Opposition Brief — Baude v. Heath (No. 08-1004)

yw @

“Suprame cour, U.6.

FILED

APR 10 2009

OFFICE OF THE CLERK

No. 08-1004

Jn The

Supreme Court of the Gnited States

PATRICK L. BAUDE, et al.

Vs

’

Pettltoners,

P. THOMAS SNOW, Chairman of the Indiana Alcohol

& Tobacco Commission, and WINE & SPIRITS

WHOLESALERS OF INDIANA,

Respondents.

On Petition for Writ of Certiorart to the United

States Court of Appeals for the Seventh Circutt

BRIEF IN OPPOSITION OF WINE &

SPIRITS WHOLESALERS OF INDIANA

FreD R. BIESE

CKER

Counsel of Record

PHitip A. WHISTLER

BRIAN J. PAUL

ICE MILLER LLP

ONE AMERICAN SQUARE

Suite 2900

INDIANAPOLIS,

IN 46282-0200

(317) 236-2100

Counsel for ae spondent

Wine vv Spirits ‘4 Aral sal rs

April 10. 2009 Of Indiana

Becker Gallaghe Cincinnan, OH + Wastingron, D ¢

QUESTIONS PRESENTED

Whether Pike v. Bruce Church, Inc., 397 U.S. 137

(1970), supphes the proper standard for reviewing

Indiana’s facially neutral law requiring a consumer

who wants to receive direct shipinents of wine to

visit the winery once, when the plaintiffs presented

no evidence the law benefited Indiana wineries

Whether there is a genuine circuit conflict on the

same important matter where the Seventh Circuit

upheld a statute requiring only a single in-person

visit to a winery before wine can be shipped

indefinitely, while the Sixth Circuit struck down a

statute requiring an in-person visit to the winery

before every shipment.

11

PARTIES TO THE PROCEEDINGS

Effective March 23, 2009, P. Thomas Snow became

the Chairman of the Indiana Alcohol and Tobacco

Commission, succeeding Respondent David L. Heath,

who resigned. Pursuant to Rule 35.3, Snow is

automatically substituted as a party.

Respondent Wine & Spirits Wholesalers of Indiana

I I

iS an unincorporated trade association

11]

TABLE OF CONTENTS

QUESTIONS PRESENTED .............-00e00. 1

PARTIES TO THE PROCEEDINGS

PR re ed 1]

SPeee ss SI CAPE re oe a hee See . ae

Rees OE AUT Eee ee os ee ce ce 1V

STATEMENT OF THE CASE ...... )

I. Indiana’s System for Regulating Alcoholic

Beverages ..... Bee ee eer EERE ete ae ]

Il. The Seventh Circuit Proceedings ........... 5

REASONS FOR DENYING THE WRIT .. oie

I The Seventh Circuit’s Decision Does Not

Disregard or Significantly Depart from this

Courts Prior Commerce Clause Rulings yee 5

Il. ‘There Is No Genuine Circuit Conflict Because

tire indiana and Kentucky Statutes In Question

Are Fundamentally Different 13

CONCLUSION 17

APPENDICES

Appendix A: Transcript of Oral Argument

before the Seventh Circuit. dated Febru ry 22

2008 Lb

AY pendix 5: indiana Code § 7.1-5-11-1.5 43Sb

iV

TABLE OF AUTHITORITIES

CASES

Bridenbaugh v. Freeman-Wilson,

227 F.3d 848 (7 Cir. 2000), cert. denied,

eee 0 a i RD vc i eee wae eek es ge

Brooks v. Walls,

279 F.3d 518 (7" Cir. 2002) ak eA

Brown-Forman Distillers Corp. v. New York State

Liguor Auth.,

ei 2 Be ae x Oe 4 10

California Retatl Liquor Dealers Ass'n v. Midcal

Aluminum, Inc.,

445 11.S.97(1980) .. ‘EA Aha Ae ok ne

Cavel Intl, Inc. v. Madigan,

500 F.3d 551 (7"™ Cir. 2007) 6,10

Cherry Hill Vinevard. LLC v. Baldacci.

505 F.3d 28 (1° Cir. 2007) a. a

Cherry Hill Vinevards. LLC v. Lilly.

553 F.3d 423 (6% Cir. 2008) 13. 14.35

Craw ford ». Marion County Hlection Bad ;

cso5 128 S.Ct. 1610, 170 L.Ed.2d 574

(POOS

Exxon Corp. v. Governor of Maryland,

Oot 40 cee tere! 36 va 8 oe ee ee :0. £4, a2

General Motors Corp. v. Tracy,

519 U.S. 246 (19971) ... ase oe 10

Granholm v. Heald,

544 U.S. 460 (2005)

Hunt v. Washington State Apple Adver. Comm'n,

Ge Wis SOO AEOT UE) 0k 6 6 0o'C ee Oi ee : ee Pa &-

Jelovsek { Bredesen,

B45 F960 :431 16" Cit. 2008) . . os cacsiclice 16

Minnesota v. Clover Leaf Creamery Co.,

449 U.S. 456 (1981 . 12

Nati Paint & Coatings Ass'n v. City of Chicago,

45 F.3d 1124 (7 Cir. 1995) ........ >, 6, 10

Natl Solid Wastes Mgmt. Acs’n v. Meyer,

6 16 7K; moti ‘ ~

63 F.3d 652 (7 Cir. 1995) . ; a 2

Nort Dakota U. LJreite a States

495 U.S. 423 (1990

Pike i) Bruce Church Tne

397 US. 137 (1970 oa) ae ee |’

CONSTITUTIONAL AND STATUTORY

PROVISIONS

U.S. Const., Amend. XXI,§ 2 .. 4

Ark. Code § 3-5-1602(¢) 16

Del. Code tit. 4, § 512A(b) 16

Cra. Code § 3-6-382(a)QU) . ‘ 16

Ind. Code § 7.1-3-26-6(4) . re

Ind. Code § 7.1-3-26-7 Z

Ind. Code § 7.1-8-26-7(a)(6) 2

Ind. Code § 7.1-3-26-9(1 )(A) ]

Ind. Cod /.1-b-11-1.5¢a) l

Kan. Stat 11-348 16

N. J. Stat. Ann. 33:1-10(2a)-(2h lb

(gen. Law 1-5 16

DD. Codified Lav lf

STATEMENT OF THE CASE

This is a Commerce Clause challenge to Indiana’s

requirement that both in-state and out-of-state

wineries conduct “an initial face-to-face transaction”

with a consumer before shipping wine directly to that

consumer. See Ind. Code § 7.1-3-26-9(1)(A). At that

initial face-to-face transaction, the winery must verify

“|p|roof of age by a state issued driver’s license or state

issued identification card showing the consumer to be

at least twenty one (21) years of age” and obtain a

“verified statement” that the consumer is at least 21

years of age, has an Indiana address, and intends the

wine for personal use. See Ind. Code § 7.1-3-26-6(4).

Once this initial face-to-face transaction has occurred,

the consumer may order wine for direct shipment from

that winery indefinitely, subject only to quantity

limitations contained in the statute.

I. Indiana’s System for Regulating

Alcoholic Beverages

Indiana, like many states, regulates the

Importation, distribution, and sale of alcoholic

beverages through a “three-tier” system ino which

producers (first tier) may sell only to licensed

Wholesalers (second tier), who then may sell only to

lieensed retailers or dealers (third tier), who in turn

sell to consumers. See Bridenbaugh v. Freeman

Wilson, 227 F.3d 848, 851 (7™ Cir. 2000), cert. denied,

932 U.S. 1002 (2001); Ind. Code § 7.1-5-11-1.5(a)

(general prohibition on direct shipment of alcoholic

beverages to Indiana consumers). In March 2006,

Indiana created a new Direct Wine Seller's Permit

which pravides a limited exception to the general

prohibition against direct-to-consumer shipping. both

2

in-state and out-of-state wincrics may obtain this

Permit and must hold this Permit in order to ship wine

directly to any Indiana consumer. See Ind. Code § 7.1-

3-26-7

Although petitioners challenged several other

provisions ofthe March 2006 amendments to Indiana's

wine distribution laws, the only provision still in

dispute is the initial face-to-face transaction

requirement.’ The question presented is not, as

petitioners would have it, “whether a state may

accomplish indirectly that which it is constitutionally

forbidden to do directly” (Petition at 4), because that

question assumes the statute unlawfully discriminates

against interstate commerce. Instead, the proper

question is whether the Commerce Clause forbids

Indiana from requiring both in-state and out-of-state

wineries to conduct a single face-to-face transaction

with a consumer before shipping wine to _ that

consumer indefinitely.

