Opposition Brief — Brooks v. Vassar (No. 06-1111)

S .

| —s a U.S.

Bank 4 APR 6 - 2007

No. 06-1111

IN THE

Supreme Court of the United States

PETER BROOKS, DAVID T. GIES, PATRICIA CLEMMER PETERS,

RoBIN B. HEATWOLE, DRY COMAL CREEK VINEYARDS, HOOD

RIVER VINEYARDS, AND SCHNEIDER LIQUOR COMPANY, INC.,

Petitioners,

V.

ESTHER H. VASSAR, Chairman, Virginia Alcoholic Beverage

Control Board; PAMELA O’ BERRY EVANS, Commissioner,

Virginia Alcoholic Beverage Control Board;

SUSAN R. SWECKER, Commissioner, Virginia Alcoholic

Beverage Control Board; AND

VIRGINIA WINE WHOLESALERS ASS’N, INC.,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Fourth Circuit

; OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

WALTER A. MARSTON, JR.*

WALTER A. MARSTON LAW

OFFICE, P.C.

3126 West Cary Street

Richmond, VA 23221

(804) 354-9148

Counsel for Respondent

Virginia Wine Wholesalers Association, Inc.

April 6, 2007 *Counsel of Record

- (202) 789-0096 — WASHINGTON, D.C. 20002

QUESTIONS PRESENTED

1. Whether the court of appeals correctly applied Granholm

v. Heald, 544 U.S. 460 (2005), in holding that a narrow

exception to Virginia’s law restricting the importation of

alcohol, which allows individuals to import and transport for

personal use small quantities of alcohol, does not violate the

dormant Commerce Clause.

2. Whether the court of appeals correctly held that under

the dormant Commerce Clause Virginia may authorize its

State-owned retail liquor stores, which have a monopoly on

the sale of liquor in the Commonwealth, to sell only wines

produced in Virginia.

(i)

ii

RULE 29.6 CORPORATE DISCLOSURE STATEMENT

Respondent Virginia Wine Wholesalers Association, Inc.

has no parent corporation, and there is no publicly held

company that owns 10% or more of Virginia Wine

Wholesalers Association, Inc.

TABLE OF CONTENTS

Page

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REASONS FOR DENYING THE PETITION ............... 7

1. THIS CASE [MPLICATES NO CONFLICT

AMONG THE COURTS OF APPEALS THAT

WARRANTS THIS COURT’S REVIEW .............. 7

Il. THIS CASE DOES NOT PRESENT ANY “IM-

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Ill. THE DECISION BELOW IS CORRECT ON

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A. The Personal Import Exception Does Not

Violate The Dormant Commerce Clause............ 10

B. The ABC Stores Provision Does Not Violate

The Dormant Commerce Clause ....................000 15

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TABLE OF AUTHORITIES

CASES Page

Bolick v. Danielson, 330 F.3d 274 (4th Cir.

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Bolick v. Roberts, 199 F. Supp. 2d 397 (E.D. Va.

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General Motors Corp. v. Tracy, 519 U.S. 278

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Granholm v. Heald, 544 U.S. 460 (2005)...... be Oe O8y:40

South-Central Timber Dev., Inc. v. Wunnicke, 467

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Western Oil & Gas Ass’n v. Cory, 471 U.S. 81

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STATUTES

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RULE

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The Petition (“Pet.”) is nothing more than a classic request

for error correction that meets none of the criteria governing

review by this Court. No conflict among the circuit courts is

alleged on the questions presented by Petitioners, and no

conflict exists. Sup. Ct. R. 10(a). This case presents no

“important question” of federal law, id. 10(c), and instead

merely involves the application of settled dormant Commerce

Clause principles to specific provisions of a single

jurisdiction’s legislative scheme. See id. 10 (“A petition for a

writ of certiorari is rarely granted when the asserted error

consists of . . . the misapplication of a properly stated rule of

law.”). Petitioners’ suggestion that this Court should revisit

or clarify its decision in Granholm v. Heald, 544 U.S. 460

(2005), is wholly unwarranted and premature: that decision is

not yet two years old, the state legislatures are in the process

of restructuring their laws in light of that decision, and no

conflict on any issue has yet emerged among the circuit

courts. In sum, certiorari should be denied.

