Opposition Brief — Milton S. Kronheim & Co. v. District of Columbia

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MAR 20 1997

No. 96-1172 | cus

IN THE ;

Supreme Court of the United States

OCTOBER TERM, 1996

MILTON S. KRONHEIM & Co., INC.,

Petitioner,

V.

DISTRICT OF COLUMBIA, ef al.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia Circuit

BRIEF IN OPPOSITION BY THE

DISTRICT OF COLUMBIA

Jo ANNE ROBINSON,

Interim Corporation Counsel, D.C.

CHARLES L. REISCHEL,

Deputy Corporation Counsel, D.C.

Appellate Division

*JAMES C. MCKAY, JR.,

Assistant Corporation Counsel, D.C.

Office of the Corporation Counsel

441 Fourth Street, N.W., 6th floor

Washington, D.C. 20001

Telephone: (202) 727-6252

Attorneys for Respondent

*Counsel of Record

TABLE OF CONTENTS

Page

i siiris bic ev-k' 0G « 1

COUNTER-STATEMENT OF THE CASE ........ 1

A. The Legislative Scheme .................. 1

es ss s skeen aieee.

PSST OLE ATE 4

SW. 2 ee BG A. R

REASONS FOR DENYING THE PETITION ..... ... 10

THE STORAGE ACT IS CONSTITUTIONAL BE-

CAUSE IT IS DESIGNED TO ADVANCE IMPOR-

TANT ENFORCEMENT PURPOSES OF THE DIS-

TRICT CONCERNING ALCOHOLIC BEVERAGES

UNDER SECTION 2 OF THE TWENTY-FIRST

PAN BAA ae fd ee ee 10

A. The states and the District have broad power under

the Twenty-first Amendment to structure the liquor

distribution system within their borders. ........ 10

B. The Storage Act is designed to advance core en-

forcement purposes protected by the Twenty-first

Amendment pertaining to the structuring of the

liquor distribution system within the District. .... . 15

C. The D.C. Circuit’s holding that the Storage Act is

designed to advance core enforcement powers over

alcohol was properly based on the terms of the

Act, its legislative history, and the adoption of a

similar requirement by numerous states......... 18

TABLE OF CONTENTS (continued)

Page

D. There is no conflict among federal or state

appellate courts on the issues. .............. 23

COPRAAMEEE ¢e'ciscd texneeous bees aes 29

APPENDICES

A. Transcript of the Legislative Session of the Council

of the District of Columbia on April 29, 1986

GROUND «nc oc ah bee Bs bbe eee et ks la

B. Letter from John Ray, Chairman of the Committee

on Consumer and Regulatory Affairs, to the Coun-

cil of the District of Columbia, on the "Wholesale

Liquor Industry Storage Act of 1986," April 30,

| PP ss Pr Pe ee ye ere 6a

C. Transcript of the Legislative Session of the Council

of the District of Columbia on May 13, 1986

ORM os ct acre det ea eee thers ts lla

D. Declaration of Frederick Farshey May 17, 1995

(un GS Sk bx So 2k en 19a

TABLE OF AUTHORITIES

Page

CASES

324 Liquor Corp. v. Duffy

Ee PS ei Be ee ee 2, 19

44 Liquormart, Inc. v. Rhode Island............. 13

116 S.Ct. 1495 (1996)

x =

a canaceieeneninnaiiiaiiaiiieaitiiiiin

TABLE OF AUTHORITIES (continued)

Page

Bacchus Imports, Lid. v. Dias

oS | 11, 20, 24, 25, 26

Brown-Forman Distillers Corp. v.

New York State Liquor Authority

ae ee AS Ae |

C & A Carbone, Inc. v. Town of Clarkstown, N.Y.

ee 5s kN S LUE. She. Sy 20

California Retail Liquor Dealers Assoc. v.

Midcal Aluminum

Oe Wom, SF AUPE. CK ak ooxte. 43, 19, 20, 26, 27

Capital Cities Cable, Inc. v. Crisp

oe S|: A 13, 15, 18, 19

Cooper v. McBeath

11 F.3d 547 (Sth Cir.)

cert. denied, 114 S.Ct. 2675 (1994) ........... 25

Craig’ v. Boren

oe ee ae 12, 19

Department of Revenue v. James B. Beam Distilling Co.

Wee EE et ek tt ewe 12

Healy v. The Beer Institute, Inc.

Ey SS 2

Heublein, Inc. v. Department of Alcoholic

Beverage Control

237 Va. 192, 376 S.E.2d 77 (1989)............ 27

- ili -

TABLE OF AUTHORITIES (continued)

Hostetter v. Idlewild Bon Voyage Liquor Corp.

yee et Peer eee ea ee 13, 26

Indiana Wholesale Wine & Liquor Co. v. State ex. rel.

Indiana Alcoholic Beverage Commission

662 N.E.2d 950 (Ind.App. 1996) .......... 25, 28

Ivey v. Bacardi Imports, Co.

341 Some 1129 Gees TH bn cw he eA 26

Loretto Winery Lid. v. Gazzara

601 F.Supp. 850 (S.D.N.Y.), aff'd as modified

sub nom. Loretto Winery Ltd. v. Duffy

761 F.2d 140 (2nd Cir. 1985) ..... 23, 24, 25, 26, 28

Mercury Press v. District of Columbia

173 F.2d 636 (D.C. Cir. 1948)

Cant: GUNNDE, 35t Ue. Oe CRON sok nos et eee 14

Milton S. Kronheim & Co., Inc. v. District of Columbia

ee 2 Fas A Ber passim

Milton S. Kronheim & Co., Inc. v. District of Columbia

877 F.Supp. 21 (D.D.C.)

rev'd, 91 F.3d 198 (D.C. Cir. 1996) ........... a

Neild v. District of Columbia

C50 Fe ee ee a ee caine e's eB oe 14

North Dakota v. United States

ey She, ME gk ks KK we 13, 17, 18, 28

Pike v. Bruce Church, Inc.

Sr ee SO: oo 8 oa Si ee Oe ee 21

* iv -

TABLE OF AUTHORITIES (continued)

Pilot Life Insurance Co. v. Dedeaux

inthapewts pion. cases. tho ht re 14

Quality Brands, Inc. vy.

715 F.Supp. 1138 (D.D.C. 1989)

aff'd mem., 901 F.2d 1130 Sees cs ots. 9, 21, 24

State Board of Equalization of California v.

Young’s Market Co.