Petitioners filed their original complaint in| May 2005 In

February 2006, the district court granted the motion of Wine &

irs Wholesaler of Indiana “WSWI" to intervene as a

detendant (Dkt. 73 WSWI is an unincorporated trade

i ciation Whose mission is to advance the interests and

ndependence of Indiana’s wine distributors and to uphold and

protect the mteyrity of Indiana’s three-tier distribution system

After the March 2006 amendments to Indiana’s wine distribution

laws took effect, petitioners filed an amended complaint hve

ct ( irt found two rf thre challenpred provision

ne titutional and dism) ed the rest of petitioner claim

Lert \pp Oa ja, (va-o4a, Jia fa Petitioners did not ippeal

} listrict court lverse rule hie hurt of appeals upheld

t! t rel hy holesate clau l rie

3

It is undisputed that the initial in-person

transaction requirement is evenhanded on its face and

applies to all in-state wineries as well as out-of-state

wineries. Indeed, the Indiana Winegrowers Guild

complains that for more than 30 years before the 2006

legislation, many Indiana wineries shipped their wine

to consumers without interference by State alcohol

regulators, although the statute did not explicitly

authorize such shipments. (Amicus Brief at 2 and n.

2). The Guild argues that the 2006 legislation

“restricted Indiana wineries’ right to ship directly to

consumers” and “led to the demise of at least one

Indiana winery.” (Amicus Brief at 3, 4).

Petitioners contend that if the presumed effect of a

facially neutral statute is more burdensome on out-of

state wineries than in-state wineries, that alone is

sufficient to constitute “discriminatory effect,” which

in turn subjects the statute to heightened scrutiny.

Under petitioners’ theory, they need not prove any

actual discriminatory effect, because the Court is

required to presume discrimination from the allegation

that it is costly for an Indiana oenophile to travel to

the west coast in search of boutique, limited

production wines that are often not made available to

Indiana distmbutors. Consistent with their theory.

petitioners offered no evidence that as a result of the

Initial face-to-face transaction requirement, Indiana

consumers were buying more Indiana wine and le

out-of-state wine, orthat Indiana consumers who could

not pet a specific preferred west coust wine were

substituting an Indiana wine instead of another

comparable west coast wine. As the Court of Appeal:

observed. “lr done of thre piaiatitl contend that

Indiana’ law Phat ed han to to [ I ¢ Willie Iron

loca i tric i’ Peony othr tirte Lh y cd V4 bitty 1

shifts sales from smaller wineries (in all states,

including Indiana) to larger wineries (all of which are

located outside Indiana).” Pet. App. 12a.

Petitioners seek to equate “burden” or “disparate

impact” with “discriminatory effect,” but they are not

the same. First, any statute that regulates the

importation of alcoholic beverages by definition

imposes a disparate burden on interstate cominerce,

but that is what Section 2 of the Twenty-first

Amendment expressly authorizes

Every use of § 2 could be called “discriminatory”

in the sense that plaintiffs use the term,

hecause every statute limiting importation

leaves intrastate commerce unatfected. If that

were the sort of discrimination that lies outside

state power, then § 2 would be a dead letter

Bridenbaugh, 227 F.3d at 853. Under petitioners’

theory of “discriminatory effect,” a pure three-tier

system where all alcohol had to pass through in-state

Wholesalers and retailers would be unconstitutional,

yet this Court has repeatedly described the traditional

three-tier system as “unquestionably legitimate.’

Granholm v. Heald, 544 U.S. 460, 489 (2005): North

Dakota v. United States, A495 US. 423, 432 (1990)

This Court has also said the Twenty-first Amendment

grants the States virtoally complete control over

how to strueture the liquor distribution system.

Caltfornta Reta Liquor Dealer: \ssn ot Midcal

Aluminum [rv 15 tS 97. 110 C1980) aecord

Granholm, 544 US. at 4588 \ithough Granholm

teaches that the Twenty-first Amendment does not

veou state law that tacially discriminate urainst

5

treatment case, not a disparate impact case, because

both the Michigan and New York © statutes

discriminated on their face, a point petitioners now

concede. (Petition at 8-9 and n.6).

Wl, The Seventh Circuit Proceedings

In their Statement of the Case, petitioners

characterize the Seventh Circuit decision as ruling

that “since the statute did not discriminate explicitly,

it was not subject to heightened scrutiny ....” (Petition

at 5). Petitioners also claim the Seventh Circuit “held

that heightened scrutiny applies only when a state law

discriminates on its face and not when it has a

discriminatory effect ....” (Id. at 13)

The Seventh Ciremt did nothing of the sort

Although the panel’ did not find it necessary to

“rehearse the standards” of this Court’s Commerce

Clause jurisprudence (including the standards relating

to discriminatory effect), it most certainly did not

create anew rule that all facially neutral laws must be

reviewed under the balancing test of Pike vo Bruce

Church, inc., 397 U.S. 137, 142 (1970). The Seventh

Circuit has repeatedly recognized that facially neutral

statutes can be subject to the same heightened

scrutiny as facially discriminatory statutes, if they

have a powerful disparate tmpact on imterstate

commerce Vat/ Patnt & Coatings Assn | (ity of

Chicago, 45 F 38d (124, 113107" Cir, i995 OPI! by

(‘hiet J ide asterbrook Natl Solid Wast Vaerit

Ass'nwu. Meyer, 63 F.3d 652, 657 07" Cir. 1995 tiriy

National Paint; panel included Chief Judge

kasterbrook and Judge Bauer). See also Cavel Int,

Ine. v. Madigan, 500 F.3d 551, 555-56 (7 Cir. 2007)

discussing National Paint’s analysis of the Pike test

when plaintiffs show at least “mild” discrimination

against interstate commerce; opinion by Judge Posner;

panel included Chief Judge Easterbrook)

The Seventh Circuit’s opinion in this case cited

both National Paint (twice) and Cavel. Pet. App. 3a,

9a. If the panel had intended to overrule Nattonal

Paint and set up a new rule that ail facially neutral

statutes must be analyzed under Pike, presumably it

would have said so, especially since Chief Judge

Kasterbrook authored both opinions See Brooks v

Walls, 279 F.3d 518, 522 (7 Cir. 2002) “One panel of

this court cannot overrule another implicitly

Overruling requires recognition of the decision to be

undone and circulation to the full court under Circuit

Rule 40(e).” Petitioner aivumelsl that the Seventh

(‘ircuit h: omehow sub sifentio rejected this Court

7

questions, petitioners conceded there was no evidence

about “the positive impact on these Indiana wineries

of this rule.” (WSWI App. 22b). Judge Posner also

said that because petitioners had “no evidence that the

Indiana winery industry has benefited by this rule,”

petitioners had failed to prove a “discriminatory effect”

and therefore were not entitled to shift the burden of

proof to the State. (WSWI App. 28b-29b).

The Seventh Circuit applied the Pike standard of

review because petitioners failed to prove that Indiana

wineries had benefited by the rule, not just because

the statute was neutral on its face. As Judge Posner

put it, “[ylou don’t have a law that, in fact, favors a

local industry, even though it doesn’t say it does

because that’s what you have no evidence of.” (WSWI

App. 28b). In other words, if petitioners had proven

that Indiana’s facially neutral law in fact favored the

Indiana wine industry, then Judge Posner was

suggesting there would have been a “discriminatory

effect” and the burden would have shifted to the State

under the heightened scrutiny standard of review.

because there was no such evidence, the court properly

apphed the Pike standard of review.

App) The Seventh Cireurt does not prepare transcripts of ora!

arguments, but instead posts the digital audio files of the oral

arguments on its website. This transcript was prepared by acourt

reporter based upon the audio file of the oral argument The

mudio tile as) available on the Severth Circuit's website,

WoW NS aé UScOUTIS POV

8

REASONS FOR DENYING THE WRIT

I. The Seventh Circuit’s Decision Does Not

Disregard or Significantly Depart from

this Court’s Prior Commerce Clause Rulings

Petitioners accuse the Seventh Circuit of “openly

refusling] to tollow” and “disregard[ing|” this Court’s

Commerce Clause cases. (Petition at 14-15). The basis

for this accusation is that the panel opinion does not

expressly recite that facially neutral statutes can be

subject to the same rigorous scrutiny as facially

discriminatory statutes, if there isa sufficiently strong

disparate impact on interstate commerce As

discussed above, the Seventh Circuit ruled against

petitioners because of a failure of proof, not because of

anew legal test. It is patently unreasonable to infe

from this omission that the Seventh Circuit “openly

refused to follow” this Court’s pre edent. The Seventh

Circuit cited this Court’s recent Commerce Clause

decision in Department of Revenue of Kentucky

Davis, U.S ,1285. Ct. 1801, 170 L. Ed. 2d

685 (2008), which likewise does not expressly recite

the “discriminatory effect™ language from) previous

cases. Sve 1288. Ct. at 1808-09

Petitioners complain that the Seventh Circuit did

not cite, acknowledge, or refer to the Supreme Court

cases petitioners relied on below. That is because all

the cases petitioners cited involved statutes that were

facially or purposefully discriminatory. (WSWIT Repls

Br at 9-11)" Notably, although petitioners now seek

v

to rely on Hunt v. Washington State Apple Advertising

Comm'n, 432 U.S. 333 (1977), which did involve a

facially neutral statute, petitioners did not cite or

discuss Hunt in their Seventh Circuit brief or oral

argument

Posner ‘S| d not ay that. and what he did ay, I context, wa

imply that the Supreme Ce

yurt cases alluded to by petitioners did

not involve a statute such as the face-to face requirement, which

either explicitly nor in fact favors a local industry

TUDa! POSNER erm I have t now! i

) riminattroyr You have t shown any discrimination avainst

interstate commerce

MR. TANFORD: I disagree. I think we have shown

JUDGE POSNER No, you havent, because you have no

dence that the India, icry industr has benefited t thi

ruli¢ Fer f id mce

MR. TANFORD But the Supreme Court cases have t

requires ICT) ¢ 1G ice

JUDGE POSNER: No, forget tl preme Court « ‘ [tie

Supre me Court case well, we don't have to forget them, but the

pommt is you don't have. vou dont have a law that 1 explicitly

favors a local industry

MR. TANFORD: Correct

ILIDGE POSNER: You don't have a law that. tn fact, favor

i local industry, even though it doesn't iy it does because that’