STATEMENT OF THE CASE

A. Statutory Background

Virginia’s scheme for regulating the sale and distribution of

alcohol within the Commonwealth, the Alcoholic Beverage

Control (“ABC”) Act, is a hybrid of the two predominant

schemes used by other jurisdictions. For wine and beer,

Virginia employs a “three-tier system” of licensed producers,

wholesalers, and retailers. Va. Code Ann. §§ 4.1-207, -208,

-215, -216. Under this system, producers of beer and wine

may sell in Virginia only to Virginia-licensed wholesalers,

who in turn may sell only to Virginia-licensed retailers, who

may then sell to consumers. Accordingly, wine and beer sold

in Virginia generally must pass through its three-tier system.

The principal exception, not at issue here, is that Virginia

permits both in-state and out-of-state producers and retailers

to make limited direct shipments of wine and beer to

2

individuals for personal consumption (not more than two

cases of wine or beer per month). Jd. § 4.1-112.1.

For liquor, Virginia employs a “control” system in which

the Commonwealth has a virtual monopoly. Virginia

distillers can only sell and deliver their liquor products within

the Commonwealth to the Alcoholic Beverage Contro! Board

(“ABC Board”). Jd. § 4.1-206(1). The ABC Board, in turn,

sells liquor to the public through state-owned liquor stores

(“ABC stores”). Jd. § 4.1-119. The ABC stores also are

authorized to sell wine produced by “farm wineries.” Jd.

§§ 4.1-119(A), -100. “Farm wineries” are defined as wineries

located in Virginia which produce wine from Virginia grapes.

Id. §§ 4.1-207(5), -219.

The provision in the ABC Act governing the importation of

liquor, wine, and beer is designed to maintain and preserve

Virginia’s “three-tier” and “control” systems, ie., to make

sure that alcohol that enters Virginia properly passes through

those systems. Accordingly, liquor imports generally must go

to the ABC Board or licensed distilleries, id. § 4.1-310(A),

and wine imports generally must go to licensed wine

wholesalers (except for the limited direct shipments that are

authorized to consumers), id. § 4.1-310(B). There are also a

few exceptions to the import restrictions that involve limited

quantities of alcohol and that address situations that have little

impact on Virginia’s general distribution schemes.

Specifically, the import restrictions do not prohibit: (1) “any

person from bringing, in his personal possession, or through

United States Customs in his accompanying baggage, into the

Commonwealth not for resale, alcoholic beverages in an

amount not to exceed one gallon,” id. § 4.1-310(E)(i)'; (2)

“the shipment or transportation into the Commonwealth of a

'The Petition repeatedly describes this exception as applying to

Virginia residents. See, e.g., Pet. i (Question Presented No. 1); id at 3.

The exception, by its terms, applies to “any person” bringing alcohol into

the Commonwealth.

3

reasonable quantity of alcoholic beverages not for resale in

the personal or household effects of a person relocating his

place of residence to the Commonwealth,” id § 4.1-

310(E)(ii); and (3) “the possession or storage of alcoholic

beverages on passenger boats, dining cars, buffet cars and

club cars . . . or common carriers engaged in interstate or

foreign commerce,” id. § 4.1-310(E)(iii).

This case involves challenges to the statutory provision

allowing ABC stores to sell Virginia wines (the “ABC stores

provision”) and the exception to the import restrictions

allowing individuals to import for personal consumption up to

one gallon of liquor, wine or beer (the “personal import

exception’’).

B. Procedural Background

This litigation began in 1999, when a different group of

plaintiffs challenged several provisions of Virginia’s ABC

Act under the dormant Commerce Clause. The district court

granted summary judgment to the plaintiffs. Bolick v.

Roberts, 199 F. Supp. 2d 397 (E.D. Va. 2002). Virginia

appealed that ruling, but the Virginia legislature amended

some of the contested statutory provisions while the appeal

‘was pending, and the Fourth Circuit remanded the case.

Bolick v. Danielson, 330 F.3d 274 (4th Cir. 2003) (per

curiam).