MPU ee UE Sc ee 11, 17, 23

Symons v. Chrysler Corp. Loan Guarantee Board

670 F.2d 238 (D.C. Cir. nn ik RD ae pa 22

Ziffrin, Inc. v. Reeves

Pe TE A oss ccs... ba Aa, a7

CONSTITUTIONAL PROVISIONS

Art. I, § 8, cl. 3 (Commerce So aa ee passim

air he the kn, LAE ee Oe re eee 2, 14

Twenty-first Amendment................. passim

STATUTES

D.C. Code § 1-204 (1992)................. 5, 22

D.C. Code § 1-242(a) (1992) ................. 5

D.C. Code § 4-138 (1994)................... +

D.C. Code § 23-521(a) et soe 4

D.C. Code § 25-101 er ME cass ce 2

D.C. Code § 25-102 (1996) .................. 3

TABLE OF AUTHORITIES (continued)

Page

D.C. Code 6. 25-IAOMNO Sool HE A 4

D.C. Gode $\25-206 (1996) 0.6... ccc eee ee 4

D.C. Code § 25-107(a), (b) (1996) .........005. 4

D.C. Code § 25-107(0) (1996) ............005 5

D.C. Code § 25-109(a)(1) (1996) ..........00. 2.3

D.C. Code § 25-111(a)(3), (4) (1996) .........00. 2

D.C. Cie WORT ie ink ee Va 22

D.C, Cabs MAIS ee 2

D.C. Code § 25-114(¢) (1996) ............05. 2,5

D.C. Code § 25-114(f) (1996) ... 0.2.0.0 e eee 4

D.C. Code § 25-115(b)(1) (1996) .........0.. 3, 22

D.C. Code § 25-116(b) (1996) ..............3,22

D.C. Cate 625100 OS... 6... 5). 2

D.C. Cods § 25-490 00O .. .. Me lon eee 2

D.C, Cade § 2 IN on e e s 22

D.C. Code § 25-129(a), (e), (g), (n), (0), (p) (1996)... 3

D.C. Code § 25-130 ONS) Fo. a 4, 22

District of Columbia Alcoholic Beverage Control Act,

Act of January 24, 1934, 48 Stat. 219 ch. 4,

D.C. Code § 25-101 et seq. (1996) ............ 2

TABLE OF AUTHORITIES (continued)

District of Columbia Self-Government and

Governmental Reorganization Act

PUB. L. No. 93-198, 87 Stat. 774 (1973) .....

Ue ee ett es ea

Wholesale Liquor Storage Act of 1986

D.C. Law 6-130, D.C. Stat. 327 ae

OTHER AUTHORITY

Anno., Extent of State Regulatory Power under

Twenty-First Amendment

34 L.Ed.2d 805 (Supp. 1996) ............

78 CONG. REC. 266 (1934) ...............

N.D. Centennial Code § 5-03-01 ‘ae

F. SWITZER, The Three-Tier System of Distribution

in the Wine and Spirits Industry (1975).......

- Vii -

No. 96-1172

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

MILTON S. KRONHEIM & Co., INC.,

Petitioner,

Vv

DISTRICT OF COLUMBIA, ef ai.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia Circuit

BRIEF IN OPPOSITION BY THE

DISTRICT OF COLUMBIA

OPINION BELOW

The opinion of the United States Court of Appeals for the

District of Columbia Circuit, Pet. App. 1a-40a,' is reported

at 91 F.3d 193 (D.C. Cir. 1996).

COUNTER-STATEMENT OF THE CASE

A. The Legislative Scheme

1. The ABC Act

On January 24, 1934, less than two months after Prohibition

was repealed by the Twenty-first Amendment, Congress, in an

‘Pet. App." references are to the Appendices to the Petition.

si.

exercise of its plenary legislative authority over the District of

Columbia (the "District"),? enacted the District of Columbia

Alcoholic Beverage Control Act, (the "ABC Act").’ During

the debates, the Act was referred to as a “model bill, which

will be considered by all of the 48 States of the Nation when

they are considering legislation for the sale of intoxicating

beverages in those States." 78 CONG. REC. 266 (1934) (re-

marks of Congressman Patman).

The ABC Act establishes a three-tier system of distribution,

which separately licenses manufacturers, wholesalers, and

retailers, and requires retailers, with limited exceptions, to

purchase only from licensed wholesalers. See D.C. Code

§§ 25-109(a)(1), 25-113, 25-119, 25-120*; of. Healy v. The

Beer Institute, Inc., 491 U.S. 324, 326 n.2 (1989). Thirty-

two states opted for a similar distribution system; the other 18

States (the “control” states) made the state the only wholesaler.

See Brown-Forman Distillers Corp. v. New York State Liquor

Authority, 476 U.S. 573, 576 n. 1 (1986).

The Act provides that “[e]very license shall particularly

describe the place where the rights thereunder are to be exer-

cised, and beverages shall not be sold or kept for sale . . . by

any licensee except at the place so described in his license

...," D.C. Code § 25-114(e), and only authorizes wholesal-

ers to sell alcoholic beverages “from the place therein

described." D.C. Code § 25-111(a)(3), (4). That the term

“place,” as used in these sections, was intended to mean a

7U.S. ConstrruTion, Art. I, § 8, cl. 17.

*Act of January 24, 1934, 48 Stat. 219, ch. 4; D.C. Code

§ 25-101 et seg. (1996).

“There are currently no manufacturers in the District; there

are 9 wholesalers, which distribute to over 1,400 retailers.

=

place within the District is clear from a readin g of other pro-

visions of the Act. The scope of the Act is limited "only to

the District of Columbia." D.C. Code § 25-102. A license

issued to a wholesaler permits it only to “keep for sale, or sell

any alcoholic beverage" “within the District of Columbia."

D.C. Code §§ 25-109(a)(1). Provisions designed to ensure

that granting a license will not have an adverse impact on the

neighborhood only make sense if the “place” is within the

District. See D.C. Code § 25-115(b)(1) (requiring Board to

consider whether location is appropriate, considering

surroundings and desires of the neighborhood), and D.C.

Code § 25-116(b) (prohibiting issuance of wholesaler’s license

in “residential use district" as defined by District’s zoning

regulations).

Moreover, the strong enforcement provisions in the Act for

the most part can only be exercised with respect to premises

in the District. Thus, the Act authorizes the District Govern-

ment to seek a search warrant “when any alcoholic beverages

are manufactured for sale, kept for resale, or sold in violation

of the provisions of this Act"; it empowers police officers to

“break open any outer or inner door or window . . . to exe-

cute the warrant" if refused entry after notice; it provides

criminal penalties for obstructing the officers; and it permits

seizure, forfeiture, destruction, and liens upon property stored

in violation of the Act. D.C. Code § 25-129(a), (e), (g), (n),

(0), (p). See D.C. Code § 4-138 (1994) (Metropolitan Police

Department can only execute warrants in the District). The

Act also provides that any “building, ground, premises, or

place where any intoxicating beverage is manufactured, sold,

kept for sale, or permitted to be consumed in violation of this

Act is hereby declared to be a nuisance, and may be enjoined

and abated as hereinafter provided" and authorizes the Superi-

or Court to order the nuisance abated and to close the

«Ge

premises down for one year. D.C. Code § 25-139; see D.C.

Code § 23-521(a) (1996) (Superior Court can issue warrants

only for premises in District).