what you have ho ¢ vide nce QO}

So all you’re left with is, yeah, there’s a anv regulatory

provision that’s likely to burden interstate commerce, right, to

require pure food or something and, you know, or, you know,

wormed about spoilage and that hurts foreign sellers, vou know

refrigeration requirements, goodness Knows what. Soif you want

to pore veu burdenon moter tute commerce there, you have t how

dence that thi revulatory £7 il of whatever 1 protect ane

ninors, preventing, you know, food tron oiling pumous and

yO On tf NAVE ANY e' lence of tl |

10

The Seventh Circuit did not “disregard” this Court’s

Commerce Clause cases; instead, it merely disagreed

with petitioners’ effort to apply this Court’s language

from facial discrimination cases to the totally different

context of a facially neutrai statute such as Indiana’s.

The Seventh Circuit clearly recognized that facially

neutral statutes that nave the effect of benefiting in-

state economic interests over out-of-state interests

may be subject to heightened scrutiny. See, e.g., Nat'l

Solid Wastes, 63 F.3d at 657, quoting Brown-Forman

Distillers Corp. v. New York State Liquor Auth., 476

U.S. 573, 579 (1986); Cavel, 500 F.3d at 551 (no

discrimination where “{njo local merchant or producer

benefits from the ban "): Natl Paint, 45 F.3d at

1132 (“Unless the law discriminates against interstate

commerce expressly or in practical effect, there is no

reason to require special justification.”) (emphasis

added)

This Court recently observed that “a fundamental

element of dormant Commerce Clause jurisprudence”

is the principle that “any notion of discrimination

assumes a comparison of substantially similar

entities.” Davis, 128 S. Ct. at 1811, quoting General

Motors Corp. v. Tracy, 519 US. 278, 298 (1997). As a

result, “|t}he fact that the burden of a state regulation

falls on some interstate companies does not, by itself,

establish a claim of discrimination against interstate

commerce.” Axxon Corp. v. Governor of Maryland , 437

U.S. 117, 126 (1978). In #xxon, this Court explained

that “lalf the effect of a state regulation is to cause

local goods to constitute a larger share, and goods with

an out-of-state scurce to constitute a smaller share, of

the total sales in the market ... the regulation may

have a diseriminatory effect on interstate commerce

37 US. at 126n. 16 (citations omitted In this case,

11

the Seventh Circuit did not “disregard” this Court’s

precedent; to the contrary, it conscientiously apphed

this Court’s precedent and insisted that petitioners

produce evidence that the law benefited Indiana

wineries at the expense of non-Indiana wineries —

evidence petitioners admittedly did not have.

The Seventh Circuit decision also applied the

distinction, long recognized by this Court, between a

burden on interstate commerce and discrimination

against interstate commerce. See, e.g., Exxon, 437 U.S.

at 127 (interstate commerce is not subjected to an

impermissible burden simply because an otherwise

valid regulation causes some business to shift from one

interstate supplier to another.”); Hunt, 432 U.S. at 350

(“the challenged statute has the practical effect of not

only burdening interstate sales of Washington apples,

but also discriminating against them.”); South

Carolina State Highway Dept v. Barnwell Bros., Inc.,

303 U.S. 177, 189 (1938) (‘In each of these cases,

regulation involves a burden on interstate commerce.

But so long as the state action does not discriminate,

the burden is one which the Constitution permits ....”).

Because petitioners conceded they have no evidence

that the initial face-to-face transaction requirement

benefits Indiana wineries at the expense of non-

Indiana wineries (WSWI App. 22b), petitioners try to

shift the focus to Indiana consumers, arguing that the

cost of travel to the west coast deters them froin

buying wine from some subset of out-of-state wineries.

Kirst, as the Court of Appeals explained, “it is not

necessarily substantially more expensive (per winery)

to sign up ata larger number of west coast wineries

than at an equivalent number of Indiana wine

producers.” (Pet. App. 8a). But even assuming the

12

cost of travel is a serious deterrent to oenophiles, it

does not follow that the effect of the initial face-to-face

transaction requirement is “to cause local goods to

constitute a Jarger share, and goods with an out-of-

state source to constitute a smaller share, of the total

sales in the market.” Exxon, 437 U.S. at 126 n. 16. If

anything, the record in this case suggests that the

most significant practical effect of the face-to-face

requirement was to restrict Indiana wineries from

continuing the practice of shipping wine directly to

their customers. (Pet. App. 12a; Amicus Brief at 2-3).

That is a farcry from Hunt, where the statute had the

“obvious” consequence of “raising the costs of doing

business in the North Carolina market for Washington

apple growers and dealers, while leaving those of their

North Carolina counterparts unaffected.” 432 U.S. at

350-51. Compare Minnesota v. Clover Leaf Creamery

Co., 449 U.S. 456, 471-73 (1981) (distinguishing Hunt

and uodholding svatute that prohibited all milk

retailers from selling their products in plastic, non-

returnable milk containers; since the statute did not

discriminate against interstate commerce, it was

revievwcd under Pike).

Petitioners’ real complaint is that they are unable

to get ~— by their preferred method of direct shipment

-certain boutique collector wines without making an

Initial visit to the winery. As petitioners’ counsel!

acknowledged in another case, the alleged “constricted

availability of wine is due in large part to the three-

tier system itself,” Cherry Hill Vineyard, LLC vu.

Baldacci, 505 F.3d 28, 38 (1*' Cir. 2007), not Indiana’s

intitial face-to-face transaction requirement.

Petitioners had their opportunity to prove actual

discriminatory effect, but they failed to prove that the

initial face to face transaction requirement benefited

}

{

13

Indiana wincries. Accordingly, the Court of Appeals

repeatedly noted that there was little relevant

evidence in the record. See, e.g., Pet. App. 6a (“it takes

more than lawyers’ talk to condemn a statute under

Pike”); 9a (“How well any given sysiem of screening

works is an empirical subject on which we lack reliable

information”): 1la (“Given the state of this record, and

the state of the empirical literature, we know very

little.”).°

In short, the Seventl Cuircuit’s decision is wholly

consistent with this Court’s Commerce Clause

precedent, and petitioners’ failure of proof is not a

legitimate basis for granting the writ of certiorar}.

Hl, There Ils No Genuine Circuit Conflict

Because the Indiana and Kentucky Statutes

In Question Are Fundamentally Different

Petitioners assert that the Seventh Circuit's

decision in this case conflicts with the Sixth Circuit’s

decision in Cherry Hill Vineyards, LLC v. Lilly, 553

F.3d 423 (6 Cir. 2008), which (according to

petitioners) “struck down a similar face-to-face rule in

Kentucky.” (Petition at 6). Characterizing the Indiana

and Kentucky statutes as “similar” is a stretch at best.

Petitioners conspicuously avoid discussing that the

Kentucky statute requires an in-person visit to the

winery before every direct shipment of wine, while the

Indiana statute requires only a single in-person visit

The Court of Appeals also pointed out that Indiana believes “in

person verification with photo 1D helps to reduce cheating on legal

rules, for both buying wine and voting (and perhaps other

subjects)” Pet. App.) 10a, citing Crawford vo Marion County

KRlectton Board, US. ,1285 Ct. 1610,170 L.Ed 2d 574 (2008)

14

before wine can be shipped indefinitely. See Lilly, 553

3d at 433; Pet. App. 5a. This is a fundamental

difference. For example, the Seventh Circuit noted

that “[mJany oenophiles vacation in wine country, and

on a tour through Napa Valley to sample the vintners’

wares a person could sign up for direct shipments from

dozens of wineries.” Pet. App. 7a. Under Indiana law,

once the initial face-to-face transaction requirement 1s

met, the wineries can ship directly to consumers

indefinitely.

That is not the case under Kentucky law. As the

Sixth Circuit explained:

Under Kentucky's in-person requirement, even

if a winery has established a relationship with

an individual consumer or a restaurant and has

verified their age and shipping address, the

customer must travel to the winery each time

he or she wishes to execute a purchase.