On remand, a new group of plaintiffs was substituted and

filed a second amended complaint, challenging under the

dormant Commerce Clause the personal import exception, the

ABC stores provision, and other provisions of the revised

ABC Act that are not at issue here. In a decision issued prior

to this Court’s decision in Granholm v. Heald, 544 U.S. 460

(2005), the district court held that the personal import

exception and the ABC stores provision violate the dormant

Commerce Clause. See Pet. App. 52a-54a; see also id. at

88a-9ta (Report and Recommendation of the Magistrate

Judge). It also struck down several provisions of the revised

4

ABC ~ but rejected the challenge to the two-case limit in

the dive.’ shipping provision that allows in-state and out-of-

state producers and retailers to ship wine and beer to Virginia

consumers for personal consumption. /d. at 53a; id. at 89a-

90a.

Virginia again appealed and Petitioners cross-appealed the

remedies that the district court ordered with respect to the

statutory provisions that are not at issue here. While the

appeal was pending, the Virginia legislature again amended

the ABC Act, effectively implementing the district court’s

judgment with respect to the provisions that are not at issue

here. It did not amend either the personal import exception or

the ABC stores provision.

In the decision below, the Fourth Circuit first determined

that the appeal and cross-appeal were moot with respect to the

provisions amended by the Virginia legislature. Pet. App.

10a-12a. It then held that the personal import exception does

not violate the dormant Commerce Clause, reversing the

ruling of the district court. The court of appeals” concluded

that the legislative amendments also mooted Petitioners’

principal argument on appeal for invalidating the exception:

the core of plaintiffs’ challenge to the Personal Import

Exception — which was based on the fact that Virginia

wineries could sell unlimited amounts of wine directly to

consumers, while out-of-state wineries could only sell

one gallon or four liters to consumers for personal

import — has been rendered moot by Virginia’s recent

Statutory enactments.

Id. at 18a. Indeed, the court of appeals determined that as a

result of the legislative amendments, the effect of the personal

* Judge Traxler concurred in the court of appeals’ judgment in all

respects, including its judgment upholding the personal import exception,

but he did not concur in all of Judge Niemeyer’s analysis of the personal

import exception. Pet. App. 34a.

5

import exception is to favor, not discriminate against, out-of-

state wineries. As the court explained, the personal import

restriction “favors the out-of-state wineries insofar as one

gallon or four liters of wine may be imported into Virginia

outside of the three-tier structure, whereas in-state wineries

can sell only through the three-tier structure or from their own

retail premises ....” /d. at 19a.

Because the court of appeals concluded that the legislative

amendments mooted Petitioners’ core claim that the personal

import exception discriminates against out-of-state wine

producers — and, indeed, made the opposite true — it

concluded that the only argument remaining to Petitioners

was “that in-state retailers are favored over out-of-state

retailers.” Pet. App. 18a. The court of appeals rejected this

argument as not only inconsistent with, but foreclosed by, this

Court’s decision in Granholm:

[A]n argument that compares the status of an in-state

retailer with an out-of-state retailer — or that compares

the status of any other in-state entity under the three-tier

system with its out-of-state counterpart — is nothing

different than an argument challenging the three-tier

system itself. ... [T]his argument is foreclosed by the

Twenty-first Amendment and the Supreme Court’s

decision in Granholm, which upheld the three-tier

system as ‘unquestionably legitimate.’

Id. After rejecting Petitioners’ arguments, the court of

appeals concluded that the persona! import exception does not

violate the dormant Commerce Clause because it “provides a

de minimis exception to Virginia’s import regulations” that

“fujnder no economic construct could . . . be considered

economic protectionism of local industry.” /d. at 23a.

The court of appeals also held that the ABC stores

provision does not violate the dormant Commerce Clause

because Virginia’s decision to sell Virginia wines in its state-

run liquor stores “is protected under the ‘market participant’

6

exception to the dormant Commerce Clause.” Pet. App. 23a-

24a. It first rejected the district court’s conclusion that the

“market participant” exception was unavailable to Virginia

because of its dual role as regulator and participant in the

alcohol market, explaining that that conclusion was based on

a “misread[ing]” of this Court’s precedent. Jd at 27a. The

court of appeals also observed that state regulation of markets

“is pervasive” and that “[i]f the mere fact of regulation

precluded applying the market participant exception, no State

would ever qualify.” /d. at 28a.

The court of appeals then concluded that Virginia’s

provision falls squarely within the “market participant”

exception because Virginia is doing nothing more than

making a product choice that any wine retailer in the

Commonwealth would be free to make:

Virginia’s choice of selling only Virginia wine is no

more inappropriate than would be its choice to sell only

Hershey’s brand chocolate bars at a State commissary.