The Act establishes an Alcoholic Beverage Control Board

(the “Board") with authority to issue, transfer, and revoke all

licenses under the Act. D.C. Code §§ 25-104, 25-106. It

also authorizes the D.C. Commissioners (now the Council of

the District of Columbia)--but not the Board--to adopt rules to

“control and regulate the manufacture, sale, keeping for sale,

offer for sale, importation, exportation, and transportation of

alcoholic beverages in the District of Columbia," and to “for-

bid the issuances of [such] licenses . . . in such localities in

. . . the District of Columbia as they may deem proper in the

public interest." D.C. Code § 25-107(a), (b).

2. The Storage Act

In 1986, the Council of the District of Columbia, exercising

legislative power delegated to it by Congress under the Dis-

trict of Columbia Self-Government and Governmental Reorga-

nization Act,’ amended the ABC Act by enacting the Whole-

sale Liquor Storage Act of 1986, D.C. Law 6-130, D.C. Stat.

327 (1986) (the “Storage Act"), which provides, in pertinent

part, that "[nJo ligensee may store beverages upon premises

outside the District . . ." D.C. Code § 25-114(f). The legis-

lative history of the Storage Act shows that the Council under-

stood that the ABC Act, as enacted by Congress, already

required wholesalers to store beverages within the District,

and that one of the primary purposes of the Storage Act was

to make it clear that the Board’s authority to permit wholesal-

ers to “store beverages . . . upon premises other than the

‘Pus. L. No. 93-198, 87 Stat. 774 (1973). See id. §§ 302,

404(a), D.C. Code §§ 1-204, 1-242(a) (1992).

a.

premises designated in the license" under D.C. Code § 25-

114(€) was limited to premises within the District. The legis-

lative history also shows that the legislation was in part in

response to two specific instances in which the Board had

exceeded its authority by permitting two wholesalers to store

beverages outside the District in violation of the ABC Act.

During first reading of the Storage Act, Councilmember

Ray, the Chairman of the Committee on Consumer and Regu-

latory Affairs, which reported that Act, responded as follows

to initial concerns by Councilmember Schwartz that one of the

purposes of the bill was economic protection:

and in accordance with our licensing laws, to make

sure that their tax forms are file[d] so that we can

audit to make sure that they’re paying the proper

taxes to the District of Columbia because taxes are

based upon the gallons they sell per year, and ail

other laws which comply with the District of Colum-

bia.

Obviously, the District of Columbia inspectors

have no control over interest{s] that are located in

Maryland and Virginia. So, that’s why this law is

important not only Mrs. Schwartz from an economic

reason, but from a regulatory reason, which is a

function of the ABC Board in this city.

‘iii

At the end of this, Mr. Chairman, I would like to

add a statement to the record that this decision goes

much further than economic reasons, but it’s a result

of a boneheaded decision made by the ABC Board,

which interprets the laws as allowing them to exempt

a couple of companies from our laws.

The law already requires that all of those compa-

nies be in the city. The companies that are here now

cannot leave this city unless we so exempt them.

This law is to make it clear that the Alcoholic Bever-

age Control Board does not have that authority and

we did not intend for them to exempt these compa-

nies.

Pet. App. 85a-86a. See also, id. at 87a-89a. The bill passed

on first reading by unanimous vote. See id. at 90a.

After the Council, at second reading, adopted an amend-

ment proposed by Councilmember Winter permanently ex-

empting wholesalers that had previously received a waiver,

Councilmember Ray, vigorously opposing this amendment as

destructive of the Storage Act, reiterated his position in a

letter to the Council urging the deletion of this amendment:

. . . [T]he ABC Board’s decisions permitting

Quality and Majestic to-warehouse outside the Dis-

trict contravened the intent of the law and usurped

powers reserved to the Council. D.C. Code [§] 25-

107(b) authorizes the Council--and only the Council--

to make all Alcoholic Beverage Control rules and

regulations. The Council is specifically authorized

"to forbid the issuance of licenses for . . . storage of

alcoholic beverages in such localities in, and such

sections and portions of, the District of Columbia as

the Council may deem proper in the public interest.

oF.

.. ." From this language, and other references to

the District of Columbia throughout the act, it is

clear that Congress, in writing the law, had no

intention of permitting District licensees to operate

outside the District. By permitting otherwise, the

ABC Board made a policy decision expressly re-

served for the Council. If we are genuinely commit-

ted to protecting our legislative prerogatives, we

cannot come along now and condone the ABC’s

usurpation of Council authority.

Res. App. 8a (emphasis added).°

Mr. Ray’s letter apparently persuaded the Council, for, at

third reading of the Act, the Council voted without Opposition

to delete the previous amendment, restoring -the Act to its

original form. See Res. App. 18a. Other members shared

Councilmember Ray’s view that the Board lacked authority to

grant such “waivers.". As Councilmember Kane stated:

I just wanted to say for the record, I will be sup-

porting Mr. Ray’s amendment. It has been my

understanding at the time of the previous vote that

the exemption or the exception for being out of the

city had been properly granted.

I have received information since that indicates

it’s really some question about how properly and

how legally that exemption was granted in the first

place.

I, like Mrs. Schwartz, am not in the habit of

changing the rules on people in the middle of the

*"Res. App." references are to the Appendices bound at the

end of this Brief.

game. It seems that there was some question about

whether or not the rules were been followed in the

first place.

Res. App. 16a-17a. The Storage Act passed on final reading

by unanimous vote. /d. at 18a.

B. The Facts

Petitioner, Milton S. Kronheim & Co., Inc., (Kronheim) is

a wholesaler of alcoholic beverages, licensed under the ABC

Act. Kronheim distributes liquor, beer, and wine to District

retailers, which it obtains from approximately 80 suppliers,

and has conducted its wholesale beverage business in the

District continuously since 1903, except during Prohibition.

See Pet. App. 91a. Kronheim’s licenses authorize it to store

alcoholic beverages at two warehouses located on V Street,

N.E. in the District of Columbia. Id. at 92a-93a. Kronheim

has a Maryland affiliate based in Baltimore and, for business

reasons, desired to consolidate its warehousing operations in

the District and Maryland by leasing a facility in Jessup,

Maryland. Id. at 92a, 97a.

On February 2, 1995, Kronheim filed a suit in the United

States District Court for the District of Columbia to declare

the Storage Act unconstitutional as violative of the Commerce

Clause.’ In support of Kronheim’s motion for a preliminary

injunction, Matthew Margolies, Kronheim’s Chief Executive

Officer, stated in an affidavit that Kronheim’s District opera-

tions required 100,000 square feet and that no such warehous-

es were available in the District. Pet. App. 93a. However,

Frederick Farshey, a commercial developer, stated to the

contrary that adequate warehouse space was available, includ-

7U.S. ConsttruTion, Art. I, § 8, cl. 3.

ll

= 2

ing the Sears Building, which was vacated about two years

previously and which had 225,000 square feet available since

February, 1995. Res. App. 20a.

On February 10, 1995, after a short hearing primarily on

the issues of irreparable harm and balance of the equities, the

district court granted a preliminary injunction, which was

subsequently superseded by an permanent order, declaring the

Storage Act unconstitutional and enjoining its enforcement.