Lilly, 553 F.3d at 433.°

Because of this fundamental difference between the

Indiana and Kentucky statutes, there is no genuine

conflict between the Sixth Circuit and the Seventh

Circuit “on the same important matter.” Rule LO(a),

It is true that the Sixth Circuit found petitioners’ cost

of travel argument persuasive, while the Seventh

Circuit did not. Compare Lilly, 553 F.3d at 433, with

t

The Siath Crreauit’s decision in Leddy, tssued on December 24,

2008, does not discuss or even cite Baude ©. Heath, which was

decided on August 7, 2008 and was brought tothe Sixth Circuit's

attention shortly thereafter, prior to the Sixth Circuit) oral

argument on September 18, 2008

15

Pet. App. 7a-8a. However, this merely reflects the

fundamental difference between traveling once, and

traveling continuously; the cost of traveling to Napa

Valley once and signing up at dozens of wineries is not

reasonably comparable to the cost of traveling to the

winery “each time he or she wishes to execute a

purchase.” Lilly, 553 F.3d at 422.

It is also true that the Sixth Circuit presumed

“small Kentucky wineries [would] benefit from less

competition from out-of-state wineries” as a result of

Kentucky’s in-person requirement (id. at 433), while

the Seventh Circuit required petitioners to submit

evidence of actual discriminatory effect, i.e., evidence

that Indiana wineries actually benefited from the

initial face-to-face transaction requirement at the

expense of non-Indiana wineries. This difference can

likewise reasonably be explained by the difference

between merely having to visit the winery once and

having to visit the winery before each and every

shipment

The alleged conflict, if it exists at all, is also of very

recent origin. As petitioners point out, there are

uppeals pending in the Third and Ninth Circuits on

challenges to the New Jersey and Arizona wine

distribution laws. Although the New Jersey and

Arizona statutes are significantly different from

Indiana’s statute, the forthcoming decisions from the

Third Circuit and the Ninth Circuit may resolve or

develop certain issues or perhaps clarify and narrow

the issues. The other pending appeals do not provide

a compelling reason to grant certiorari in this case at

this time.

16

Finally, even if there were a genuine conflict

between the Sixth Circuit and Seventh Circuit

decisions, the issues presented by this case are not

sufficiently important to justify granting the writ.

Petitioners claim at least ten other states “have laws

deterring direct sales by requiring consumers to

appear in person at an out-of-state winery before they

may buy wine.” (Petition at 10). Most of those state

statutes, however, do not authorize direct shipping of

wine toconsumers. See Baldacci, 505 F.3d 28 (Maine);

Jelovsek v. Bredesen, 545 F.3d 431 (6 Cir. 2008)

(Tennessee); Ark. Code § 3-5-1602(c); Del. Code tit. 4,

§ 5IZA(b): N. J. Stat. Ann. 33:1-10 (2a)-(2b); S. D.

Codified Laws § 35-12-5. The laws of Georgia and

Rhode Island are similar to Kentucky’s law, while in

Kansas wine must be shipped to a licensed retailer

(ra. Code § 3-6-32(a)0); R. 1. Gen. Laws § 3-4-8; Kan.

Stat. § 41-348(e)

The statutory requirement of a single “initial face

to-face transaction” as a condition of receiving direct

shipments of wine indefinitely is unique to Indiana

Thus, granting certiorari in this case would not

definitively resolve any legal :ssues of national

significance applicable to wine producers, nor would it

resolve the related litigation involving challenges to

state laws regulating wine retailers and distributors

ls

CONCLUSION

lor the foregoing reasons, the petition fora writ of

certiorar} Should he denied

Respectfully submitted

I’'red R. Biesecker

Counsel of Record

Philip \. Whistler

Bnand. Paul

ICK MILLER LLP

One American Square

purle 2900

Indianapolis IN) 46282-0200

(3170) 2386-2100

Counsel for Re pondent

Wined& opirit Wholesalers of Indiana

APPENDIX

APPENDIX A

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

NOS. 07-3323 & 07-3338

[Dated February 22, 2008]

PATRICK L. BAUDE, et ai

Plaintiff Appelles

DAVID LL. HEATH, Chairman of

the Ind: moa Alcohol and ‘Toba

(Commission

WINE AND SPIRITS

WHOLESALERS OF INDIANA

Intervening

| deo fe ndant Appel int

oh

Before:

Chief Judge Easterbrook

Judge Posner

Judge Bauer

ORAL ARGUMENT

february 22, 2008

(Transcript of Audio)

Connor + Associates, Ine

1650 One American Square

Indianapolis, IN 46282

(317)2436-6022

p.2) APPEARANCES

FOR THE PLAINTIFFS-APPELLEES,

Patrick L. Baude, et at:

Jumes A. Tantord

INDIANA UNIVERSITY SCHOOL OF LAW

2115S. Indiana Avenue

Bloomington, IN 47405

FOR THE DEFENDANT-APPELLANT,

David L. Heath, Chairman of the Indiana

Alcohol and Tobacco Commisston:

Thomas M. Fisher

OFFICK OF THE ATTORNEY GENERAL

Indiana Government Center South

Fifth Floor

302 W. Washington Street

Indianapolis, IN| 46204

3b

FOR THE INTERVENING

DEFENDANT- APPELLANT,

Wire and Spirits Wholesalers of Indiana:

Fred R. Biesecker

ICE MILLER, LLP

2900 One American Square

Indianapolis, IN 46282

[p.3] INDEX

Be Ee 8). ye 4

by Thomas M. Fisher

ORAL ARGUMENT

by Fred R. Biesecker

ge s.r 23

by James A. Tanford

[p.4] (Beginning of Digital Recording.)

ORAL ARGUMENT,

BY THOMAS M. FISHER:

MR. FISHER: Thank you, Your Honor. May it

please the Court. The logic of the Plaintiffs’ attack on

Indiana’s one time, in-person transaction requirement

as a precursor for the direct shipment of wine to

Indiana customers amounts to an attack on Indiana’s

three-tier distribution system. It’s a system that the

Supreme Court in Granholm has_= said is

unquestionably legitimate. The real crux of --

CHIEF JUDGE EASTERBROOK: I don't

understand this at all. Indiana doesn’t have a

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three-tier system because it allows direct shipment by

wineries.

MR. FISHER: Well, has a narrow --

CHIEF JUDGE EASTERBROOK: (Inaudible)

path tier system. I don’t see how any of this bears on

the in-person verification requirement.

MR. FISHER: Well, the general rule, of course, is

that there is no direct shipment. That’s the starting

point. You have to go through the wholesalers who

then go to the [p.5] retailers who then go to the

customers. But there’s a limited exception where the

customer goes to the winery --

CHIEF JUDGE EASTERBROOK: Indiana is

perfectly free to require everything to go through three

tiers, and it doesn’t. The only argument in this case is

that having made this exception for direct shipment,

it’s done it in a way that disfavors out-of-state sellers.

That’s what we need to focus on, not this three-tier

business.

MR. FISHER: Your Honor, I don’t disagree with

that. The point 'm making is that when we consider

what the Plaintifis are saying, which is the geography

of the -- of California and Oregon and Washington

makes this law unconstitutional, the same would be

said, the same would be said with respect to the

three-tier system as a whole.

CHIEF JUDGE EASTERBROOK: § You're not

saying that the law is unconstitutional because

Cahfornia has mountains and deserts and Indiana

doesn’t (inaudible) -

Sb

MR. FISHER: No, geography in terms of its

relationship, I’m talking about its relationship |p.6] to

the Indiana customers; that it’s easier to go to a

winery In Indiana, which would be the same if Indiana

CHIEF JUDGE EASTERBROOK: It’s actually

probably easier to go to wineries in California.

MR. FISHER: I’m sorry?

CHIEF JUDGE EASTERBROOK: Most

oenophiles spend much more time at California

wineries than they do at Indiana wineries.

MR. FISHER: Which is exactly why this law is

vahd. If that’s the case, then we cannot infer any sort

of protectionist purpose or effect or rationale

underlying this law. What we've got is a law that

treats out-of-state wineries and in-state wineries

equally every bit as much as a total ban on direct

shipment would, with a limited exception for in-person

sales where there’s an opportunity to verify the

identity of the purchaser. That is exactly the kind of

thing that Granholm was contemplating would be

valid. The idea is to -- yes?

CHIEF JUDGE EASTERBROOK: I think we

need to get to the nub of this case. Obviously, the law

does net engage in disparate treatment. And equally

obviously, as the District Court said, [p.7]| it has some

disparate impact. Because other things equal, it’s

more costly to sign up with a California winery in

California or a Michigan winery in Grand Traverse

than with an Indiana winery. We need to figure out

6b

whether that disparate impact is excessive in relation

to the benefits.

We're not getting anywhere talking about three

tiers and whether there’s disparate treatment. Don’t

really need to go there.

MR. FISHER: Fair enough. There is no proof in

the record, which is the Plaintiffs’ burden, to show that

there is that sort of Pike balancing problem, that it so

outweighs, that the disparate impact so outweighs the

advantages that Indiana gets in terms of its ability to

have a way to protect against --

JUDGE POSNER: What does the record show

about the Indiana wine industry’?

