Petition for Writ of Certiorari — Jelovsek v. Bredesen (No. 09-22)

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No. Q 4 * 2c JUN 2 52009

IN THEOFFIGE OF THE CLERK

Supreme Court of the United States

FREDERICK JELOVSEK, PETITIONER

v.

PHIL BREDESEN, IN HIS OFFICIAL CAPACITY AS

GOVERNOR OF THE STATE OF TENNESSEE; PAUL

SUMMERS, IN HIS OFFICIAL CAPACITY AS ATTORNEY

GENERAL OF THE STATE OF TENNESSEE; SHARI ELKS, IN

HER OFFICIAL CAPACITY AS EXECUTIVE DIRECTOR,

TENNESSEE ALCOHOLIC BEVERAGE COMMISSION;

WINE AND SPIRITS WHOLESALERS OF TENNESSEE; S.L.

THOMAS FAMILY WINERY, INC. DBA THOMAS FAMILY

WINERY; MARTIN REDDISH

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

SANDRA B. JELOVSEK

Counsel of Record

3520 Honeywood Drive

Johnson Citu, TN 87604

(423)283-0450

TURRY A TAYLOR @(2071 AQ 3z-alrar

a

QUESTIONS PRESENTED

The Sixth Circuit held that Tennessee’s three-tier

alcohol distribution laws requiring in-state residency to

obtain a wholesale or retail license, prohibiting Petitioner

from receiving wine by direct shipment from out-of-state

retail vendors, and subjecting the Petitioner to criminal

liability for the transport or possession of wine purchased

out-of-state are immune from direct challenge on

Commerce Clause grounds. This holding is contrary to

the precedent of this Court as well as to the precedent of

other circuits.

The Petitioner asks this Court to grant this

Petition for a Writ of Certiorari, to reverse the Sixth

Circuit’s holding that the challenged laws are immune

from Commerce Clause challenge, and to strike down the

laws that are discriminatory on their face or in-effect and

that violate his right of equal access to the interstate wine

market under the Commerce Clause.

The questions presented are:

I. Whether discriminatory and protectionist laws in

Tennessee’s three-tier alcohol distribution system

are immune from challenge on Commerce Clause

grounus, contrary to the law of this Court and other

circuits?

IT. Whether the Sixth Circuit erred in failing to strike

down the following provisions of state laws in

violation of the Petitioner’s right of equal access to

the interstate wine market as protected by the

Commerce Clause:

22

The laws that require in-state residency and

presence to obtain a Tennessee wholesale or

retail alcohol license, which laws restrict the

Petitioner’s access to a wide variety of wines

offered by out-of-state vendors.

The law that prohibits direct shipment of

wine to the Petitioner from out-of-state

retailers, when the State allows him to

purchase as much wine as he wants from in-

state retailers.

The law that criminalizes the Petitioner’s

possession of wines purchased from out-of-

state retail venders upon which Tennessee

taxes have not been paid, when there is no

mechanism to pay such taxes.

: ; ;

TABLE OF CONTENTS

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REASONS FOR GRANTING THE PETITION .........cccccccseseenesereeeeees 6

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APPENDIX

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TABLE OF AUTHORITIES

CASES

BACCHUS IMPORTS, LTD. V. DIAS, 468 U.S. 263, 275

DRAM AARNE ASS le Re oR 8 aR A 2s HE Poe LI SEE Pee )

BAINBRIDGE V. TURNER, 311 F. 3D 1104 (11TH CIR.

a I a lanes 9

BROOKS V. VASSAR, 462 F.3D 341 (4TH CIR. 2006)................... 9

COMMERCE CLAUSE. SEE H.P. Hoop & SONS v. DU

BORED, Beer Bs i ee CPD iva hc skin sascictiiinsaccccanecsarsesencies 7

COOPER V. MCBEATH, 11 F.3D 547 (5TH CIR. 1994).............0... 8

CRAIG V. BOREN, 429 U.S. 190, 205-206(1976)..............cccceceeees 17

DICKERSON V. BAILEY, 336 F.3D 388 (5TH CIR. 2008)............. 8

GRANHOLM V. HEALD, 544 U.S. 460, 489 (2005) .............. 6, 8, 17

HEALY V. BEER INSTITUTE, INC., 491 U.S. 324, 344

RRR RIEA Se DRG MR Sede Se oT LS NETS TO 7

JELOVSEK V. BREDESEN, 545 F.3D 431 (6TH CIR.