Like all cther in-state wine retailers, the ABC stores can

choose which wines they purchase and stock, and

Virginia’s commitment to purchase only in-state wines

is a choice that any wine retailer would be free to make

for itself.

Pet. App. 26a-27a. The court of appeals also soundly rejected

the notion that Virginia’s choice posed any impediment to the

sale of out-of-state wine in Virginia, noting that the Virginia

wine market consists of “thousands — more than 10,000,

according to Virginia — of other private wine retailers who

sell both Virginia wines and out-of-state wines in Virginia.”

Id. at 26a.

Finally, with respect to the dissent’s theory that the relevant

market is the market for combined purchases of liquor and

wine, the court of appeals noted that there was “no evidence

in the record to support the dissent’s single market theory in

an economic sense.” Pet. App. 31a. In particular, the court of

7

appeals found a “lack of evidence” to support the notion that

Virginia consumers who want to purchase both liquor and

wine are deterred from purchasing out-of-state wine because

of the inconvenience of having to go to a second store. /d. at

30a; id. (“there is no evidence in the record to support any

claim of consumer deterrence’).

Judge Goodwin concurred in the portion of the majority

opinion addressing mootness, but dissented from the portions

holding that the personal import exception and the ABC

stores exception are constitutional. Pet. App. 34a-39a.

REASONS FOR DENYING THE PETITION

I. THIS CASE IMPLICATES NO CONFLICT

AMONG THE COURTS OF APPEALS THAT

WARRANTS THIS COURT’S REVIEW.

The Petition makes no effort to allege a conflict in authority

among the circuit courts, and no such conflicts exists. Sup. _

Ct. R. 10(a). Accordingly, there is no disagreement or lack of

uniformity among the circuit courts that warrants this Court’s

attention.

Il. THIS CASE DOES NOT PRESENT ANY

“IMPORTANT QUESTION” THAT WARRANTS

THIS COURT’S REVIEW.

Petitioners repeatedly assert that the issues presented by

this case are matters of “[g]eneral [i]Jmportance,”” but nothing

in the Petition supports that assertion. To the contrary, the

bulk of the Petition consists of merits analysis that attempts to

establish that the court of appeals erred in applying settled

dormant Commerce Clause principles to two particular

provisions in Virginia’s multi-faceted statutory scheme.

* Pet. 20; see also id. (“the personal use limit involves a question of

substantial importance”); id. at 28 (the ABC stores provision “[r]aises

{i]ssues [o]f [g]eneral [i]mportance’”).

8

Petitioners attempt to elevate the single-jurisdiction issues

presented by this case into matters of national importance by

asserting that other jurisdictions have similar laws. See Pet.

20 (“[a]t least thirty-three other states and the District of

Columbia” have personal use limits similar to Virginia’s); id.

at 30 (“[mJany states have state-run liquor stores”). But the

unsurprising fact that many other States have chosen not to

apply aspects of their liquor codes to personal uses of

alcohol —in provisions that Petitioners concede are long-

standing, id. at 20 — does not mean that there is any recurring

legal issue with respect to such provisions. The Petition does

not allege that there is any pending litigation concerning such

provisions, much less that courts actually have reached

conflicting results. Moreover, even though other States have

state-run liquor stores, the Petition does not allege that there

is any State with a scheme that parallels Virginia’s scheme

(state monopoly on liquor, with a law authorizing state-run

liquor stores to sell locally-produced wine), much less that

there is or has been any litigation in any jurisdiction

challenging similar privileges of state-run liquor stores under

the dormant Commerce Clause.

Petitioners also suggest that this Court’s decision in

Granholm has generated confusion and misapplication that

this Court should address.‘ This suggestion is wholly

unwarranted and premature: Granholm was decided less than

two years ago; only a few cases filed in the district courts in

the wake of Granholm have yet gone to judgment (much less

completed their journey through the courts of appeals); and

no conflict on any issue has yet emerged among the circuit

courts. There simply is no need for this Court to revisit the

issues it addressed in Granholm at this time.

* See, e.g., Pet. 9 (the court of appeals’ conclusion “guts the holding of

Granholm and creates confusion in an important area of law that

Granholm sought to clarify”).