MR. FISHER: In terms of --

JUDGE POSNER: Well, where these -- how large

is it, where it’s located. There are wineries, for

example, in southern Michigan, they're very accessible

to people in South Bend, for example. Where are the

[Indiana wineries?

lp.S] MR. FISHER: I don’t -- | can’t -- there aren't

that many to begin with. IT think there are a few in

southern Indiana, I think maybe one in northern

Indiana. There used to be one in Terre Haute but, as

the amicus of the Indiana Wine Growers Guild pointed

out, it closed as a result of this law. There was a direct

Impact, negative impact on an Indiana winery. So

there is that equal --

7b

JUDGE POSNER: But I’m just wondering, does

the record contain information about, for example, a

map showing where all the wineries are located?

MR. FISHER: Your Honor, I’m not familiar with

that, if it does. And I --

JUDGE BAUER: This is maybe a _ potential

customer, you ought to send them a copy of the map.

MR. FISHER: Right.

CHIEF JUDGE EASTERBROOK: You're talking

to ajyudge who passes through Indiana regularly on his

way to southern Michigan.

MR. FISHER: Well, [m not here to promote the

Indiana wine industry, nor is this law promoting the

Indiana wine industry. It’s {[p.9] merely a sereen to

prevent access by minors to alcohol. It’s the same kind

of in-person check that we expect in ordinary wine and

aleohol transactions, and that’s true regardless of

whether there’s direct shipment or not

[Us -- and af Indiana can require a face-to-face

transaction for all wine sales, which would be a ban on

direct shipment, then it can require it for the first sale

that would then lead to further --

JUDGE POSNER: like the Crawtord case,

Indiana is big on in person identification to prevent

fraud

MR. FISHER: We're very serious about the value

of face-to-face communication, Your Honor. We think

it does have that important impact. There's” an

Kb

opportunity to evaluate the eredibility of the person

purchasing the wine, ts this -- yes.

CHIEF JUDGE EASTERBROOK: The

Appellees’ brief says that verification by Internet

means, Choice Point or other age-verification systems

previously used by the porn industry, 1s as effective as

in-person ver fication. Their brief asserts that as an

established fact.

[p.10] Is that something you think ts an established

fact?

MR. FISHER: Not at all. And I think that --

CHIEF JUDGE EASTERBROOK: What's the

record show one way or the other?

MR. FISHER: I don’t think it shows that -- it

shows that there’s a service. I don’t think it shows

that it’s effective In fact. | think :

CHIEF JUDGE EASTERBROOK: Their briet

Says, asserts just pointblank, it’s established in this

record that it's as effective, and then the brief says,

“Facts, Paragraph 19; Facts, Paragraph 22.” What is

this all about?

['m going to ask the same question of the Appellees,

by the way

MR. FISHER: Yeah. IT think that what we've got

is that there is a systemin place that you can use

CHIEF JUDGE FASTERBROOK: Do you know

?

What that reference 1s

Ob

MR. FISHER: No, I don’t. I dont candidly.

CHIEF JUDGE EASTERBROOK: I tried to

figure {|p.11] out what it is but their brief doesn’t tell

us What the facts, paragraph something is referring to.

MR. FISHER: I think the bottom line from our

perspective is that even if there are some facts that

shows some level of efficacy for something like Choice

Point, this is all about legislative judgment and are

they in the realm of reasonableness when they choose

the face-to-face transaction.

CHIEF JUDGE EASTERBROOK: Well, you may

get someplace with saying this is Plaintiffs’ lawsuit,

it’s their burden to show something about this. I’m

just trying to figure out what we know.

Pike against Bruce Church says we have to make

some judgment about relative costs and relative

benefits. I’m just trying to figure out what we know on

this record about relative costs and relative benefits.

MR. FISHER: Empirically --

CHikF JUDGE EASTERBROOK: (Inaudible)

know in the published literature, for that matter.

MER. FISHER: Empirically very little | think isthe

answer to that. And I think that [p.12] that’s why

Pike suggests that there’s got to be this dramatic

outweighing of the benefit, potential benefit to the

state. And as long as the state is within, hasn't been

disproven that there’s some benetit of the face-to-face

requirement over and against whatever burden on

Interstate commerce there may be.

10b

CHIEF JUDGE EASTERBROOK: That’s why I

am asking this question. The Plaintiffs say it is

established that there is no marginal benefit of this

face-to-face identification requirement. And if that’s

established, then if there’s a marginal cost, we know

something. If it’s not established, that -- do you see

why | am asking?

MR. FISHER: I do, Your Honor. And there just is

no evidence that that is established. I don’t think that

that statement can be taken at face value.

I think the other point to consider here is -- yes.

CHIEF JUDGE EASTERBROOK: 1 have

another question which Ill ask you, and then I will be

asking Mr. Tanford. What do you think is the

consequence of the Supreme Court’s decision on

Wednesday in Rowe against New Hampshire Motor

[p.13] Transport?

MR. FISHER: I think, Your Honor, that it

accentuates the need for the in-person face-to-face

transaction. Because what we ve got built into the law

elsewhere are requirements very similar to what Rowe

invalidated with respect to

CHIEF JUDGE EASTERBROOK: More or less,

right. My real que tion 1s, is it now, after Rowe, ts it

lawful for anybody to ship wine in Indiana? Since it is

now impossible to insist that the carmer verify age on

delivery, that) requirement of the state law ts

preempted

MR. FISHER: Uh-huh

Llb

CHIEF JUDGE EASTERBROOK: Doesn’t it --

doesn’t it mean that it is now illegal for anybody, in

state or out of state, to ship wine in Indiana?

MR. FISHER: 1 guess I’m not following only

because FI think of the --

CHIEF JUDGE EASTERBROOK: Indiana’s law

says a winery can ship wine if and only if it assures

that the carrier will verify age at the door.

MR. FISHER: Right.

{p.14! CHIEF JUDGE EASTERBROOK: The

Supreme Court has held that that, such a law is

preempted. No such verification can be insisted upon.

And what the Supreme Court’s opinion in Rowe says

is what that means is New Hampshire should just ban

all shipments of tobacco. Doesn’t that mean Indiana

has effectively banned all shipments of wine?

MR. FISHER: Well, I think that -- the way I read

Rowe, and it’s only been a couple days, so I guess I can

go back and look at it again. But the way I understood

it was to say that even the restriction requiring the

local -- the retailer, the wine -- Im sorry, to use in

aleohol terms, the winery to require, to hire a

transporter that’s going to use those kinds of

identification checks, even though it’s a restriction on

the seller, on the winery, that’s still enough of an

Impact on the shrpper to be

CHIEF JUDGE EASTERBROOK: Exactly. So

there are two possibilities. Thisis what lam trying to

get at. Not clear youre tracking me but let me trv

again

12b

There are two possibilities. Either after [p.15]

Rowe it is now perfectly fine for anybody to ship wine

in Indiana without any verification on delivery, or

because verification on delivery is now impossible, it is

illegal for anyone to ship wine in Indiana. Which of

these two possibilities does Indiana believe pertains?

MR. FISHER: I think it’s the former. I think that

what gets kriocked out is the requirement that they

use a shipper that’s going to (inaudible), but I think it

makes the ID check at the site of the sale for the first,

for the first purchase all the more important because

then you’ve got some means of verifying that the

customer is over 21. If there’s no means to, for Indiana

to require that the shipper verify it on the other end,

it’s all the more important to have at least one time

when it’s verified on the front end at the site of the

sale, the initial sale.

Ggranholm speaks also in terms of the significance

of Webb-Kenyon. And the reason that Webb-Kenyon

was not enough to sustain the Michigan and the New

York laws was that the Wilson Act basically

superimposed a requirement of neutrality, facial

neutrality on alcoho! [p.16] shipment laws. In this

case that facial neutrality is easily met and that takes

away the concern of the Wilson Act which

reemphasizes the importance of Webb-Kenyon which,

of course, tracks the language of the 2Ist Amendment

itself.

But | usink those are significant differences with

what was at stake in Granholm, and also was a

ditference in many ways with what the Court typically

confronts in other commerce clause analyses. So |

}

would urge the Court to consider that sort of impact of

L3b

Webb-Kenyon to come to the conclusion that once

there’s a decision that there’s no facial discrimination,

that the law itself is valid.

I think I'll reserve the remainder of my time for

rebuttal if there’s nothing else.

CHIEF JUDGE EASTERBROOK: Thank you,

Mr. Fisher.

Mr. Tanford?

Mr. Biesecker, were you going to argue now or were

you -- | couldnt teil whether you were --

MR. BIESECKER: Well, yes, | was going to have

three minutes; Tom Fisher was going to have [p.17] 12,

I was only going to have three; he was going to save

five for rebuttal.

CHIEF JUDGE EASTERBROOK: All right. Mr.

Tantford, will you hold on a second? Let’s hear from

Mr. Biesecker now.

ORAL ARGUMENT,

BY FRED R. BIESECKER:

MR. BIESECKER: Thank you, Your Honor First,

im response to --

JUDGE POSNER: Who are you representing?

MR. BIFSECKER: Tf represent the Wine and

Spirits Wholesalers of Indiana

l4b

In response to Judge Posner's question, there are

interrogatory answers, the State’s interrogatory

answers in the record. There’s not a map but it does

have a list of Indiana wineries and where they are

located. I believe there are 37 Indiana wineries, or

were at the time, on the record here. And I believe

only 15 of them, in fact, had a direct wine seller's

permit as of October 2006, when the interrogatory

answers were submitted.