Milton S. Kronheim & Co., Inc. v. District of Columbia, 877

F.Supp. 21 (D.D.C.), rev’d, 91 F.3d 198 (D.C. Cir. 1996).*

The D.C. Circuit reversed,’ holding that, although it facial-

ly discriminated against interstate commerce, the Storage Act

was constitutional because “both by its terms and according to

its history [it] is designed to advance the core enforcement

purposes protected by section 2 of the Twenty-first Amend-

ment." Milton S. Kronheim & Co., Inc. v. District of Colum-

bia, 91 F.3d at 193, 203 (D.C. Cir. 1996); Pet. App. 18a.

The Circuit noted that core enforcement interests advanced by

the Act included facilitating the auditing of company records,

monitoring compliance with the ABC laws, monitoring licens-

es, and checking tax forms for audits. Jd., 93 F.3d at 203;

Pet. App. 19a. The Circuit denied Kronheim’s petition for

rehearing and suggestion for rehearing in banc. Pet. App.

64a, 65a.

‘The district court relied primarily on the decision of the

decision in Quality Brands, Inc. v. Barry, 715 F.Supp. 1138

(D.D.C. 1989), aff'd mem., 901 F.2d 1130 (1990).

"Judge Henderson dissented solely on the collateral estoppel

issue and would not have reached the constitutional issues.

-~-

REASONS FOR DENYING THE PETITION

THE STORAGE ACT IS CONSTITUTIONAL

BECAUSE IT IS DESIGNED TO ADVANCE

IMPORTANT ENFORCEMENT PURPOSES

OF THE DISTRICT CONCERNING ALCO-

HOLIC BEVERAGES UNDER SECTION 2

OF THE TWENTY-FIRST AMENDMENT.

A. The states and District have broad power

under the Twenty-first Amendment to struc-

ture the liquor distribution system within

their borders.

The D.C. Circuit was correct in upholding the Storage Act

against challenge under the Commerce Clause because it is

supported by core concerns under Section 2 of the Twenty-

first Amendment, which provides:

The transportation or importation into any State,

Territory, or possession of the United States for

delivery or use therein of intoxicating liquors, in

violation of the laws thereof, is hereby prohibited.'°

The D.C. Circuit held that, although the District may not

literally be a "State" within the meaning of Section 2 of the Twenty-

first Amendment, it must be treated as such because Congress

delegated to the District the same powers given to the states under

the Twenty-first Amendment. Kronheim, supra, 91 F.3d at 201;

Pet. App. 13a. Kronheim concedes that this holding is correct.

Petition at 9 n. 4. This delegation of congressional power is sup-

ported not only the ABC Act, which Congress considered a “model"

for the states, see, supra, p. 2, but also by the District of Columbia

Self-Government and Governmental Reorganization ;Act, Pus. L.

No. 93-198, 87 Stat. 774 (1973), which provides that:

7

Kronheim argues that this provision is "primarily designed

to permit the states ‘to promote temperance.’" Petition at 12,

citing Bacchus Imports, Lid. v. Dias, 468 U.S. 263, 276

(1984). But, although promoting temperance may be one

object, Section 2 has a broader reach. In Bacchus, while

invalidating a state law providing a tax exemption for locally

produced beverages, the Court recognized that a state could

justify "its tax on the ground that it was designed to promote

temperance or to carry out any other purpose of the Twenty-

first Amendment." Id. at 276. (Emphasis added.) Indeed,

despite Kronheim’s attempt to belittle the text of the Twenty-

first Amendment, it is significant that Section 2 does not

mention "temperance" at all, but uses the words "transporta-

tion," “importation,” and “delivery.”

The Supreme Court has consistently held that the Twenty-

first Amendment gives the states broad power to structure the

distribution system for alcoholic beverages within their bor-

ders. Thus, in State Board of Equalization of California v.

Young's Market Co., 299 U.S. 59, 62 (1936), the Court up-

held a license fee for the privilege of importing beer into

California, observing that the Amendment “confer[]s upon the

... [T]he legislative power of the District shall

extend to all rightful subjects of legislation within the

District consistent with the Constitution of the United

States and the provisions of this Act subject to all the

restrictions and limitations imposed upon the States by

the tenth section of the first article of the Constitution

of the United States.

Id. § 302; D.C. Code § 1-204 (1992). Kronheim’s concession,

however, means that, strictly speaking, this case does not con-

strue the Twenty-first Amendment at all but, instead, a statutory

analogue to it unique to the District of Columbia.

=. oe

state the power to forbid all importations which do not comply

with the conditions which it prescribes." In Ziffrin, Inc. v.

Reeves, 308 U.S. 132, 138 (1939), the Court upheld a Ken-

tucky statute regulating the distribution of alcoholic beverages

against challenge by a carrier that was not licensed by the

state to transport alcohol from distillers out of the state, hold-

ing that "[t]he Twenty-first Amendment sanctions. the right of

a state to legislate concerning intoxicating liquors brought

from without, unfettered by the Commerce Clause."

More recently, although invalidating patently protectionist

state regulations or those running afoul of important constitu-

tional provisions other than the Commerce Clause, the Court

has consistently recognized, in strong dicta, that a state’s

regulation of the importation and distribution of alcoholic

beverages within its borders is a core power, which may be

exercised free of the Commerce Clause. Thus, in Department

of Revenue v. James B. Beam Distilling Co., 377 U.S. 341,

346 (1964), although invalidating a tax imposed by Kentucky

on imported whiskey as violative of the Export-Import Clause,

the Court stated that "[t]here can surely be no doubt . . . of

Kentucky’s plenary power to regulate and control, by taxation

or otherwise, the distribution, use, or consumption of intoxi-

cants within her territory after they have been imported." In

Craig v. Boren, 429 U.S. 190, 205-207 (1976), although

invalidating a law mandating different ages for drinking for

men and women on equal protection grounds, the Court stated

that the “importation of intoxicants [is] a regulatory area

where the State’s authority under the Twenty-first Amendment

is transparently clear." In 324 Liquor Corp. v. Duffy, 479

U.S. 335 (1987), although invalidating a state price affirma-

tion plan because of its practical effect on the commerce of

other states, the Court stated that "Section 2 ‘grants the States

virtually complete control over whether to permit importation

SF

or sale of liquor and how to structure the liquor distribution

system.’" Id. at 346, quoting California Retail Liquor Deal-

ers Assoc. v. Midcal Aluminum, 445 U.S. 97, 110 (1980). In

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

although invalidating a state ban on cable television advertise-

ments of alcoholic beverages as preempted by federal commu-

nications law, the Court observed that "[t]he States enjoy

broad power under § 2 of the Twenty-first Amendment to

regulate the importation and use of intoxicating liquor within

their borders" and that "§ 2 reserves to the States power to

impose burdens on interstate commerce in intoxicating liquor

that, absent the Amendment, would Clearly be invalid under

the Commerce Clause." Id. at 712, citing Hostetter v. Idle-

wild Bon Voyage Liquor Corp., 377 U.S. 324, 330 (1964).