9

Moreover, as Petitioners acknowledge, many state

legislatures not surprisingly are reforming or have reformed

their laws to conform to the Court’s ruling in Granholm. Pet.

21-22. While Petitioners claim that this ongoing legislative

reform makes “[i]mmediate review” by this Court “particular-

ly important,” id. at 21, the opposite is true. The state

legislatures are appropriately revisiting their laws in light of

this Court’s recent ruling and analysis in Granholm. In this

case, as in others, the resulting reforms have mooted or

resolved constitutional challenges that were brought either

before or soon after Granholm was issued. As the process of

legislative reform continues, there is no reason for this Court

to intervene in the absence of a conflict that develops in the

circuit courts with respect to a particular issue.

Petitioners also urge the Court to revisit the “market

participant” doctrine in order to address “confusion” that they

assert has arisen in connection with that doctrine. /d. at 9, 28-

30. The decisions they cite to support this suggestion are not

recent, however, which casts doubt on the notion that there is

any current confusion in the lower courts. In any event, even

if there was long-standing confusion surrounding the “market

participant” exception, this case would not be a suitable

vehicle for resolving that confusion because the court of

appeals’ fact-bound ruling in this case does not conflict with

the ruling of any other court and was plainly correct.”

* The fact that this Court affirmed a Ninth Circuit ruling on a “market

participant” issue by an equally divided court in 1985 hardly provides a

compelling reason for the Court to revisit the “market participant”

doctrine today. See Pet. 29-30 (citing Western Oil & Gas Ass’n v. Cory,

471 U.S. 81 (1985)). In any event, Petitioners’ assertion (id. at 30) that

the public lands issue in Western Oil bears “some similarity” to the wine

retailing issue presented here is only true at the highest level of generality

and does not provide a basis for revisiting a legal doctrine that is highly

fact-specific in its application in this case.

10

iif. THE DECISION BELOW IS CORRECT ON THE

MERITS.

Although an error by the court below in applying settled

dormant Commerce Clause principles would not warrant this

Court’s review in any event, there was no such error here.

The court of appeals’ r solution of the two issues presented

was manifestly correct.

A. The Personal Import Exception Does Not Violate

The Dormant Commerce Clause.

The court of appeals’ conclusion that the personal import

exception is nothing more than “a de minimis exception” to

Virginia’s alcohol import restrictions that “[uJnder no

economic construct could . . . be considered economic

protectionism,” Pet. App. 23a, is sound and fully comports

with this Court’s dormant Commerce Clause jurisprudence.

Petitioners do not dispute the court of appeals’ conclusion

that their core claim that the exception discriminates against

out-of-state wineries was mooted by Virginia’s legislative

amendments. Petitioners are no longer making that claim.

They also do not dispute the court of appeals’ conclusion that,

with the amendments in place, the effect of the personal

import exception is to favor, not discriminate against, out-of-

state wineries, other than cryptically to describe the

disadvantage to in-state wineries as “theoretical” and to assert

that the disadvantage “pales in comparison” to the “far greater

benefits afforded local Virginia retailers” — a comparison that

is both flawed (as demonstrated below) and wholly

unsupported. See Pet. 12. These concessions are fatal to

Petitioners’ challenge to the personal import exception. A

statutory provision that poses no disadvantage to out-of-state

wineries and, in fact, facilitates their sales to Virginia

consumers, as the personal import exception does, presents no

dormant Cominerce Clause issue under Granholm or any of

this Court’s other decisions. That should be the end of the

matter.

1]

Nevertheless, after the legislative amendments foreclosed

any argument that out-of-state wineries are disadvantaged by

the personal import exception, Petitioners switched theories

and claimed (as they do in the Petition) that the exception

impermissibly discriminates against out-of-state retailers.

The court of appeals, however, properly recognized this

argument for what it is: a frontal assault on “the three-tier

—system itself’ and the import restrictions that preserve that

system. See Pet. App. 18a. Petitioners’ claim that Granholm

requires equal market access for out-of-state retailers of

alcohol and in-state retailers of alcohol is fundamentally

flawed. As an initial matter, no issue of discrimination

against out-of-state retailers was presented in Granholm, and

the Court therefore did not address any such _ issue.