SERRE ey ERIN ree Rae SE cM oP MN any 20S ret PT yo 1,5,6

LTEIRY V. FRARDI, TAG EEG. WOO CIGD iocivvcinciecsccensccsscsvceeeecesvese 13

SCOTT V. DONALD, PE TF ioe ee BPE URED enckidisccceevvnaenacese 13,14

VANCE V. W.A. VANDERCOOK CoO., 170 U.S. 438, 455

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STATUTES

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Tenn. Code Ann. § 57-3- 3-203(b) ae ea ee ee ee ee 9

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Tenn. Code Ann. § 57-3-207 FOS EIR NARA OL PERSE Ro Pre ch PRN T: 4

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RULES

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OPINIONS BELOW

The opinion of the United States Court of

Appeals for the Sixth Circuit is reported at Jelovsek v.

Bredesen, 545 F.3d 431 (6" Cir. 2008) (la) The court’s

order denying the Petitioner’s request for rehearing en

banc is not reported. (43a) The District Court’s opinion

is reported at Jelovsek v. Bredsen (sic), 482 F’. Supp. 2d

1013 (B.D. Tenn 2007) (20a).

JURISDICTION

On October 24, 2008, the Sixth Circuit held that

provisions of Tennessee’s winery law (Tenn. Code Ann.

§ 57-3-207) were unconstitutional under Commerce

Clause scrutiny. The court vacated the district court’s

order to the contrary as to those laws, and remanded

for further proceedings, which laws are not the subject

of this Petition.

In the same decision, the Sixth Circuit affirmed

the district court’s dismissal of his claims as to other

challenged laws. The Petitioner requested a rehearing

en banc as to these laws, which request was denied on

January 26, 2009. The Petitioner’s application for an

extension of time to file a Petition for a Writ of

Certiorari regarding the laws that were not remanded

was granted by Justice Stevens on April 22, 2009,

giving Petitioner until and including June 25, 2009 to

file this Petition.

This Court has jurisdiction to review the Sixth

Circuit’s decision pursuant to 28 U.S.C. § 1254(1).

2

RELEVANT PROVISIONS INVOLVED

(see appendix)

STATEMENT

On June 28, 2005, Petitioner Jelovsek filed suit in

the United States District Court for the Eastern

District of Tennessee at Greeneville against the

defendant state officials. The Complaint alleged that

certain provisions of Tennessee statutes were

discriminatory on their face or in effect, and that the

laws, alone or in conjunction, violated his right of equal

access to the interstate wine market as protected by

the dormant Commerce Clause of the United States

Constitution.

The Petitioner’s claims, taken as true on the

district court’s dismissal pursuant to Fed. R. Civ. Proc.

12(b)(6), included: Tennessee law allows Mr. Jelovsek

to purchase unlimited quantities of wine as long as it is

purchased through Tennessee licensed wholesalers and

retailers. Mr. Jelovsek desires to purchase wines for his

own consumption that are not available to him through

these in-state vendors or that are available only at

substantially more cost than from an_ out-of-state

retailer. His choice of wine is limited by the challenged

state laws to wines chosen by a small group of twenty

or so Tennessee wholesalers who have complete control

over what wines to which he has access within the

state. The challenged state laws protect in-state

wholesalers and retailers from out of-state competition

by requiring in-state residency and locales to obtain the

respective licenses. These residency requirements,

alone and in conjunction with the other challenged laws,

3

severely restrict Mr. Jelovsek’s access to a wide variety

of wines that are available in the out-of-state wine

market. In the absence of the challenged residency

requirements, out-of-state vendors would obtain

licenses, collect and submit the appropriate taxes, and

the Petitioner’s access to the wines of his choice would

be vastly improved. Likewise, the Tennessee law that

prohibits direct shipping of wines from out-of-state

retail vendors prevents any meaningful access to the

wines of his choice in the interstate market without the

burden and expense of travel. Even then, under

another challenged law, he can return home with only

one gallon of wine or risk criminal liability because

there is no mechanism to pay the state taxes.

On July 26, 2005, the State Defendants filed a

motion to dismiss Mr. Jelovsek’s complaint for failure to

state a claim pursuant to Fed. R. Civ. Proc. 12(b)(6) and

for lack of standing. Following a hearing, U.S. District

Court Judge Ronnie Greer denied the State’s motion on

June 16, 2006 and the case continued forward with the

State’s Answer and scheduling.

In the meantime, on December 30, 2005, the S.L.