And in 44 Liquormart, Inc. v. Rhode Island, 116 S.Ct. 1495,

1514 (1996), although invalidating a ban on advertising liquor

prices on First-Amendment grounds, the Court reaffirmed that

"[t}he States’ regulatory power over this segment of commerce

is therefore largely ‘unfettered by the Commerce Clause.’"

Quoting Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138 (1939).

Likewise, in North Dakota v. United States, 495 U.S. 423,

431 (1990), the Court, in upholding North Dakota’s reporting

and labeling requirements for liquor imported into military

bases within the state against challenges that they burdened the

federal government in violation of the Supremacy Clause, held

that “within the area of its jurisdiction, the Siate has ‘virtually

complete control’ over the importation and sale of liquor and

the structure of the liquor distribution system." Noting that

the state’s “comprehensive system for the distribution of liquor

within in its borders" was “unquestionably legitimate," it held

that the reporting and labeling requirements "fall within the

core of the State’s power under the Twenty-first Amendment."

Id., 495 U.S. at 432.

Pee nee ne

=

In view of these cases, there can be little doubt that a state

law designed to structure the distribution system of alcoholic

beverages, whether or not it directly promotes temperance, is

an exercise of a core power under Section 2 of the Twenty-

first Amendment and, thus, is not subject to challenge under

the dormant Commerce Clause."

"We continue to maintain that Congress itself required

wholesalers to store alcoholic beverages in the District when it

enacted the ABC Act in 1934, and that the Storage Act simply

clarified the scope of the Board’s discretion to permit a licensed

wholesaler to store beverages in places not designated in the

license was limited to places in the District. It is settled that the

Commerce Clause does not apply to Acts of Congress, including

those enacted in the exercise of its legislative power over the

District under Article I, § 8, cl. 17 of the Constitution, unless

Congress expressly limits its power. See Neild v. District of

Columbia, 110 F.2d 246, 251 (D.C. Cir. 1940); accord, Mercury

Press v. District of Columbia, 173 F.2d 636, 637-638 (D.C. Cir.

1948), cert. denied, 337 U.S. 931 (1949).

The D.C. Circuit agreed that Congress exercised its full legis-

lative powers when it enacted the ABC Act, Kronheim, supra, 91

F.3d at 200; Pet. App. lla, but concluded that "the ABC Act

neither mandates nor forbids the storage limitation." /d., 91 F.2d

at 200; Pet. App. 13a. We disagree. “[L]ook[ing] to the provi-

sions of the whole law, and to its objects and policies," Pilot Life

Insurance Co. v. Dedeaux, 481 U.S. 41, 51 (1987), especially

provisions limiting the scope of the ABC Act, the scope of the

licenses issued thereunder, and the ability to enforce the Act’s

provisions to the geographic boundaries of the District, see,

supra, pp. 2-4, it is apparent that the "place" where the Act

requires wholesalers to store their beverages is necessarily a place

within the District and, hence, that Congress itself imposed the

storage requirement. Therefore, this case should have been

decided on non-constitutional grounds.

ee ee

As the D.C. Circuit noted, "the Storage Act both by its

terms and according to its history is designed to advance the

core enforcement purposes protected by Section 2 of the

Twenty-first Amendment." Kronheim., supra, 91 F.3d at 203;

Pet. App. 18a. The Act effectively controls the "transpor-

tation or importation" of “intoxicating liquors" into the Dis-

trict from manufacturers for “delivery or use therein," within

the meaning of Section 2, by channeling alcoholic beverages

imported into the District in bulk to the storage facilities of a

small number of wholesalers before the beverages are deliv-

ered to numerous retailers within the District, thus permitting

the District to enforce compliance with the ABC Act and tax

laws. As this Court held in Capital Cities Cable, supra, 467

U.S. at 716, a “State’s central power under the Twenty-first

Amendment [is] regulating the times, places, and manner

under which liquor may be imported and sold. . ." Since the

Storage Act regulates the "place" and "manner under which

liquor may be imported," it is within this central power.

Requiring a local situs for wholesalers is an integral part of

the three-tier distribution system because it serves the ultimate

purpose of licensing--ready access to and power over the

licensee and its activities. As explained in F. SwitZER, The

Three-Tier System of Distribution in the Wine and Spirits

Industry 10 (1975):

The [three-tier] system also required an indepen-

dent, locally licensed wholesaler to be the first buyer

within the state and established a clear-cut channel of

distribution. The wholesaler, being within the juris-

viii.

diction of the state, would obviously be more amena-

ble to state control and more sensitive and responsive

to local social influences than would a non-resident

supplier operating at a national level. This system

strengthened the hand of the state in enforcing its

regulatory provisions and in achieving the social ends

of liquor control. It more fully utilized the full legal

power of the state over the channels of distribution

to meet the requirement of sound liquor control.

It is obviously simpler for a state to enforce the

laws against local, licensed wholesalers than against

suppliers--be they distillers, wineries, or importers--

located outside the state. The state can walk into the

wholesale house, inspect its books, examine its in-

ventory and question its officers and employees. It

has immediate jurisdiction over all the operations and

personnel of the wholesaler. It may suspend or

terminate all its operations. . . .

One of the most compelling arguments that the Storage Act

serves a core purpose of the Twenty-first Amendment is the

undisputed fact that every state in the country which permits

private wholesalers to operate at all has a similar requirement.

As the D.C. Circuit observed, “[e]loquently testifying to the

legitimacy of the District’s claims, as well as to the potentially

dire consequences of the precedent we might establish by

striking the Act, are an array of state statutes subject to poten-

tial attack on the same Commerce Clause basis." Kronheim,

-17-

supra, 91 F.3d at 204; Pet. App. 19a-20a (citing state stat-

utes). '?

Indeed, North Dakota’s “comprehensive system for the

distribution of liquor within in its borders," a threc-dcr sys-

tem, which the Court found “unquestionably legitimate" in

North Dakota v. United States, supra, 495 U.S. at 432, like

the Storage Act and the state statutes cited by the D.C. Cir-

cuit, provides that "[a] person is not eligible for such a license

unless that person has a warehouse and office in this state

..." N.D. Centennial Code § 5-03-01 (1995). More point-

edly, Judge Scalia, whose concurring vote made up the major-

ity, stated that "[t]he 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"). Id. at 447

(SCALIA, J., concurring) (emphasis added). "°

"Indeed, Section 2 permits states to monopolize the distri-

bution of alcoholic beverages, and 18 states have done so. See

Brown-Forman Distillers Corp. v. New York State Liquor Author-

ity, supra, 476 U.S. at 576 n. 1. If the District may make itself

the sole wholesaler for all alcoholic beverages distributed in the

District, it surely may take the lesser action of requiring all

private wholesalers to store their beverages in the District prior to

distributing them to retailers. See Ziffrin, Inc. v. Reeves, supra,

308 U.S. at 138 ("The greater power includes the less."); State

Board of Equalization of California v. Young’s Market Co.,

supra, 299 U.S. at 63 (same).