Throughout its opinion, the Court focused solely on

discrimination against out-of-state wineries and _ their

products.°

Moreover, the court of appeals was quite correct to

conclude that Petitioners’ argument is “nothing different than

an argument challenging the three-tier system itself,” and is

therefore “foreclosed” by this Court’s unequivocal

reaffirmation in Granholm of its prior conclusion that the

three-tier system is “‘unquestionably legitimate.’” Pet. App.

18a.’ This Court’s express endorsement of three-tier systems

is significant because there can be no question that these

systems do not accord out-of-state retailers and in-state

retailers (or out-of-state wholesalers and in-state wholesalers)

equal access to in-state markets for alcohol products. Indeed,

° See Pet. 19 (“the Granholm Court . . . compar[ed] in-state and out-of-

State producers).

” See Granholm, 544 U.S. at 489 (“We have previously recognized that

the three-tier system itself is ‘unquestionably legitimate.’ North Dakota v.

United States, 495 U.S. [423, 432 (1990)]. See also id. at 447 (SCALIA,

J., concurring in judgment) (‘The Twenty-first Amendment . . . empowers

North Dakota to require that all liquor sold for use in the State be

purchased from a licensed in-state wholesaler’).” (omission in original)).

12

an inherent feature of these systems is that out-of-state

retailers and out-of-state wholesalers have no access to in-

state alcohol markets at all. If they want to sell or distribute

alcohol in a particular State, they must become licensed

retailers or wholesalers within that State’s three-tier system.

This deliberate and essential feature of three-tier systems

ensures that States can effectively monitor and police the

entities that sell alcohol within their borders, pursuant to their

plenary authority under the Twenty-first Amendment to

regulate the distribution of alcohol to their citizens.*

As the court of appeals correctly recognized, by affirming

the constitutional validity of three-tier systems, this Court

necessarily determined that the dormant Commerce Clause

permits the differential treatment of in-state and out-of-state

retailers (and in-state and out-of-state wholesalers) that is

inherent in three-tier systems. If out-of-state retailers of

alcohol were constitutionally entitled to the same sales and

distribution privileges as in-state retailers of alcohol, as

Petitioners argue, then three-tier systems would be

unconstitutional and States would have to dismantle them — a

proposition squarely rejected in Granholm.’ Accordingly, the

In this regard, contrary to Petitioners’ suggestion (Pet. 18-19), the

court of appeals was quite correct to recognize that Petitioners’ attempt to

compare the activities of in-state retailers and out-of-state retailers

“improperly compares unlike market functions.” Pet. App. 19a. Since

out-of-state retailers of alcohol are necessarily precluded from

participating in in-state retail markets by constitutionally permissible

three-tier systems, out-of-state retailers of alcohol and in-state retailers of

alcohol necessarily “serve different markets” and, therefore, are not

“similarly situated for constitutional purposes.” General Motors Corp. v.

Tracy, 519 U.S. 278, 299 (1997).

* As Justice Thomas correctly recognized in his dissent in Granholm,

the majority could only strike down the Michigan and New York laws,

and simultaneously endorse three-tier systems, by relying “on the

difference between discrimination against manufacturers (and therefore,

their products) and discrimination against wholesalers and retailers.” 544

U.S. at 521.

13

court of appeals properly rejected Petitioners’ fallback claim

that the personal import exception violates the dormant

Commerce Clause because it discriminates against out-of-

state retailers of alcohol.