The only additional point I wanted to make is that,

as Judge Easterbrook said, most |[p.18] facially neutral

exceptions to the three-tier system are likely to have

some degree of disparate impact on interstate

commerce. But here, even without the added factor of

the 21st Amendment, the Plaintiffs fail to meet their

burden of proof in an ordinary commerce clause case,

namely proving a_ sufficiently powerful disparate

impact to justify heightened scrutiny as this Court

said in National Paint. So that puts us at --

JUDGE POSNER: So are you defending this

wholesaler rule, is that what you are defending?

MR. BIESECKER: I’m sorry?

JUDGE POSNER: Are you defending this

wholesaler rule the State abandoned?

MR. BIESECKER: Both. ves. That’s correct.

Your Honor, both the -- yes, we are doing both

JUDGE POSNER: But | understand it’s supposed

to have a state which said, you know, we don't care

whether wineries wholesale or retail, you Know, we

just don't care. So would that then ban them from

L5b

direct sales in Indiana on the theory that they're

allowed to wholesale and Indiana has this partial

three-tier system, is that what your argument is,

would be?

[p.19] MR. BIESECKER: Yes, Your Honor. Yes,

the --

JUDGE POSNER: What sense does that make?

I don’t get that.

MR. BIESECKER: Well, Your Honor, I believe

that the -- well, what the District Court referred to as

the wholesaler restriction, I believe that has, there are

two legitimate state interests in our view. One is

simply to, to say that wholesalers may not preserve

the three-tier principle in a sense, that wholesalers --

JUDGE POSNER: No, I understand. It’s just

something in Oregon. Oregon says, you know, we don't

care what you do in Oregon, whether you sell direct or

sell to retailers, sell to wholesalers, we don’t care about

that. We’re just not interested. So then they want to

have a direct sale permit for Indiana, how does that

affect -- how does what Oregon does about the

wholesaling inside Oregon affect the Indiana three-tier

system?

MR. BIESECKER: Well, 1 think only in one

sense, and that is this: What the legislature was

attempting to do with this wholesaler restriction was,

or What the direct wine [p.20] seller's exception and a

wholesaler restriction was open it up only to wineries

that in the legislature's judgment really needed it. If

you already have a wholesaler, you can’t get a direct

wine seller permit

16b

JUDGE POSNER: No, no. But what if these

wineries in Oregon, they don’t -- they’re tiny, they

don’t sell to wholesalers, but they could, right? [mean

they could. There are just no rules in Oregon. So --

MR. BIESECKER: They could. | think what the

Indiana legislature was trying to do was say if you

already have a wholesaler or if you already

self-distribute, then you don't need to --

JUDGE POSNER: No, no, but -- I don't

understand. I don’t get that

Why do you even -- if you just havea state that isn’t

interested in maintaining the three-tier system, but

the actual, the actual operations, the actual

distribution system of small wineries in those states

might be identical to small wineries in Indiana. So

why would you want to put them under a special

prohibition?

[p.21] MR. BIESECKER: Well, it also applies to

Indiana wineries if they have self-distribution

privileges outside.

JUDGE POSNER: No, no, Im not talking about

that. I’m talking about what the law provides in one

of these other states. The State is indifferent and it

lets you sell to anybody, right? It’s not that they do

have wholesalers, they don’t have wholesalers. The

State doesn’t make thts distinction.

Then you say, nevertheless, they’re barred from

selling, selling directly in Indiana and | don't get the

sense of that

17b

MR. BIESECKER: Well, as I said, I think the

legislature’s standpoint was trying to say that if you

have outlets for your products, whether you’re in

Indiana --

JUDGE POSNER: No, no, you're not listening to

me. The fact that a state like Oregon, Washington,

what have you, doesn’t make any rules regarding

whom you can sell to, doesn’t mean that you, therefore,

have a wholesaler, right? It just means, you know,

you're not subject to this, to this kind of rule.

3ut if you’re a tiny winery and you can’t [p.22]

afford, you know, the wholesaler’s markup, then you’re

exactly in the same position as little Indiana wineries.

Se why should you be treated differently?

MR. BIESECKER: No, I understand, |!

understand your point, Your Honor. | think the

legislature was simply trying to say that if you can

self-distribute your own products, if you have an outlet

for your products that way, even if you don’t have a

wholesaler --

JUDGE POSNER: No. But it may be completely

infeastble for you to use it because you're too small.

MR. BIESECKER: Well -

JUDGE POSNER: So why didn’t they make the

law if vou have a wholesaler, well, then, you have to

use a Wholesaler in Indiana? They didn't do that

MR. BIESECKER: Yeah, they did say that if you

have a wholesaler in

18b

JUDGE POSNER: No, they didn’t say that.

MR. BIESECKER: Well, if you already have a

wholesaler, you can't --

JUDGE POSNER: No, no, that’s not what the law

Says.

[p.23] MR. BIESECKER: No, I understand that.

I’m just trying to say there are two things. One is if

you have a wholesaler, you can’t get it; and if you

self-distribute, you can’t getit. And I understand that,

you know, small winery, the point of the legislature

was that small wineries that self-distribute their own

products, whether theyre Indiana wineries or

out-of-state wineries, simply don’t need or don’t need

the exception as much and that’s why the legislature

did it only for wineries that had no other outlets.

JUDGE BAUER: Your true defense is your three

minutes are up. You're excused.

CHIEF JUDGE EASTERBROOK: We have your

position. Thank you very much

Now, Mr. Tanford

ORAL ARGUMENT,

BY JAMES A. 'TANFORD:

MR. TANFORD: Thank you, Your Honor.

May it please the Court, the District Court found

these two provisions in Indiana’s wine law vrolated the

commerce clause because, although they were

19b

even-handed on their face, they had a_ [p.24]

discriminatory effect --

JUDGE POSNER: Well, what do you mean by a

discriminatory cffect? Do you mean that the -- just

looking at the identification provision, do you mean

that they’re discriminating in favor of the Indiana

wine industry?

MR. TANFORD: The

JUDGE POSNER: No, answer my question. Are

they -- is that your complaint, theyre discrim- --

they re trying to protect, they’re trying to nurture this

little, tiny industry, you know, an infant industry

argument protectionist, 1s that what you are

complaining about?

MR. TANFORD: That is their effect. We're not

arguing that that was necessarily their legislative

intent. We believe that the Supreme Court has said

that --

JUDGE POSNER: So you think that’s -- what is

the evidence of that?

MR. TANFORD: The evidence is that there is a

significant economic burden placed on --

JUDGE POSNER: Well. where is the evidence of

that?

MR. TANFORD: The record --

[p.25} JUDGE POSNER: This industry in Indiana

PS Sey. according to Wikipedia, which | consider an

20b

authority of some kind, according to Wikipedia there

are only 270 acres in Indiana that are used for wine

cultivation.

MR. TANFORD: Yes, but Indiana --

JUDGE POSNER: And we have an amicus brief

from these little wine people in Indiana saying they

don’t like this law either, right? So where’s the

indication that this is discriminatory? It may still

burden interstate commerce, it may be an

unreasonable restriction on these distant wineries but

that’s different from arguing that it is actually -- that

they are trying or the effect is to protect a local, a local

seller against out-of-state sellers.

MR. TANFORD: We're arguing that it gives, that

it places a commercial disadvantage in real economic

terms.

JUDGE POSNER: No, no. Look, suppose you

have a law that equally burdens out-of-state sellers

and in-state sellers. Now, you can still complain that

the effect on out-of-state scllers is not offset by any

state, any legitimate state concern but that’s a harder

row |p.26] to hoe.

If you can show that there’s an actual

discriminatory impact against a local seller, it’s easier

to make out -- to make a case. And I don’t see where

the evidence is that this has anv significant

protectionist effect on these local wineries

MR. TANFORD: Well, the record shows that our

Plaintiffs and other customers are, can get to,

21b

affordably, to the in-state wineries to make such a

face-to-face appearance.

JUDGE POSNER: Well, where is that evidence?

MR. TANFORD: It is the -- it isin the statements

of the consumer Plaintiffs. Each one of them in their

affidavit stated that they have, in tact, gone to and

made face-to-face appearances at the in-state wineries.

Each one of them have talked about looking into the

expensc of having to go to a distant winery and have to

stay overnight --

JUDGE POSNER: Okay. So are you saying that

because of the expense, they're buying the wine at

these local wineries?

MR. TANFORD: No.

[p.27| JUDGE POSNER: No? Of course not,

right. So how do the local wineries -- so, look, these

oenophiles, they go to these, this local winery and they

say, Yuck, I’m not going to drink this stuff. I want to

drink stuff from some boutique winery in California,

but I can’t afford to go there.

Now, that’s a burden on interstate commerce. But

it doesn’t help the local wineries because they don't

gain any sales from this. So my question is: Where 1s

there evidence that the local wineries, despite their

amicus curtae bret, benefit from this rule that you're

challenging?

