieiisstsctsiccennmnstnncnacenasssenses 14

1. They conflicted with a federal law

or impinged on a federal area ........ 14

2. They extended state regulation into

Rr etiscciadaectmnennetiaeineceicen 15

3. They were economic protectionism

designed to disfavor out of state

I casnitccandustiininiatiunsinincestinnnegiete 15

B. Lack of Congressional action elimi-

nates or minimizes application of the

dormant Commerce Clause ................. 15

C. Other principles in dormant Commerce

I riasncbiisensitciocennpetonsdontaen 18

D. Cases supporting residency require-

I ilaintiisticenccerecstensstttnineicascesansesveverns 20

E. “Core §2 power” analysis..................... 21

NN ikastcrinichigineinepicneaiiiksnithnaiinihiniasitilaeniniiveinaieivant 21

APPENDIX

se

TABLE OF AUTHORITIES

Page

U.S. SUPREME Court CASES

324 Liquor Corp. v. Duffy, 479 U.S. 335, 107

Be I icerrniscinienpintrisnrbeeeniomaoinionimibdaceineend 8,14

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104

SRE SESS SEE eee aoe 15

Baldwin v. G.A.F. Seeling, Inc., 294 U.S. 511, 55

i iciitiennecntnapersisnrnepsonsemmninianatiinimecesesd 5

Brown-Forman Distillers Corp. v. New York State

Liquor Authority, 476 U.S. 573, 106 S. Ct. 2080

ii dadiniecicsiniicidihanipediiadtinnicndeniniaenensiiemininsnininmenete 14

Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520,

ee riccctnsetsennreneennienaianmeidinnenadinens 16

C & A Carbone, Inc. v. Town of Clarkstown, N_Y.,

511 US. 383, 114 S. Ct. 1677 (1994).........0.0...... 12

California Retail Liquor Dealers Assoc. v. Mid-

cal Aluminum, 445 U.S. 97, 100 S. Ct. 937

(iii linsertisnednntatinantsciintasiestanisenesbediinaninnbines 7, 8, 14,19

Capital Cities Cable v. Crisp, 467 U.S. 691, 104

Be Ts diichncniniisinetncsanisieontiniciantabninmianvend 8,14

Carter v. Virginia, 321 U.S. 131, 64 S. Ct. 464

Sai cicarediticidentciectinicieiolaniaimneapintianieteiameibipliniunieieneansemine 5, 16

Clark Distilling Co. v. Western Maryland R. Co.,

242 U.S. 311, 375 S. Ct. 180 (1917)...........000000000..... 10

City of Newport, Ky. v. Iacobucci, 479 U.S. 92, 107

ah inectinntcersiinuicrincinnnaasceginnipinatinetnenenssosens 7

Collins v. Yosemite Park & Curry Co., 304 US.

Se 14

iv

TABLE OF AUTHORITIES — Continued

Page

Cooley v. Board of Wardens, 429 U.S. 190, 97

a ey et ctcrrenicersdeinnsienipiciinttanniotioecntuedeanioen: 12, 15, 16

Craig v. Boren, 429 US. 190, 97 S. Ct. 451 (1976).....10, 19

Dept. of Revenue v. James B. Beam Distiller Co.,

377 US. 341, 84 S. Ct. 1247 (1964)... 14

Duckworth v. Arkansas, 314 U.S. 390, 62 S. Ct.

Ie et iatncilaiiatanisencnetennaninancminnninnniutvetientes 16, 17

Exxon Corp. v Maryland, 437 U.S. 117, 98 S. Ct.

Se I eiccishesdctihetgieniepetiettianehuinniaaniiaisdenibsatteinideininse 13

Goesaert v. Cleary, 335 U.S. 464, 69 S. Ct. 198

a itchetntcsistinpcsitnclisiesinninniinigtibinninniigdinincnpenministmnvesinnal 6

Granholm v. Heald, 544 U.S. 460, 125 S. Ct. 1885

SET Thhiatsdseaduchipditadsiidaiveheniadunndtaactninieanpenitieats 8,9, 10, 15, 19

Healy v. The Beer Institute, 491 U.S. 324, 109

Be ee tiridinincisnnpeisingunesasnintiinicenisnniipncensieesie 15

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

377 U.S. 342, 84 S. Ct. 1293 (1964)... 14

Heublein, Inc. v. South Carolina Tax Commis-

sion, 409 U.S. 275, 93 S. Ct. 483 (1963) .................. 20

In re: State Freight Tax, 82 U.S. (15 Wall.) 232

Sea icinuiteiesttiaititaliesitnsilenenicsigenidnnihaninmneenennianinasesscueins 12

Joseph E. Seagram & Sons v. Hostetter, 384 U.S.