‘*Although the Court was divided on the question of whether

the state labeling (though not the reporting) requirement for

military bases burdened federal operations, there was no dissent

about the legitimacy of North Dakota’s comprehensive scheme.

In arguing that the labeling requirement for liquor shipped to

military bases was not necessary, the dissenting Justices stated

that "[t]he State could achieve the same result in its effort to

‘prevent the unlawful diversion of liquor into [its] regulated

. =

Therefore, there is no merit in Kronheim’s argument that

this case presents a novel question about the scope of the core

interests protected by the Twenty-first Amendment. The

Storage Act is not merely a "general state interest in facilitat-

ing enforcement" of ABC laws, as Kronheim asserts, but a

key part of the District’s power to structure the liquor distri-

bution system within its borders. If the storage requirement

is not an exexcise of a core power to structure the liquor

distribution system, it is difficult to imagine what is.

C. The D.C. Circuit’s holding that the Storage Act

is designed to advance core enforcement powers

over alcohol was properly based on the terms of

the Act, its legislative history, and the adoption of

a similar requirement by numerous states.

Kronheim’s argument that a state relying on the Twenty-

first Amendment is "required to adduce evidence that the law

actually and materially served core Twenty-first Amendment

interests," Petition at 18-19, is untenable.'* The District was

not required to meet such a burden. As this Court held in

North Dakota v. United States, supra, “(given the protection

afforded the state liquor control policies by the Twenty-first

Amendment, they are supported by a strong presumption of

validity and should not be set aside lightly." Jd. 495 U.S. at

434, citing Capitol Cities Cable, Inc. v. Crisp, supra, 467

U.S. at 714 (emphasis added). The D.C. Circuit properly

Id. at 449-450 (BRENNAN, J., dissenting) (emphasis added). This

language assumes that the liquor would be shipped to a situs within

the state, and not distributed to retailers from outside the state, in

which case it would be difficult to prevent diversion.

‘We note that Kronheim did not raise this argument before the

district court or even before the Panel of the D.C. Circuit, but did

so for the first time in its rehearing petition.

- 19 -

434, citing Capitol Cities Cable, Inc. v. Crisp, supra, 467

U.S. at 714 (emphasis added). The D.C. Circuit properly

based its holding that the Storage Act was designed to advance

core alcoholic beverage enforcement purposes on the terms of

the Act, its legislative history, and the adoption of a similar

requirement by numerous states.

Moreover, the cases Kronheim cites, Midcal Aluminum,

Capital Cities Cable, and 324 Liquor Corp.,, do not support

this argument because the Court did not place the burden of

persuasion on the State. Instead, the Court determined that

the states’ purported interests were weak or nonexistent as a

matter of law when balanced against the federal interests. '°

Thus, in Midcal Aluminum, the Court noted that "/nJothing in

the record of this case suggests that the wine pricing system

helps sustain small retail establishments." /Jd., 445 U.S. at

113 (emphasis added). In Capital Cities Cable, the Court

“accept[ed] Oklahoma’s judgment that restrictions on liquor

advertising represent at least a reasonable, albeit limited,

means of furthering the goal of promoting temperance in the

State," but found that "/bjy their own terms . . . the State’s

regulatory aims in this area are narrow." Id., 467 U.S. at 715

(emphasis added). And in 324 Liquor Corp., the Court heid

that a New York State price affirmation law requiring a mini-

mum 12 percent markup on the posted bottle price and which

purported to protect small retailers was not protected by the

Twenty-first Amendment because “[t]here is no indication in

the statute or its legislative history . . . that the purpose of

‘The relevance of these cases is further attenuated since they

all involved conflicts of state laws with federal concerns other

than the Commerce Clause because “the Amendment primarily

created an exception to the normal operation of the Commerce

Clause." Craig v. Boren, supra, 429 U.S. at 206.

>.

defining cost as ‘posted bottle price’ was to protect small

retailers." Id., 479 U.S. at 349 (emphasis added).

In the present case, as shown, there is ample support in the

terms and legislative history of the Storage Act that it furthers

important enforcement interests integral to the structuring of

the liquor distribution system in the District by channeling

alcoholic beverages imported into the District to warehouses

operated by a few wholesalers before they are delivered to

numerous retailers.'®

‘Indeed, although we do not believe the balancing approach

taken in these cases is warranted since the Storage Act is de-

signed to advance a core Twenty-first Amendment interest, apply-

ing a balancing approach supports the argument in favor of the

constitutionality of the Storage Act because the federal interests

that would be advanced by invalidating it are so minimal. The

Storage Act does not discriminate against out-of-state goods since

all liquor consumed in the District is manufactured outside the

District. It does not discriminate against out-of-state labor since

the District does not have a residency requirement for licensees.

And it does not discriminate against out-of-state wholesalers since

the requirement only applies to local wholesalers because only

they can distribute alcoholic beverages in the District in the first

place. Thus, this case is quite different from Bacchus Imports,

Lid. v. Dias, supra, in which the Court invalidated a tax exemp-

tion for certain local manufacturers which put a wholesaler of the

out-of-state beverages at a competitive disadvantage. Here, by

contrast, Kronheim is not competitively disadvantaged by the

storage requirement because it applies across the board. More-

over, since every state requires wholesalers to store alcoholic

beverages in the state prior to delivering them to retailers, the

Storage Act cannot, as a practical manner, operate in a discrimi-

natory manner. Thus, this case is distinguishable from those

involving local processing requirements, such as C & A Carbone,

Inc. v. Town of Clarkstown, N.Y., 511 U.S. 383 (1994), which .

held that “the essential vice in laws of these sorts is that they bar

the import of the processing service [and] hoard a local resource--

a,

As noted, the enforcement interests underlying the Storage

Act are clear from its legislative history. Kronheim’s asser-

tion that the District’s interests were only made in “the elev-

enth-hour statement of single District Councilmember in antic-

ipation of litigation," Petition at 13, is a serious misstatement

of the record.’ As shown, Councilmember Ray’s explana-

tion of the interests served by the Storage Act was thoroughly

aired at three legislative sessions of the Council and in a letter

to all of its members. Despite some initial concerns by Coun-

cilmembers Schwartz and Kane, in the end they were satisfied

because they, as well as the rest of the Council, voted unani-

mously in favor of the Act. See Res. App. 18a. Debate

among the members of a legislative body considering a

be it meat, shrimp, or milk--for the benefit of local businesses

that treat it." Unlike the businesses burdened in these cases,

Kronheim is, and as part of the required liquor distribution sys-

tem is required to be, a “local business" It is for that reason that

Kronheim clearly has free “access to local demand” of its bever-

ages. Since the in-state storage requirement is universally im-

posed on all alcoholic beverage wholesalers in the United States,

no wholesaler is competitively disadvantaged by this requirement.