MR. TANFORD: T think there are two pieces of

evidence. One is not all wine is eenophile wine. Not

all consumers drink faney wine --

226

JUDGE POSNER: No, no, I’m asking for

evidence. [’m not asking for your speculations. Is

there evidence about the impact, the positive impact

on these Indiana wineries of this rule.

MR. TANFORD: There is -- no. There is --

JUDGE POSNER: Okay, fine.

MR. TANFORD: There is, however, evidence of

the disadvantages.

[p.28} JUDGE POSNER: So let’s move to the next

question. So you have some impact on these distant

wineries. You say negative, okay, that’s the interstate

commerce impact. But it’s perfectly legitimate for a

state not to want kids to buy this stuff. And we know

you know, from the Crawford case, we know Indiana is

very concerned about fraud. And why is this a rational

--it may not be, you know, greatest or necessary, but

why isn’t it a, you know, a legitimate or plausible

method of reducing purchases of wine by kids’?

MR. TANFORD: Well, the record shows that it’s

ineffective in the first place. The record also --

JUDGE POSNER: Well, compared to what”

Kverything is -- all law enforcement is ineffective in

the sense of imperfect. So compared to what is it no

good?

MR. ‘TANFORD: Compared to a vanety of things

Both --

JUDGE POSNER: Well, dont give me a variety

of things, be specific

23b

MR. TANFORD: it is let -- it is ineffective

compared to online age verification.

{p.29] JUDGE POSNER: Well, how can that be?

Because the online Internet verification, unless I don’t

know what I’m talking about 1s just an honor system.

MR. TANFORD: No, there are three, at least

three online age verification systems called Choice

Point, Veritas and Ideology. They have been approved

for use, for example, by the Michigan Liquor Control!

Commission. They --

JUDGE POSNER: What, do they have your

records of your birth certificate?

MR. TANFORD: They scan the Internet, they do

various things to -.

JUDGE POSNER: Well, for what? I don’t have --

my birth certificate isn’t on the Internet.

MR. TANFORD: You're not a minor, Your Honor.

I would suggest --

JUDGE POSNER: Well, wait a second. That's

the question. [Timight be a minor, right? When I order

this wine, they have to go --

JUDGE BAUER: A long time delivery.

CHIEF JUDGE EASTERBROOK: Yeah,

remember the famous New Yorker cartoon on the

Internet, no one knows you're a dog, all right?

[Ip.50! MR. 'PANFORD: | do remember that.

24b

CHIEF JUDGE EASTERBROOK: Judge Posner

is asking the same question that I’ve asked Mr. Fisher,

which is: Your brief says very confidently that we

know as a fact that Choice Point, for example, is as

effective as in-person verification. Your brief then

cites, and this is the whole citation, “Facts: Paragraph

19.”

MR. TANFORD: | apologize.

CHIEF JUDGE EASTERBROOK: What docs

that mean?

MR. TANFORD: That is the statement of facts in

the beginning of the brief, Paragraph 19. And I

apologize for the confusion.

JUDGE POSNER: Well, that’s not exactly the

record.

CHIEF JUDGE EASTERBROOK: Your brief is

not a fact

MR. TANFORD: No, but the --

CHIEF JUDGE EASTERBROOK: As far as the

record ts concerned.

MR. TANFORD: In that Paragraph 19 in the

briet, it refers to items in the record. ‘This 1s an issue

that has been studied by public health officials. These

studies have been [p.3]] summarized in two public

documents, the Federal Trade Comunisston Report in

2008 and astudy by the National Academy of Sciences,

both of which in the record and both of which are

referred to. Both of those studies report that controlled

scientific studies of the effectiveness of face-to-face

identification --

CHIEF JUDGE EASTERBROOK: Hold on. I’ve

now gone to your brief, Paragraph 19. The only thing

that is cited in Paragraph 19 is

www.choicepoint.com/business/financial. In other

words, you're citing to Check Point’s (sic) own

self-touting. You're not citing to an academic study.

MR. TANFORD.: No, Your Honor, further down in

the paragraph it refers to Docket No. 89, No. 6,

“Reducing Underage Drinking,” that is the National

; aes

Academy of Sciences study.

CHIEF JUDGE EASTERBROOK: Docket No.

89/6, what docket in what?

MR. TANFORD: In the district, the District

Court, District Court Docket No. 8Y, docket entry No.

89, broke the submissions in support of summary

judgment down into what it called -- this one was No.

6, and it was a study ealled [p.32] “Reducing Underage

Drinking.”

JUDGE POSNER: Yeah, but your citation is very

misleading because you're only citing that Docket No

89/6 for the proposition that half of all minors have

used fake identification to purchase alcohol. And then

the next proposition, “Online age verification 1s

probably more ettective,” that doesn't have any

citation

CHIEF JUDGE EASTERBROOK: Well, it

doesnt follow from the proposition in the first half of

26b

the sentence, that’s for sure. That’s about as big a non

sequitur as I have seen in some time.

So if I go and look at Docket No. 89/6, is there going

to be a scientific, you know, a statistically valid

demonstration that Choice Point is as effective as ID

over the counter?

MR. TANFORD: Let’s call it as ineffective. Yes,

there is

JUDGE POSNER: How on Earth could such a

study be conducted?

MR. TANFORD: I donot know, Your Honor. That

exceeds --

JUDGE POSNER: Weil, it doesn’t sound -- it

doesn't sound possible, right? It doesn’t sound {p.33]

possible

MR. 'TANFORD: Well, these are the results -

CHIEF JUDGE EASTERBROOK: I could easily

Imagine a controlled study. T could imagine sending

minors to Check Point to try to get approval and

sending minors in with fake [D or something lke that

¢

rey ire. Bee

JUDGE BAUER: Used to do that when I was a

state prosecutor. It was very effective

JUDGE POSNER: That hasnt been done has it?

CHIEF JUDGE KFASTERBROORKR: tlasthat been

;

done

MR. TANFORD: I didn’t -- there are numerous

studies. They’re summarized in these two --

JUDGE POSNER: No, no, that’s not the question.

That’s not the question.

CHIEF JUDGE EASTERBROOK: I asked a

concrete question. Hasa particular kind of study been

done? The answer -- there are three possible answers:

Yes, no, and I don’t know.

MR. TANFORD: Then the answer is | don’t know.

ip.34) CHIEF JUDGE EASTERBROOK: Okay.

FUDGE POSNER: ‘That’s the most important

issue in your case. That’s the biggest issue in your

case. You can't possibly win without showing that

somehow online verification is, you know, patently

inferior to the alternative.

MR. TANFORD: The Supreme Court decided

Granholm without any showing of that, because the

burden shifts to the State. We have come forward with

the evidence --

JUDGE POSNER: No, it doesn’t. Why does the

burden shift? I don’t get that. Why should the burden

shift?

MR. TANFORD: If we're doing strict

JUDGE POSNER: Remember, you haven't shown

any discrimination You haven't shown any

discrimination against interstate commerce

28b

MR. TANFORD: I disagree. | think we have

shown --

JUDGE POSNER: No, you haven't, because you

have no evidence that the Indiana winery industry has

benefited by this rule. Zero evidence.

MR. TANFORD: But the Supreme Court cases

have not required such evidence.

lp.35) JUDGE POSNER: No, forget the Supreme

Court cases. The Supreme Court cases -- well, we

don’t have to forget them, but the point is you don’t

have, you don’t have a law that is, explicitly favors a

local industry.

MR. TANFORD: Correct.

JUDGE POSNER: You don't have a law that, in

fact, favors a local industry, even though it doesn't say

it does because that’s what you have no evidence of.

So all you're left with is, yeah, there’s a -- any

regulatory provision that’s likely to burden interstate

commerce, right, to require pure food or something

and, you know, or, vou Know, worried about spoilage

and that hurts foreign sellers, you know, refrigeration

requirements, goodness knows what. Soifyou want to

prove a burden on interstate commerce there, you have

to show evidence that this regulatory goal of whatever

it is, protecting minors, preventing, you know, food

from spoiling, is spurious and you don't have any

evidence of that

MR. TANFORD: Well, even assuming we re under

Pike, that’s not what Pike says

29b

[p.36] JUDGE POSNER: What do you mean even

assuming, where else should we be?

MR. TANFORD: I still think we should be under

discriminatory effect because it --

JUDGE POSNER: Well, but there is no -- you

haven't shown a discriminatory effect. The wine

people in Indiana have filed an amicus brief

challenging the same law. There’s no indication that

there’s a discriminatory effect.

MR. TANFORD: The information --

CHIEF JUDGE EASTERBROOK: There is

another way to put this, too. If you walk into a liquor

store in Indiana, you will find it teeming with wine

from California and Australia and France, and not

from Indiana. There’s just no reason to think that

[Indiana is shutting out the imports of wine in order to

favor this trivial local --

MR. TANFORD: We make no claim that the

three-tier system, that that market, the retail market

JUDGE POSNER: Or Indiana

CHIEF JUDGE EASTERBROOK: Oy Indiana as

a Whole. Everybody who drinks wine in Indiana is

drinking wine from outside Indiana. This is not a

border-closing statute by any remote streteh [p37] of

the imagination

30b

MR. TANFORD: Nor is a border-closing statute

required. It is enough that the flow of commerce be

restricted --

JUDGE POSNER: No, that’s not enough, because

it doesn’t say -- many regulatory laws have a different

impact on distant sellers and local sellers, right? And

all they have to do is, you know, justify loosely

without, you know, compelling proof that it’s a, you

know, reasonable rule. So asking for photo ID so you

know who you’re dealing with is a natural way to go.