35, 86 S. Ct. 1254 (1966) ...........cccccccceeceeeeeeceeeeeeeees 4,7

Leisy v. Hardin, 135 U.S. 100, 10 S. Ct. 681 (1890)....... 10

New York State Liquor Authority v. Bellanca,

452 U.S. 714, 101 S. Ct. 2599 (1981).........0.0.. ee. 7

v

TABLE OF AUTHORITIES — Continued

Page

North Dakota v. U.S., 495 U.S. 423, 110 S. Ct.

TR ASE NAA ee ae 8,9

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

226, 56 S. Ct. 754 (1936) ............ccc-cceeeccecererseeeeeeeeees 20

Railroad Company v. Husen, 95 U.S. 465 (1877)......... 5

Reading Railroad Co. v. Pennsylvania, 82 U.S.

(15 Wall.) 232, 271-83 (1873) .20000.......cccccecceeeeeeeeeeees 12

Rice v. Rehner, 463 U.S. 713, 103 S. Ct. 3291

TREES Roce Ree AO 6, 10

Southern Pacific Co. v. State of Arizona, 325 U.S.

761, 65 S. Ct. 1515 (1945) .................ccceeeeeeeceeceeeeeees 18

The License Cases, 46 U.S. (5 How.) 504 (1847)........... i]

U.S. v. Frankfort Distilleries, 324 U.S. 293, 65

ERE ERE Ey OS 7

U.S. v. State Tax Commission of Mississippi, 412

U.S. 363, 93 S. Ct. 2183 (1973) and after re-

mand 419 U.S. 1104, 95 S. Ct. 1872 (1975)......... 7,14

Vance v. WA. /anderbrook Co., 170 U.S. 438, 18

8 EE A a ea 20

Wisconsin v. Constantineau, 400 U.S. 433, 91

EEE RE Re a Oe 6

U.S. CONSTITUTION

AMENDMENTS

ITE TT ccecnnatibenmunennsinsomionciial 6

I I sauthiuponiinineieionitiniont 4

es IE, Si oiicistsseninsicticncsestiniocincteeneniniinens passim

vi

TABLE OF AUTHORITIES — Continued

Page

STATUTES

Se ae PHUIIET cninsntecicestesnipasinseniniddnmmhemmmaaaananee 10

Ba I eG sti beseciceccncsicccsinconinetinthaniniianaeieanaaaaiaa 10

Se Ee i ctnicincsenersictinigenictniediinidideiaiaiainieiaae 10

ae I OF ie rsccccicccncctessncstssciecnecsessensdamesiesiamaaumale 10

Se ee 0p ID cicrcccninicssiscnicommeiiemmianamamnl 11

CONGRESSIONAL RECORD

Cong. Rec. Vol. 76, Part 4, pp. 4138-89 (Feb. 15,

DNTIID cicsstidiarsttnidicrnsianinpetmctidgisinnisecisinimdicasaataimimniiaiadae 11

FEDERALIST PAPERS

l

DISCLOSURE STATEMENT AND

INTEREST OF AMICI CURIAE'

We know of no possible basis for recusal by any

member of the court. KHBC Partners II, Ltd. is privately

owned. KHBC, its owners and counsel have no personal!

or business connection to any justice of this Court.

The undersigned counsel authored this entire

brief without notice to or consultation with any lawyer

in this case, and after reading what he believes is every

case ever decided by any court under the 21st Amend-

ment. KHBC and counsel want this Court to reach a

correct result for the right reasons.

°

SUMMARY OF THE ARGUMENT

Since Congress cannot regulate who gets a permit

to sell alcohol locally, the judiciary should not utilize

the dormant Commerce Clause to regulate who can get

those permits. The 21st Amendment empowers only

states to grant local permits implementing the three-

tier c~tem. States ‘eve exceptional, transcendent,

and overwhelming power over their constitutionally

exclusive zone of control to govern the local sale of

' Pursuant to Rule 37.6, Amicus affirms that no counsel! for

any party authored this brief in whole or in part and that no per

son or entity other than Amicus itself provided any monetary con-

tribution intended to fund the preparation or submission of this

brief. All parties have consented to the filing of this amicus brief

through waivers.