Once the constitutionality of the three-tier system is

properly understood and acknowledged, it is clear that

Petitioners’ claim that the personal import exception violates

the dormant Commerce Clause is baseless. The personal

import exception is a very narrow exception to Virginia’s

general, and plainly permissible, ban on the importation of

alcohol outside of its three-tier and control systems. That ban

is necessary in order to maintain the integrity of those

systems. Virginia must ensure that all alcohol that enters the

Commonwealth passes through those systems. It therefore

generally requires all wine and beer entering the

Commonwealth to be delivered to Virginia-licensed

wholesalers and all liquor entering the Commonwealth to be

delivered to the ABC Board. This scheme, to be sure,

generally requires out-of-state retailers to import wine into

Virginia through the three-tier structure, see Pet. 11-12 n.5,

but that requirement is necessary in order to ensure the

integrity of the three-tier system itself.'°

As the court of appeals appropriately concluded, the

personal import exception to Virginia’s import restrictions is

an odd target for a dormant Commerce Clause challenge,

particularly one brought by out-of-state retailers. That

exception, and other exceptions in the import statute,

presumably exist because it simply is not feasible for Virginia

to monitor and police every drop of alcohol that crosses its

borders. The Commonwealth therefore has established a

limited number of reasonable, de minimis exceptions that

'” As Petitioners acknowledge, Pet. 12 n.5, out-of-state retailers can

obtain licenses to make limited direct shipments of wine and beer to

Virginia residents for personal consumption, on the same terms that in-

state retailers can obtain these licenses. Va. Code Ann. § 4.1-112.1.

14

pose no threat to its overall distribution schemes. The

personal import exception, for example, allows individuals to

bring small quantities of alcohol into the Commonwealth for

personal use (not resale). Another exception allows

individuals moving into the Commonwealth to bring in

“reasonable” quantities of alcohol for personal consumption

in their personal and household effects. Va. Code Ann. § 4.1-

310(E)(ii). Similarly, Virginia permits the possession and

storage of alcohol on passenger boats and train cars. Jd.

§ 4.1-310(E)(iii). In each of these situations, Virginia has

little interest in establishing an inspection and enforcement

system that could police these small instances of

“importation” because these instances have little impact on

their genera] distribution schemes.

The court of appeals rightly concluded that this truly “de

minimis” exception to Virginia’s wholly constitutional import

restrictions simply cannot be viewed as “economic

protectionism” under any “economic construct.” Pet. App.

23a. Indeed, the exception accommodates the interests of

Virginia residents and other individuals who want to purchase

wine from out-of-state retailers and bring it into Virginia, and

therefore benefits the out-of-state retailers themselves. That

is, the exception in fact facilitates sales by out-of-state

retailers that otherwise might not occur if Virginia

categorically banned all imports outside of its three-tier

system, which it constitutionally could do. Accordingly, the

personal import exception provides no protection or

advantage to Virginia retailers (or any other Virginia entities),

and does not violate the dormant Commerce Clause."

"The fact that Virginia allows its residents “virtually unrestricted

access to certain alcoholic beverages sold by Virginia retailers,” Pet. i

(Question Presented No. 1), does not present any issue of discrimination

under the dormant Commerce Clause. As demonstrated, Virginia’s

restrictions on the importation of alcohol are wholly consistent with and

preserve its constitutionally permissible three-tier and contro] systems.

The alcohol sold by in-state retailers has already passed through those

15

B. The ABC Stores Provision Does Not Violate The

Dormant Commerce Clause.

The court of appeals’ conclusion that the ABC stores

provision falls within the “market participant” exception to

the dormant Commerce Clause because it permits Virginia to

make a “choice” with respect to the wines sold by its state-run

liquor stores that any of Virginia’s thousands of wine retailers

“would be free to make for itself,” Pet. App. 27a, is a correct

application of settled legal principles governing | that

exception.

There is no dispute here about what the “market

participant” exception to the dormant Commerce Clause

means or the principles that govern its application. As

Petitioners acknowledge, it “allows a state to discriminate in

favor of in-state interests when it is ‘acting as a market

participant, rather than as a market regulator.”” Pet. 23

(quoting South-Central Timber Dev., Inc. v. Wunnicke, 467

U.S. 82, 93 (1984) (plurality)); see also 467 U.S. at 93 (if the

State is a valid market participant, “the dormant Commerce

Clause places no limitation[s] on its activities”).

The court of appeals’ analysis of the ABC stores provision

under these principles was straightforward and unassailable.

It first concluded that Virginia acts as a “market participant” —

an alcohol retailer that sells to the public — in operating its

ABC stores. Pet. App. 26a (Virginia has “elected” to sell

wine as well as liquor “from state-owned and operated

stores”); id. (Virginia “competes as a participant in the

Virginia wine market”). It then concluded that Virginia’s

decision to sell only Virginia wine in its ABC stores falls

within the “market participant” exception because any private

wine retailer would be free to do the same: “Like all other in-

state wine retailers, the ABC stores can choose which wines

systems, and Virginia’s decision to provide consumers with “virtually

unrestricted access” to it for personal consumption presents no issue under

the dormant Commerce Clause.

