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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2008

## Text

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

4b

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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0151%3A3. Public record. Not legal advice.