2

alcohol. Congress has no such power, therefore, the use

of the dormant Commerce Clause to deprive states of

their power to control permits for local retail alcoho!

sales is inappropriate. The judicial effort to protect

non-existent Congressional power has created doctri-

nal disarray that should be resolved by holding that

each state has the authority under the 21st Amend-

ment to set standards for who may possess a permit

to locally sell alcohol without impingement by the

dormant Commerce Clause.

Shortly after prohibition banned the manufacture,

distribution or sale of alcohol the people of this nation

rose up. In less than a year, through Congress and

state conventions, the people overwhelmingly passed

the 21st Amendment. It vests exclusive power over the

local sale and distribution of alcohol at the state level.

In drafting the 21st Amendment, Congress explicitly

declined concurrent power over local alcohol sales. Im-

proper utilization of the dormant Commerce Clause

takes that power over local alcohol sales away from

states and misplaces it in the federal judiciary.

The essence of the dormant Commerce Clause is

preservation of Congress’ exclusive power to regulate

commerce among the states and thus prevent the cre-

ation of protectionist barriers that would distort the

free flow of goods across state lines. With respect to the

constitutionally unique product of alcohol, Congress

has spent 128 years ceding regulatory power to the

states. This includes expressly declining concurrent

power when the 21st Amendment was drafted. As re-

cently as 2010, Congress wrote into law that alcohol is

3

a unique product and States have primary authority to

regulate alcohol distribution and sale.

Some members of the federal judiciary errone-

ously decrease state authority to regulate the local sale

of alcohol, preserving non-existent Congressional au-

thority in the area. They use the dormant Commerce

Clause to judicially dive into waters where Congress

constitutionally cannot swim. This Court should hold

that the dormant Commerce Clause does not apply to

any states’ exercise of their virtually complete control

over how to structure the retail tier of the three-tier

system.

When a state grants a permit to sell liquor locally

the state does not impinge on a federal area, encroach

extraterritorially on other states, or impact the inter-

state flow of any product. Congress’ inaction in local

permitting increases the sphere of state influence.

Congress’ constitutional inability to act with respect to

local permitting should extend the expanded sphere of

state influence beyond the reach of the dormant Com-

merce Clause. The principles of the dormant Com-

merce Clause enunciated by this Court when it last

considered the 21st Amendment do not support apply-

ing the dormant Commerce Clause to state permits for

local alcohol sales.

4

ARGUMENT

1. The 21st Amendment.

The 21st Amendment is incredibly unique. It is the

only provision in the U.S. Constitution that:

Grants power to states;

Overturns a separate amendment;

c. Passed by state conventions, the people

acting directly rather than by legislature;

d. Was passed by the U.S. Senate, House,

and 37 states in less than 10 months (Ap-

pendix 1), and

e. Is limited to one consumer product.

The 21st Amendment allocates all of the govern-

mental power to create a system to regulate local alco-

hol sales to the states. Thus, any challenge to that

legislation must begin with an analysis of the 21st

Amendment. “Consideration of any state law regulat-

ing intoxicating beverages must begin with the

Twenty-first Amendment... .” Joseph E. Seagram &

Sons v. Hostetter, 384 U.S. 35, 43, 86 S. Ct. 1254, 1259

(1966).

The dormant Commerce Clause protects the free

flow of commerce. The 18th and 21st Amendments ex-

pressly ban some commerce in alcohol or allow states

to restrict commerce, hence the inherent tension.

When prohibiti 1 it eliminated the licati

of the dormant Commerce Clause to the manufacture,

sale, or transportation of alcohol. When prohibition

5

failed miserably and was repealed by the 21st Amend-

ment, the dormant Commerce Clause was modified

with respect to alcohol. Many states continued to ban

the manufacture or sale of alcohol after the 21st

Amendment passed in 1933: for example, Mississippi

banned all distilled beverages until 1966, and 33 states

have dry counties today. For any other product such a

ban violates the dormant Commerce Clause. Railroad

Company v. Husen, 95 U.S. 465 (1877) (cattle); Baldwin

vu. GA.F. Seeling, Inc., 294 U.S. 511, 55 S. Ct. 497 (1935)

(milk). But a ban on the sale of alcohol is unquestiona-

bly constitutiona!. For decades courts have struggled

to balance and harmonize the dormant Commerce

Clause with the 21st Amendment. The tension and dif-

ficulties inherent in this area are properly resolved by

reviewing all of the phenomenal powers granted to

states against the rationale for the dormant Commerce

Clause.