16

they purchase and stock, and Virginia’s commitment to

purchase only in-state wines is a choice that any wine retailer

would be free to make for itself.” Jd at 26a-27a; see also id.

at 30a (“[A] State may engage as a competitor in a free and

open market, making business choices to buy and sell goods,

even if those choices favor local products. And that is all that

Virginia has done here .. . .”). The courts of appeals’

conclusion that the “market participant” exception permits

Virginia to sell what it wants in its own stores, even if it

chooses to favor local products, is wholly consistent with this

Court’s jurisprudence. The essence of the exception is that

States can favor local products when they act as market

participants.

Petitioners do not dispute the court of appeals’ conclusions

that Virginia is participating in the Commonwealth’s

competitive wine market as a wine retailer and that its choice

to sell only Virginia wine is a choice that any private wine

retailer could make. Instead, Petitioners assert — as they did

below, Pet. App. 29a-3la — that Virginia is “not a market

participant in the relevant sense” because it has a monopoly

on the distribution of liquor and “has leveraged that

monopoly into a market advantage for Virginia wine

producers.” Pet. 23-24; see also id. at 24-25 (Virginia “has

distorted the market by creating a regime in which consumers

who want to purchase all of their alcoholic beverages at one

time or in one place must purchase Virginia wine”).

This “leverage”/“market distortion” theory makes little

common sense. It rests on the notion that Virginia consumers

purchase Virginia wine at ABC stores, rather than make a

second trip to a private retail store to purchase out-of-state

wine, because consumers prefer to purchase “all of their

alcoholic beverages at one time or in one place.” Pet. 24-25.

But Virginia consumers cannot do that in any event. The

ABC stores have no authority to sell beer, so “one-stop

shopping” for alcoholic beverages simply is not available in

17

Virginia, and consumers who want to purchase liquor, wine

and beer necessarily must visit more than one store anyway.

It therefore is not surprising that the court of appeals found

no record support for the claim that Virginia conferred an

advantage on its in-state wineries through the ABC stores

provision. It found “no evidence in the record” that

Virginia’s policy “interferes with or burdens the free and

competitive market in both in-state and out-of-state wines,”

“no evidence” that Virginia consumers “face any impediment

to purchasing wines of their preference at fair market prices,”

and “no evidence” to support any claim that consumers who

wish to purchase both liquor and wine are deterred from

purchasing out-of-state wines by the inconvenience of having

to go to a separate store. Pet. App. 30a.'* The court of

appeals’ factual findings wholly undermine Petitioners’ claim

that “the benefit conferred on Virginia wines by this regime is

manifest.” Pet. 25. These factual findings do not warrant

review by this Court.

At the end of the day, the court of appeals correctly

concluded that the ABC stores provision does not raise any

issue under the dormant Commerce Clause. It is indisputable

that out-of-state wineries have abundant outlets for their

products in Virginia: “as the plaintiffs concede, there are

thousands of retail outlets at which consumers may purchase

both out-of-state and Virginia-produced wines at fully

competitive prices.” Pet. App. 29a-30a; id. at 31a (consumers

in Virginia can purchase wine “from over 10,000 private

retailers throughout the Commonwealth”). In light of the

pervasive availability of qut-of-state wines in Virginia, the

fact that Virginia consumers who happen to want to purchase

both liquor and out-of-state wine at the same time must go to

'? The court of appeals also found “no evidence in the record” to

support the dissent’s related economic theory that the relevant market is

the combined market for liquor and wine. Pet. App. 31a.

18

two separate stores simply does not raise a_ serious

constitutional issue.'

CONCLUSION

For these reasons, the Petition for a Writ of Certiorari

should be denied.

Respectfully submitted,

WALTER A. MARSTON, JR.*

WALTER A. MARSTON LAW

OFFICE, P.C.

3126 West Cary Street

Richmond, VA 23221

(804) 354-9148

Counsel for Respondent

Virginia Wine Wholesalers Association, Inc.

April 6, 2007 *Counsel of Record

'S Petitioners also argued below that the “market participant” exception

could not apply as a matter of law because Virginia simultaneously

regulates and participates in the market for wine. The court of appeals

properly rejected that argument, Pet. App. 27a-29a, and Petitioners do not

renew it here.