For these, and other reasons, we continue to maintain that the

Storage Act would not violate the Commerce Act even in the ab-

sence of the Twenty-first Amendment because it "regulates even-

handedly to effectuate a legitimate local purpose.” Pike v. Bruce

Church, Inc., 397 U.S. 137, 142 (1970). What Kronheim seeks

is a competitive advantage over other District-licensed wholesal-

ers, but the Commerce Clause does not entitle it to this advan-

tage.

"Equally unsupported is Kronheim’s assertion that Mr. Ray’s

statements were made in contemplation of litigation. No potential

litigation was apparent at the time. Indeed, it was not until July

20, 1988--over two years after the Council enacted the Storage

Act--that a wholesaler filed a suit challenging it. See Quality

Brands, Inc. v. Barry, supra.

--

enactment is one of the best indications of legislative intent.

See Symons v. Chrysler Corp. Loan Guarantee Board, 670

F.2d 238, 242-243 (D.C. Cir. 1981).

Kronheim’s argument that Twenty-first Amendment princi-

ples are inapplicable here because the object of the Storage

Act’s thrust is warehouse space, rather than alcoholic beverag-

“Kronheim makes several other assertions that require re-

sponse. Petition at 12-13 at n. 8. (1) Kronheim’s assertion that

there are no ABC laws pertaining to activities at warehouses

misses the point. Instead of specific regulations, various provi-

sions of the ABC Act give governmental entities broad discretion,

including those giving the Board discretion to approve the loca-

tion of a wholesaler’s premises within the District, D.C. Code

§§ 25-115(6)(1), 25-116(); authorizing the police to enter whole-

saler’s premises to investigate possible violations, D.C. Code

§ 25-129; and authorizing the Superior Court to close down

premises in violation of the ABC Act. D.C. Code § 25-139.

See, supra, pp. 3-4. (2) Kronheim’s assertion that the District

never inspected a warehouse in the past is based entirely on a

bald and self-serving statement of Kronheim’s Chief Executive

Officer in an affidavit in which the focus of the evidence was the

question of irreparable harm. Pet. App. 100a. (3) Kronheim’s

assertion that the District has allowed wholesalers to use out-of-

District warehouses for decades is misleading. The pertinent

facts in the record show only the Board granted two wholesalers

permits to store beverages outside the District, one in 1979 and

one for the 1993-1995 license period. Pet. App. 107a, lila. As

noted, the legislative history of the Storage Act shows that the

Council considered the Board’s actions to be ultra vires and

enacted the Storage Act to prevent further abuses. When Kron-

heim made the same argument before the D.C. Circuit, it relied

on D.C. Code § 25-112 and 23 D.C. Mun. Regs. § 1300 (1988),

which only provide a very limited (and typical) exception to the

three-tier distribution system, by allowing a retailer, on obtaining

a special permit from the Board, to import beverages that are not

available from District-licensed wholesalers in sufficient quantities

to satisfy its immediate needs.

.

es, is based on fallacious reasoning. The need for a ware-

house in the District is a practical incident of the requirement

that a wholesaler store alcoholic beverages in the District

before distributing them, which is integral to the District’s

ability to structure the liquor distribution system within its

borders. The warehouse cannot logically be viewed in isola-

tion from the alcoholic beverages stored in it.

Equally -illogical is Kronkeim’s argument that the D.C.

Circuit’s decision gives the District the power to determine

where Kronheim’s trucks are garaged, where its computers are

located, or where its workers reside.'® Whereas the location

in the District of an alcoholic beverage wholesaler’s ware-

house is critical to the District’s legal ability to enforce the

ABC Act and thereby to structure the liquor distribution Sys-

tem, the location of trucks, computers, or workers is not. As

the Court observed in State Board of Equalization of Califor-

nia v. Young’s Market Co., supra, 299 U.S. at 64, “the ques-

tion for decision requires no such generalization."

D. There is no conflict among federal or state

appellate courts on the issues.

1. Kronheim’s argument that the D.C. Circuit’s decision

“conflicts with decisions of the Second and Fifth Circuit that

have interpreted Bacchus to limit Twenty-first Amendment

immunity solely to those measures that serve substantial tem-

perance-related purposes,” Petition at 22, is without merit.

Kronheim can only point to a statement in the district court’s

decision in Loretto Winery Lid. v. Gazzara, (1 F.Supp. 850,

861 (S.D.N.Y.), aff'd as modified sub nom. Loretto Winery

Lid. v. Duffy, 761 F.2d 140 (2nd Cir. 1985). That case is

"Unlike many states, the District has never had a residency

requirement for alcoholic beverage licensees.

«Me

distinguishable because the state law in question did not pur-

port to “structure the liquor distribution system"; rather, its

“central purpose . . . was admittedly to promote the sale of

"New York labelled wines,’" 601 F.Supp. at 858, which alone

could be sold in grocery stores rather than package siores.

Moreover, the district court’s statement--"[ojnly those state

regulations which directly promote temperance may now be

said to be permissible under Section 2 of the Twenty-first

Amendment"--is a exceedingly narrow view, which is contrary

to the text of Section 2 and to the numerous decisions of this

Court quoted above. See pp. 11-13, supra. As noted, Bac-

chus, on which the district court relied, held that a state law

could be justified not only “on the ground it was designed to

promote temperance” but also on the ground that it was de-

signed “to carry out axy other purpose of the Twenty-first

Amendment." Id., 468 U.S. at 276 (emphasis added).

Moreover, contrary to Kronheim’s assertion, the district

court’s reasoning in Loretto Winery was not “adopted in its

entirety by the Second Circuit." Petition at 25. Rather, the

Second Circuit only affirmed "[flor substantially the reasons

set forth" by the district court. 761 F.2d at 141 (emphasis

added). The D.C. Circuit used the exact same language to

describe the reasons for its affirmance, in an unpublished

decision, of the district court in Quality Brands, Inc. v. Barry,

supra. Yet, as the D.C. Circuit noted in the present case in

rejecting Kronheim’s collateral estoppel argument and in

expressly overruling its decision in Quality Brands, such

language “provided no clarity as to what was actually or

necessarily determined on appeal." Kronheim, supra, 91 F.3d

at 197; Pet. App. 6a. See also, id., 91 F.3d at 205; Pet.

App. 22a-23a (SILBERMAN, J., concurring). In any case, the

Second Circuit in Loretto Winery had little need to adopt the

district court’s extreme statement because, as it noted, "[sJuch

~ %

clearly protectionists measures are violative of the commerce

clause and, in light of Bacchus . . . cannot be saved by Sec-

tion 2 of the Twenty-first Amendment." 761 F.2d at 141

(emphasis added).