The lower courts in this case went exactly where

courts were warned not to go in 1944: they embarked

on the “impossible task of deciding, instead of ieaving

it for legislatures to decide, what constitutes a ‘reason-

able regulation’ of liquor traffic.” Carter v. Virginia, 321

US. 131, 142, 4 S. Ct. 464, 471 (1944, Frankfurter con-

curring).

6

2. The uniqueness of alcohol regulation.

A. State police powers.

All states have police powers. They had them be-

fore the constitution was written, after the constitution

was adopted in 1789, and then the 10th Amendment

preserved them in 1791.

State regulation of liquor traffic is “one of the old-

est and most untrammeled of legislative powers.”

Goesaert v. Cleary, 335 U.S. 464, 465, 69 S. Ct. 198, 199

(1948). The state police power to regulate liquor pre-

cedes and is independent of the 21st Amendment's

added powers. Rice v. Rehner, 463 U.S. 713, 723, 105

S. Ct. 3291, 3298 (1983). State police powers over liq-

uor were “extremely broad even prior to the Twenty-

first Amendment.” Wisconsin v. Constantineau, 400

U.S. 433, 91 S. Ct. 507, 509 (1971).

B. Adding the 21st Amendment to state po-

lice powers creates unique and excep-

tional state powers.

The Constitution begins with its three most pow-

erful words: “We the people ...” Only one constitu-

tional provision was created directly by the people: the

21st Amendment. The people of this country created it

with phenomenal speed. Since 1933, a unique body of

law limited exclusively to alcohol has necessarily de-

veloped. In the historically dangerous area of distilled

beverages courts have been justifiably supportive of

states’ legislative discretion. The unique aspects of the

21st Amendment plus state police powers combine to

7

grant exceptional power to the states to regulate the

local sale of alcoholic beverages. This exceptional

power has been expressed by this Court through vari-

ous legal principles or phrases.

1. States have broad regulatory power

in liquor.

“Broad regulatory power” and “full authority,” U.S.

uv. Frankfort Distilleries, 324 U.S. 293, 297-301, 65 S. Ct.

661, 664-65 (1945); “broad regulatory power,” Joseph

E. Seagram & Sons v. Hostetter, 384 U.S. 35, 41, 86

S. Ct. 1254, 1259 (1966); “broad regulatory authority,”

U.S. v. State Tax Commission of Miss., 93 8. Ct. 2183,

2189 (1973); “broad power,” New York State Liquor Au-

thority v. Bellanca, 452 U.S. 714, 714, 101 S. Ct. 2599,

2600 (1981); and “broad regulatory powers,” City of

Newport, Ky. v. Iacobucci, 479 U.S. 92, 93, 107 S. Ct.

383, 385 (1986).

2. Broad regulatory power includes wide

latitude.

Joseph E. Seagram & Sons, Inc. v. Hostetter, 384

U.S. 35, 41, 86 S. Ct. 1254, 1259 (1966); California Re-

tail Liquor Dealers Assoc. v. Midcal Aluminum, 445

U.S. 97, 106, 100 S. Ct. 937, 944 (1980).

8

3. Broad regulatory power, with wide

latitude within the constitutionally

sanctioned zone of state control, cre-

ates special power in the states.

California Retail Liquor Dealers Assoc. v. Midcal

Aluminum, 445 U.S. 97, 106, 100 S. Ct. 937, 944 (1980).

4. The 21st Amendment grants states

virtually complete control over local

alcohol sales.

“The Twenty-first Amendment grants the States

virtually complete control over . . . how to structure the

liquor distribution system.”

California Retail Liquor Dealers Assoc. v.

Midcal Aluminum, 445 U.S. 97, 110, 100 S. Ct.

937, 946 (1980),

quoted and reaffirmed in:

Capital Cities Cable v. Crisp, 467 US. 691,

715, 104 S. Ct. 2694, 2709 (1984);

324 Liquor Corp. v. Duffy, 479 U.S. 335, 345,

107 S. Ct. 720, 726 (1987);

North Dakota v. U.S., 495 U.S. 423, 431, 110 S.