And the Internet verification on its face sounds,

sounds like an honor system because people don’t --

how much scanning do they actually do of the

Internet?

MR. TANFORD: I do not know the internal

workings, I do know --

JUDGE POSNER: Right. So why do vou think

it’s effective?

MR. TANFORD: Because the Michigan Liquor

Control Commission approved it. This ts now the way

that they have to --

CHIEF JUDGE EASTERBROOK: — Perhaps

they're pushovers.

Ip.3s8l MR. TANFORD: Thirty two states allow

direct shipping without a face-to-face attempt. They

must know something

JUDGE POSNER: Yeah. and what about the

ot hers?

31b

CHIEF JUDGE EASTERBROOK: Let’s get back

to Judge Posner’s earlier analogy. Indiana has a photo

ID requirement for voters, and I will bet Michigan does

not. But you wouldn’t be saying because Michigan

doesn’t have a photo ID requirement, Indiana’s must

be unconstitutional.

MR. TANFORD: Correct. There would be no

discrimination between similarly-situated people.

CHIEF JUDGE EASTERBROOK: Well, then if

Michigan accepts Choice Point, Indiana must isn’t --

MR. TANFORD: No, 'm not saying that it must.

But even Pike says, the third part of the Pike test is

the question, “Could the local interests be served with

a lesser impact on interstate commerce?” That’s the

quote out of Pike.

CHIEF JUDGE EASTERBROOK: Well, and

that’s why you find us asking what does the record

show [{[p.39] about the relative efficacy of Internet

verification and in-person verification?

MR. 'TANFORD: ‘The record shows

CHIEF JUDGE EASTERBROOK: If the record

doesn’t show something, you lose.

MR. TANFORD: You've misinterpreted me or I

have misspoken. The record shows that attempts to

purchase via online sources, minors are able to

purchase approximately 30 percent of the time. but

the studies on the face-to-face appearances Is that they

are able to purchase 45 to 90 percent of the time.

Those are the studies summarized by the Federal

32b

‘Trade Commission and by the National Academy of

Sciences.

CHIEF JUDGE EASTERBROOK: What does

the Federal Trade Commission --

MR. TANFORD: Oh, they do. They go into --

JUDGE POSNER: But you don’t cite them.

MR. TANFORD: I don’t. That is a level of detail

that I did not go into. But they are in the record, they

are not in the brief.

CHIEF JUDGE EASTERBROOK: So we just

have to do our own work? One wonders what the point

of having submissions from the parties is.

[p.40] MR. TANFORD: The record --

CHIEF JUDGE EASTERBROOK: Let me take

you in a different direction. I asked Mr. Fisher, and

warned that I would be asking you, what the effect of

Rowe is in this case. Rowe looks like it knocks out the

requirement of age verification on delivery, and it

seems to me that can take us in two directions. One is

it knocks out the entire direct shipping program,

which 1s conditioned on age verification on delivery.

The other, which Mr. Fisher suggested, is that it

knocks out age verification on delivery and leaves age

verification at or before ordering even more important

What's your view of the effect of Rowe?

MR. TANFORD: I don’t think it does either of

those. [think what it does is it leaves it to the market.

33b

That is at Rowe, one of the problems was that state

law mandated the carriers to check IDs when the

carriers didn’t want to because it was economically

ineffective.

CHIEF JUDGE EASTERBROOK: No, actually

it didn’t. What the Maine law did, and this is one

reason why Rowe is, to me, a little mysterious. [p.41]

Rowe mandated the carriers to check the contents of

the packages. But what Rowe did about identification

at the point of delivery was that it mandated the

shipper to contract with a carrier willing to verify ID

at the point of delivery.

MR. TANFORD: That’s right. And the --

CHIEF JUDGE EASTERBROOK: That’s what

the Indiana law does. too.

MR. TANFORD: But Rowe said that that had the

indirect effect of having a coercive effect on the

carriers that didn’t want to do this.

CHIEF JUDGE EASTERBROOK: That's

exactly, Indiana’s law and Maine’s -- Indiana’s liquor

law and Maine’s tobacco law are identical in this

respect. There are only two options, Mr. Tanford.

Which of them is right?

MR. TANFORD: Leave it to the market because

the carriers already have -- it’s in the record, the

carriers have already developed voluntary programs to

ship wine because there’s lots of money to be made.

This is a lucrative business. Thirty-two states allow

direct shipping. And so that no coercion by the State

34b

is necessary. You can have no such rule and [p.42]

leave it to the market.

CHIEF JUDGE EASTERBROOK: The market

isn’t going to provide for something that’s expensive if

it is not legally required. Now --

MR. TANFORD: The wineries --

CHIEF JUDGE EASTERBROOK: Mr. Tanford.

MR. TANFORD: Yes?

CHIEF JUDGE EASTERBROOK: You seem to

be in a state of demial. I wish you’d answer my

question.

MR. TANFORD: I apologize, Judge. Perhaps if

you'd ask me again, I would understand it.

CHIEF JUDGE EASTERBROOK: I think you

understand it perfectly.

JUDGE BAUER: | don’t. What’s the question

again?

MR. TANFORD: The question is, is Rowe

apphcable to the, directly transferable to state

regulation of the alcohol industry?

CHIEF JUDGE EASTERBROOK: No, no.

MR. TANFORD: There’s the 21st Amendment,

maybe that gives the states some additional power

because it was a preemption case.

35b

CHIEF JUDGE EASTERBROOK: Are you

taking back all the arguments in your brief? There are

{p.43] two possible outcomes of Rowe. One is that

there’s no legal requirement of verification on delivery

and, therefore, it is more important to verify

identification and age earlier. And the other is that no

direct shipments will henceforth be allowed in Indiana

because an absolute legal requirement of Indiana that

there be identification on delivery has now been

invalidated.

Those are the two options, it seems to me.

MR. 'TANFORD: There are more ways of checking

ID than just identification and just on delivery or just

on sale. You can still use Choice Point.

CHIEF JUDGE EASTERBROOK: You are just

refusing to engage.

MR. TANFORD: That’s because I think that the

question has trapped me into a no-lose proposition

when those are not the only two options.

Given that two of them --

CHIEF JUDGE EASTERBROOK: Those are the

only two options for the legal system.

MR. TANFORD: All right.

CHIEF JUDGE EASTERBROOK: The market,

{p.44}) shippers may find something in their own

interest whether something is required by law or not.

And it will also be that some shippers will find it not in

36b

their interest to verify age. And we are interested, of

course, in the latter set of shippers.

MR. TANFORD: Then the State will have to close

the market. Thank you, Your Honor.

CHIEF JUDGE EASTERBROOK: Thank you

very much, Mr. Tanford.

Anything further, Mr. Fisher?

MR. FISHER: Your Honor, if there are no further

questions, I don’t have anything additional.

CHIEF JUDGE EASTERBROOK: Thank you

very much. The case is taken under advisement.

(End of oral argument recording.)

[p.45]

STATE OF INDIANA )

) SS:

COUNTY OF MARION _ )

I, James P. Connor, RPR, CRR, CSR #93-R-1023

and a Notary Public and Stenographic Reporter within

and for the County of Marion, State of Indiana at

large, do hereby certify that I took down in stenograph

notes the foregoing proceedings from a_ digital

recording;

That the transcript is a full, true and correct

transcript made to the best of my ability from my

stenograph notes and the digital recording of said

proceedings.

37b

IN WITNESS WHEREOF, I have hereunto set my

hand and affixed my notarial seal this 4 day of

March, 2009.

/s/ James P. Connor

NOTARY PUBLIC

My Commission Expires:

September 18, 2009

County of Residence:

Marion County

38b

APPENDIX B

Indiana Code

IC 7.1-5-11-1.5

Shipments of alcoholic beverages to residents

not having valid wholesaler permits

Sec. 1.5. (a) Except as provided in IC 7.1-3-26, it is

unlawful for a person in the business of selling

alcoholic beverages in Indiana or outside Indiana to

ship or cause to be shipped an alcoholic beverage

directly to a person in Indiana who does not hold a

valid wholesaler permit under this title. This includes

the ordering and selling of alcoholic beverages over a

computer network (as defined by IC 35-43-2-3(a)).

(b) Upon a determination by the commission that a

person has violated subsection (a), a wholesaler may

not accept a shipment of alcoholic beverages from the

person for a period of up to one (1) year as determined

by the commission.

(c) The commission shall adopt rules under IC 4-22-

2 to implement this section.

As added by P.L. 121-1998, SEC. 2. Amended by P.L.

165-2006, SEC. 38.