Kronheim also relies on Cooper v. McBeath, 11 F.3d 547

(Sth Cir.), cert. denied, 114 S.Ct. 2675 (1994), but that case

is easily distinguishable. There, the Fifth Circuit case struck

down a three-year durational residence requirement for alco-

holic beverage licensees--facts that do not remotely resemble

the present case. Kronheim’s analogy between Texas’s inter-

est in background checks and the District’s interests in ware-

house inspections is unconvincing. Whereas Texas can make

a background check of a potential licensee in another state

through long-distance inquiries or private investigators, under

the ABC Act, the Metropolitan Police Department has no

authority to enter an out-of-state warehouse to execute a sub-

pena, the Corporation Counsel has no authority to seek an

injunction in a foreign jurisdiction against operations of an

out-of-state warehouse, and the Superior Court has no authori-

ty to declare an out-of-state warehouse a nuisance or close it

down. Thus, unlike a residency requirement, the storage

requirement plays a critical role in the District’s power to

structure the liquor distribution system within its borders.

Kronheim’s reliance on Indiana Wholesale Wine & Liquor

Co. v. State ex. rel. Indiana Alcoholic Beverage Commission,

662 N.E.2d 950, 997 (Ind.App. 1996), is surprising. That

case, while similarly striking down a durational residency

requirement, undercuts Kronheim’s argument. While noting

that "preservation of the states’ ability to promote temperance

is undoubted one of the ‘core concerns’" of Section 2, id., 662

N.E. at 966 (emphasis added), the court expressly rejects the

argument based on Loretto Winery that it is the "sole" con-

cern, stating that it "declined to adopt this very narrow read-

~ 26 -

United States Supreme Court decisions subsequent to Bacchus

on which Loretto Winery relied." Id., 662 N.E.2d at 966 n.

27.

2. Kronheim argues that the D.C. Circuit is in conflict with

other courts because it applied a “deferential, rational basis

mode of review" in assessing the Twenty-first Amendment

concerns addressed by the Storage Act. However, none of

these cases applied the heightened scrutiny standard that Kron-

heim champions.”°

In Ivey v. Bacardi Imports, Co., 541 So.2d 1129 (Fla.

1989), the court invalidated a state tax scheme that gave pref-

erences to alcoholic beverages manufactured from crops

grown in Florida, closely analogous to the Hawaiian scheme

giving tax preferences to local alcoholic products invalidated

in Bacchus. Noting that "both the Twenty-first Amendment

and the Commerce Clause are parts of the same Constitution,"

id. at 1136, quoting Hostetter, supra, 377 U.S. at 332, under-

took a “pragmatic effort to harmonize state and federal pow-

ers," Midcal Aluminum, supra, 445 U.S. at 109. The court

in Ivey did not subject the states Twenty-first Amendment

interests to heightened scrutiny, but merely determined that

the those interests were "not substantial enough to outweigh

the federal interest in free and unrestricted trade." 541 So.2d

As one commentator noted, "[a]nalysis of a validity of state

law regulating liquor does not proceed via traditional route for

testing constitutionality of state statutes. Rather courts must proceed

from vantage point of presumed state power and then ask whether

there are any limitations to that power, always keeping in mind that

where intoxicating liquors are concerned, great deference must be

accorded comprehensive state regulatory scheme." Anno., Extent

of State Regulatory Power Under Twenty-first Amendment, 34 L.Ed.

805 (Supp. 1996, at 16).

~

at 1137. The D.C. Circuit did not take a fundamentally dif-

ferent analytical approach. In holding that "the Storage Act

both by its terms and according to its history is designed to

advance the core enforcement purposes protected by section 2

of the Twenty-first Amendment," Kronheim, supra, 91 F.3d

at 203; Pet. App. 18a, the Court essentially determined that

these enforcement purposes were sufficiently substantial to

override the federal interests protected by the Commerce

Clause.

In Heublein, Inc. v. Department of Alcoholic Beverage

Control, 237 Va. 192, 376 S.E.2d 77 (1989), the court invali-

dated a Virginia law prohibiting liquor distributors from uni-

laterally amending their agreements with Virginia wine whole-

salers unless they made the same amendment with respect to

their agreements with wholesalers in other states because, like

the price affirmation law invalidated in Brown-Forman Distill-

ers v. New York Liquor Authority, supra, the law’s practical

effect was to control liquor prices in other states in violation

of the Commerce Clause. Contrary to Kronheiin’s argument,

the court did not apply a heightened level of scrutiny to the

state law. Kronheim argues that the court "noted that it had

to apply ‘careful scrutiny’ to the State’s asserted Twenty-first

Amendment interests." Petition at 25. But this quote is taken

out of context; the full quote has quite a different emphasis:

"there is no bright line between federal and state powers over

liquor. The competing state interest can be reconsidered only

after careful scrutiny in a ‘concrete case.’"" 376 S.E.2d at

198, quoting Midcal Aluminum, supra, 445 U.S. at 110.

Moreover, the court in Heublein did not subject the Virginia

law to a heightened scrutiny. Instead, it started with the

proposition that "every statute ‘carries a strong presumption

of validity.’" Jd., 376 S.E.2d at 195. It concluded, from an

- 28 -

examination of the legislative background, that the law’s

purpose was purely protectionist. Jd. at 199.

Kronheim’s reliance on Indiana Wholesale Wine & Liquor

Co., supra, is surprising. Relying on North Dakota v. United

States, supra, the court held that "[i]t would seem unlikely

that a ’strict scrutiny’ approach analogous to that used in

regular Commerce Clause cases would be appropriate, since

to scrutinize state regulation of liquor that furthers the ’core

concerns’ of the Twenty-first Amendment under a strict scruti-

ny approach, would have the effect of seriously undermining

the Twenty-first Amendment’s special protection of state

liquor regulation." 662 N.E. 2d at 966.

Therefore, Kronheim’s argument that the D.C. Circuit is m

serious conflict with other federal and state decisions is unten-

able. At most, Kronheim can point to a single statement by

a district judge. There is no conflict for this Court to resolve.

“* &

In sum, the D.C. Circuit was clearly correct in upholding

the constitutionality of the District’s requirement that licensed

wholesalers store alcoholic beverages that they import into the

District at a location in the District before they distribute them

widely to District retailers. The storage requirement, univer-

sal among the states, is clearly designed to advance the Dis-

trict’s power to enforce its ABC laws and, thus, to structure

the liquor distribution system within its borders. Hence, the

Storage Act advances a core concern of Section 2 of the

Twenty-first Amendment. The D.C. Circuit properly relied

on the terms of the Act, its legislative history, and the adop-

tion of a similar requirement by numerous states. The Act is

supported by a strong presumption of validity, which Kron-

heim failed to overcome. There is no conflict between the

- 99 -

D.C. Circuit’s decisions and any federal or state appellate

courts. Therefore, the petition is without merit.

CONCLUSION

The petition should be denied.

Respectfully submitted,

JO ANNE ROBINSON,

Interim Corporation Counsel, D.C.

CHARLES L. REISCHEL,

Deputy Corporation Counsel, D.C.

Appellate Division

*JAMES C. MCKAY, JR.,

Assistant Corporation Counsel, D.C.

Office of the Corporation Counsel

441 Fourth Street, N.W., 6th floor

Washington, D.C. 20001

Telephone: (202) 727-6252

Attorneys for Respondent

*Counsel of Record

March 20, 1997