Ct. 1986, 1992 (1990); and

Granholm v. Heald, 544 U.S. 460, 488, 125 S.

Ct. 1885, 1905 (2005).

There may be no area of constitutional law in

which states have greater legislative control. There

is no other product over which states have explicit

9

constitutional authority. Congress has spent 128

years ceding legislative power over local liquor sales

to states.

C. The three-tier system.

This Court noted that the three-tier system is con-

stitutional in North Dakota, 495 U.S. at 432. Fifteen

years later, in the most recent case this Court decided

under the 21st Amendment, this Court re-affirmed

that the three-tier system is “unquestionably legiti-

mate.” Granholm, 544 U.S. at 489 (quoting North Da-

kota).

D. Strong presumption of validity.

In light of the 21st Amendment’s special protec-

tion of state liquor control policies, “they are supported

by a strong presumption of validity and should not be

set aside lightly.” North Dakota, 495 U.S. at 433. Any

reading of history concerning the sale of liquor in-

stantly affirms the wisdom of this added deference and

corresponding reticence to cast aside legislative pre-

rogatives.

3. Congress wants the power over local alcohol

sales vested in the states.

In the 1700s and 1800s a variety of states regu-

lated the sale of alcoholic beverages. Before the Civil

War this Court affirmed broad state authority over al-

cohol sales in The License Cases, 46 U.S. (5 How.) 504,

10

579 (1847). This Court decreased state authority to

regulate the sale of alcohol in Leisy v. Hardin, 135 U.S.

100, 10 S. Ct. 681 (1890). Congress immediately re-

acted by reinvigorating state authority through pas-

sage within a few months of the Wilson Act, 27 U.S.C.

§ 121 (1890); summarized in Craig v. Boren, 429 US.

190, 205, 97 S. Ct. 451, 461 (1976). Congress eliminated

a loophole in the Wilson Act with the later passage of

the Webb-Kenyon Act, 27 U.S.C. § 122 (1913), which re-

moved the protection of interstate commerce from all

receipt and possession of liquor prohibited by state law.

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

US. 311, 325, 375 S. Ct. 180 (1917). The 21st Amend-

ment language was designed in part to constitutional-

ize the language of the Wilson and Webb-Kenyon Acts.

Craig, 429 U.S. at 206, 462; Granholm v. Heald, 544

U.S. 460, 483, 125 S. Ct. 1885, 1902 (2005).

Congress has repeatedly transformed power Con-

gress might have over the distribution system for local

alcohol sales into state power.

1. Wilson Act, 27 U.S.C. § 121 (1890);

2. Webb-Kenyon Act, 27 U.S.C. § 122 (1913);

3. Passage of the 21st Amendment (1933);

4

18 U.S.C. § 1161 (1953), by which Con-

gress authorized state regulation over In-

dian liquor transactions. Rice v. Rehner,

463 U.S. 713, 723, 103 S. Ct. 3291, 3299

(1983);

5. 27 US.C. § 122a (2000), the 21st Amend-

ment Enforcement Act; and

11

6. 42 U.S.C. § 290bb-25b (2006) (“Alcohol is

a unique product and should be regulated

differently than other products by the

States and Federal Government. States

have primary authority to regulate alco-

hol distribution and sale, and the Federal!

Government should support and supple-

ment these State efforts.”).

The most important Congressional expression of

relinquishment of power over local alcohol sales came

in the drafting of the 21st Amendment. One draft gave

Congress much more power than they wanted. This

provision was proposed and then deleted during Con-

gressional debate:

“Congress shall have concurrent power to reg-

ulate or prohibit the sale of intoxicating liq-

uors to be drunk on the premises where sold.”

Cong. Rec. Vol. 76, Part 4, pp. 4138-39 (Feb. 15, 1933).

As passed by Congress and the 38 states that ratified it,

the 21st Amendment does not grant Congress concurrent

power to regulate the retail sale of intoxicating liquors.

Congress having deprived itself of concurrent

power over local alcohol sales, and 38 states having

agreed, there is no intellectual justification for re-writ-

ing the 21st Amendment through the backdoor by ap-

plying the dormant Commerce Clause to “preserve”

non-existent Congressional power over local alcohol

sales. Since it is constitutionally impossible for Con-

gress to regulate who may possess a permit to sell te-

quila at the corner store it is improper for courts to

utilize the dormant Commerce Clause to strike down

state rules on who may possess that permit.

12

4. The rationale for the dormant Commerce

Clause.

When the Articles of Confederation were adopted

in 1781 the Congress had no power to regulate com-

merce. This failure was one of the leading causes of the

creation of the constitution. As Alexander Hamilton

noted, lack of federal power over commerce created “oc-

casions of dissatisfaction between the States” and

made negotiation of trade treaties with foreign nations

difficult or impossible. Federalist Papers #22. To pro-

tect the flow of commerce Congress was given the ex-

clusive power to regulate commerce among the several!

states. The theory of the dormant Commerce Clause

first arose in 1851 to preserve Congressional power to

exclusively regulate interstate commerce. Cooley v.

Board of Wardens, 53 U.S. (12 How.) 299 (1851). The

first use of the dormant Commerce Clause to negate a

state law was after the Civil War. Jn re: State Freight

Tax, 82 U.S. (15 Wall.) 232 (1873); Reading Railroad

Co. v. Pennsylvania, 82 U.S. (15 Wall.) 232, 271-83

(1873).

The central rationale for the dormant Commerce

Clause is to prohibit “state or municipal laws whose

object is local economic protectionism, laws that would

excite those jealousies and retaliatory measures the

Constitution was designed to prevent.” C & A Carbone,

Inc. v. Town of Clarkstown, N_-Y., 511 U.S. 383, 390, 114

S. Ct. 1677 (1994). Courts strike down “local laws that

impose commercial barriers or discriminate against an

article of commerce.” C & A, 511 U.S. at 390.

13

When courts improperly utilize the dormant Com-

merce Clause they usually lose sight of commerce. The

Commerce Clause relates to commerce among the

States, foreign nations, and Indian tribes. The dormant

Commerce Clause thus also relates to commerce. The

dormant Commerce Clause preserves Congressional

power over commerce. It protects a national market,

not who participates in the national market.

“The fact that the burden of a state regulation

falls on some interstate companies does not,

by itself, establish a claim of discrimination

against interstate commerce ... the Com-

merce Clause protects the interstate market,

not particular interstate firms, from prohibi-

tive or burdensome regulations.”

Exxon Corp. v. Maryland, 437 U.S. 117, 126-27, 98

S. Ct. 2207 (1978).

Dormant Commerce Clause jurisprudence springs

from the implication that states cannot conflict with

Congressional power and impede the flow of interstate

goods. It would be impossible for Congress to enact a

regulation governing the local sale of alcoholic bever-

ages within a state as the 21st Amendment vests all of

that power within each state. Regulating who may pos-

sess a permit to locally sell liquor does not impede the

flow of one bottle of distilled beverages from the other

49 states, and Congress cannot license local package

stores. Thus the dormant Commerce Clause should not

be improperly used to preserve Congressional power to

do what Congress cannot do with respect to awarding

or denying permits for local retail alcohol sales.

14

5. U.S. Supreme Court analysis and standards.

A. Improper state legislation or regulations

nullified.

Since 1933 this Court has struck down a variety of

state alcohol legislation or regulations. But all fit into

these three categories:

1. They conflicted with a federal law or

impinged on a federal area.

National parks.

International

travel.

Export-import

clause.

Military bases.

Sherman

antitr~ist.

Cable television

signal

retransmission.

Collins v. Yosemite Park & Curry

Co., 304 U.S. 518, 58 S. Ct. 1009

(1938)

Hostetter v. Idlewild Bon Voyage

Liquor Corp., 377 U.S. 342, 84

S. Ct. 1293 (1964)

Dept. of Revenue v. James B. Beam

Distiller Co., 377 U.S. 341, 84 S. Ct.

1247 (1964)

U.S. v. State Tax Commission of

Mississippi, 412 U.S. 363, 419 U.S.

1104, 93 S. Ct. 2183 (1973) and 95

S. Ct. 1872 (1975)

California Retail Liquor Dealers

Assoc. v. Midcal Aluminum, Inc.,

445 US. 97, 100 S. Ct. 937 (1980)

324 Liquor Corp. v. Duffy, 479 U.S.

335, 107 S. Ct. 720 (1987)

Capital Cities Cable, Inc. v. Crisp,

467 U.S. 691, 104 S. Ct. 2694

(1984)

15

2. They extended state regulation into

other states.

Brown-Forman Distillers Corp. v. New York State

Liquor Authority, 476 U.S. 573, 106 S. Ct. 2080 (1986).

Healy v. The Beer Institute, 491 U.S. 324, 109 S. Ct.

2491 (1989).

3. They were economic protectionism

designed to disfavor out-of-state prod-

ucts,

* Tax exemption for locally produced wine.

Bacchus Imports, Ltd. v. Dias, 468 U.S.

263, 104 S. Ct. 3049 (1984)

* Ban on out-of-state winery direct ship-

ments to consumers, while in-state winer-

ies could direct ship to consumers.

Granholm v. Heald, 544 U.S. 460, 125

S. Ct. 1885 (2005).

None of those improper actions are in issue here.

B. Lack of Congressional action eliminates

or minimizes application of the dormant

Commerce Clause.

Congress’ ability to regulate interstate commerce

has never deprived states of all ability to regulate com-

merce, especially at the local level. This is especially

true when Congress declines to act and leaves regula-

tion to the states. Cooley v. Board of Wardens, 53 U.S.

16

299, 320 (1851). In a case dealing with mudguard fend-

ers, this Court refered to a state having “exceptional

scope for the exercise of its regulatory power” and em-

phasized that “Congress not acting” results in sustain-

ing state regulations “even though they materially

interfere with interstate commerce.” Bibb v. Navajo

Freight Lines, Inc., 359 U.S. 520, 524, 79 S. Ct. 962, 965

(1959). In local alcohol sales states have more than ex-

ceptional scope for the exercise of their regulatory

power: their regulatory powers reach to their constitu-

tional zenith and apex. Their police powers, the only

constitutional grant of powers to states, and the elimi-

nation of concurrent Congressional power over local al-

cohol sales combine to create virtually complete

control: full authority through exceptional and broad

regulatory powers with the widest possible latitude.

The principle of Cooley has been applied to alcohol

after the 21st Amendment. This Court clearly enunci-

ated the rule:

“While the commerce clause has been inter-

preted as reserving to Congress the power to

regulate interstate commerce in matters of

national importance, that has never been

deemed to exclude the states from regulating

matters primarily of local concern with re-

spect to which Congress has not exercised its

power, even though the regulation has some

effect on interstate commerce.”

Duckworth v. Arkansas, 314 U.S. 390, 394, 62 S. Ct. 311,

313 (1941); see also Carter v. Virginia, 321 U.S. 131,

135, 64 S. Ct. 464, 467 (1944). Applying this principle

17

to state legislation governing the transportation for

sale of alcohol without a permit this Court concluded:

“Where the power to regulate commerce for lo-

cal protection exists, the states may adopt ef-

fective measures to accomplish the permitted

end. The Arkansas statute does not conflict

with any act of Congress. It does not forbid or

preclude the transportation, or interfere with

the free flow of commerce, among the states

beyond what is reasonably necessary to pro-

tect the local public interest in preventing un-

lawful distribution or use of liquor within the

state. It does not violate the commerce

clause.” Duckworth, 314 U.S. at 396.

Four years later (between the German and Japa-

nese surrenders) this Court summarized this area of

law:

“Ever since Willson v. Black-Bird Creek Marsh

Co. and Cooley v. Board of Wardens it has been

recognized that in the absence of conflicting

legislation by Congress, there is a residuum of

power in the state to make laws governing

matters of local concern which nevertheless in

some measure affect interstate commerce or

even, to some extent, regulate it. Thus, the

states may regulate matters which, because of

their number and diversity, may never be ad-

equaiely dealt with by Congress. When the

regulation of matters of local concern is local

in character and effect, and its impact on the

national commerce does not seriously inter-

fere with its operation, and the consequent in-

centive to deal with them nationally is slight,

18

such regulation has been generally held

within state authority.”

Southern Pacific Co. v. State of Arizona, 325 U.S. 761,

766-67, 65 S. Ct. 1515 (1945) (internal citations omit-

ted). The effect of the 21st Amendment is that Con-

gress may never deal with (nevertheless adequately

deal with) who gets permits to locally sell alcohol in

each state. Therefore, each states’ determination of

who gets a permit should be insulated from dormant

Commerce Clause scrutiny.

More than a dozen states have monopolies on the

sale of distilled beverages. For alcohol those state mo-

nopolies are constitutional. The same 21st Amendment

that lets Virginia control the retail sale of bourbon

within the Commonwealth also allows other states to

control permits to conduct local retail sales of alcohol.

Since there can never be federal policy on who gets

a permit to run the corner liquor store, the method

by which each state grants those permits cannot con-

flict with federal policy, cannot impede Congressional

power, does not affect the flow of commerce among the

states, and therefore does not violate the dormant

Commerce Clause.

C. Other principles in dormant Commerce

Clause analysis.

This Court has noted that the commerce clause

and 21st Amendment are in one constitution and must

be harmonized, with the 21st Amendment creating an

exception to the normal operation of the commerce

19

clause. Craig, 429 U.S. at 461; California Retail Liquor

Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97, 108,

100 S. Ct. 937, 945 (1980). In Granholm, this Court em-

phasized these goals, purposes, and rules that underlie

that harmony:

¢ No differential treatment of

out-of-state economic interests p.472

* No burdens on out-of-state

producers p.472

¢ States cannot be compelled to

negotiate p.472

* Minimize or eliminate state

rivalries p.472

* Avoid the proliferation of trade

zones pp.472-73

* Cannot deprive citizens of access

to markets p.473

¢ States cannot require an out-

of-state firm to become a resident p.475

¢ No discrimination against

imported liquor p.476

* No impermissible burdens on

interstate commerce p.477

* In-state and out-of-state liquor

must be treated on the same terms p.481

* Non-discrimination against

out-of-state goods p.483

20

Analysis of these principles and application of

them to the decision by each state on how to award per-

mits for the local retail sale of alcohol should result in

a decision that the dormant Commerce Clause does not

apply to a states’ implementation of the three-tier sys-

tem with respect to who receives a permit.

D. Cases supporting residency requirements.

This Court has never intensely analyzed, focused

on, or squarely ruled on the precise issue involved here,

but it has supplied some glancing blows in the past.

Shortly after passage of the Wilson Act, but well before

the 21st Amendment, this Court viewed a hypothetical

residency requirement for a liquor license as appropri-

ate. Vance v. W.A. Vanderbrook Co., 170 U.S. 438, 451,

18 S. Ct. 674 (1898). Three years after the passage of

the 21st Amendment all parties in a case conceded the

constitutional validity of a two-year durational resi-

dency requirement and this Court enforced that re-

quirement to determine standing. Premier-Pabst Sales

Co. v. Grosscup, 298 U.S. 226, 228, 56 S. Ct. 754 (1936).

In a tax case three decades iater, this Court made ref-

erence to South Carolina’s law requiring a “resident

representative” as an “appropriate element in the

State’s system of regulating the sale of liquor.” Heu-

blein, Inc. v. South Carolina Tax Commission, 409 U.S.

275, 277, 283-84, 93 S. Ct. 483 (1963).

21

E. “Core §2 power” analysis.

Over the past few decades this Court has created

and applied a “core §2 power” analytical approach to

the 21st Amendment. The essence of the analysis is

that the dormant Commerce Clause imposes no limit

on state power when the state is exercising its core §2

power to directly regulate the sale of liquor within the

state in a manner that does not discriminate against

out-of-state alcoholic products. Nothing more directly

regulates the local sale of liquor than deciding who can

obtain a permit or license to sell the liquor. Nothing is

further from the reach of the dormant Commerce

Clause than the determination of who can own the cor-

ner liquor store. That determination is the implemen-

tation of a core §2 power the people of this nation

granted exclusively to the states. That core §2 power

should stay with the states: it does not belong in the

federal judiciary.

&

A

CONCLUSION

Judicial efforts to apply the dormant Commerce

Clause to preserve Congressional power to regulate as-

pects of the three-tier system beyond Congress’ power

to regulate are intellectually erroneous. They extend

the power of the judiciary into a legislative area in

which Congress has no authority to legislate, while

simultaneously depriving states of powers historically

exercised by states since the 1700s and then expressly

granted to the states by Congress and the American

22

people in 1933. This Court should hold that any state

legislation or regulation governing the permitting or

licensing of the retail tier for local alcohol sale within

a state is impervious to attack from the dormant Com-

merce Clause.

Respectfully submitted,

HARRY HERZOG

HeERzoG & Carp

427 Mason Park Blvd.

Katy, Texas 77450

Telephone: (713) 781-7500

Fax: (713) 781-4797

HHerzog@hcmlegal.com

Counsel for KHBC Partners II, Lid.