Thomas Family Winery, Inc. et al. filed a complaint

against the same state defendants in the Middle

District of Tennessee challenging the constitutionality

of the same winery and shipping statutes. Both the

Plaintiffs and the State in that case filed motions for

judgment on the pleadings which were pending on

October 10, 2006 when the case was transferred by that

court to the Eastern District at Greeneville to be

consolidated with the Jelovsek case.

On August 21, 2006, prior to this transference,

the Wine & Spirits Wholesalers of Tennessee had filed

a Motion to Intervene in each of the respective cases,

4

which motions were heard and granted by Magistrate

Inman in Greene. lle on October 17, 2006.

On February 9, 2007, the Intervenor

Wholesalers filed a Motion for Judgment on the

Pleadings in the Thomas Family Winery case. On

February 12, 2007, the consolidated vases were

transferred swa sponte by Chief Judge Curtis Collier to

the Eastern District of Tennessee at Chattanooga. On

March 30, 2007, without a hearing, Judge Collier

granted the State’s Motion for Judgment on the

Pleadings that was pending in the Thomas Family

Winery case and denied Thomas Family Winery’s

pending motion. In the same order, the district court

dismissed Plaintiff Jelovsek’s claims sua sponte, despite

the prior inapposite holding by Judge Greer in

Greeneville.

The plaintiffs in both cases filed separate notices

of appeal, which appeals were consolidated and heard

by the Sixth Circuit on April 29, 2008. On October 24,

2008, the Sixth Circuit held that challenged provisions

of Tennessee’s Grape and Wine Law (Tenn. Code Ann.

§ 57-3-207) were facially discriminatory, including the

requirement of residency in order to obtain a winery

license, and the law allowing in-state wineries to bypass

the three-tier system and sell up to five gallons of wine

a day directly to a consumer. The Sixth Circuit vacated

the district court’s judgment and remanded to the

district court for further proceedings as to those laws.

As to the.other challenged laws, the Sixth

Circuit upheld Tenn. Code Ann. § 57-3-402 on the

reasoning that the law prohibited all shipping and thus

“applies equally” to both in-state and out-of-state

“wineries.” ‘The Sixth Circuit did not address Mr.

Jelovsek’s claims that § 57-3-402 is discriminatory in

—

»

effect as well as on its face, is protectionist of in-state

vendors, or that it violates his right of equal access to

the interstate wine market. The court disposed of these

claims, the challenges to the in-state residency

requirements, and the law imposing criminal liability

for possession of wine purchased out-of-state, by simply

holding that the three-tier alcohol distribution system

‘is immune from direct challenge on Commerce Clause

grounds.” Jelovsek, 545 F. 3d 431, 436.

On November 7, 2008, Plaintiff Jelovsek filed a

Petition for Rehearing and Rehearing /’n Banc asking

the court to address his claims as to these laws that

were held to be immune. The Sixth Circuit denied the

Petitioner’s petition for rehearing on January 26, 2009.'

' In response to the Sixth Circuit's decision regarding the winery

laws, in June 2009 the Tennessee legislature passed a new law

that removes in-state residency requirements to obtain a winery

license, and a new law that allows out-of-state wineries to obtain a

permit to ship a small quantity of wine directly to Tennessee

consumers. It is likely that the remanded issues as to the winery

laws will soon be dismissed as moot with the agreement of the

parties. Unfortunately, these changes in the winery laws do not

cure the unconstitutional effects of the remaining challenged laws

that are at issue in this Petition. Of note is that the new legislation

easily could have remedied these effects, as the original version of

the shipping bill provided that out-of-state wholesalers and

retailers as well as wineries could obtain the shipping permits

However, the bill was amended at the last minute to delete

wholesalers and retailers, so the final enacted |aw allows only out

of-state wineries to obtain the permit.

6

REASONS FOR GRANTING THE PETITION

I, The Sixth Circuit’s holding that the challenged

laws are immune from Commerce Clause

Challenge is contrary to the clear precedent of

this Court. The holding is likewise contrary to

the holdings of other circuits, thereby creating a

split in the circuits.

The only authority the Sixth Circuit cites for its

holding is this Court’s statement that “(s]tates may...

funnel sales through the three-tier system. We have

previously recognized that the three-tier system itself

is ‘unquestionably legitimate.”” Jelovsek, 545 F.3d at

436, (quoting Granholm v. Heald, 544 U.S. 460, 489

(2005))(quoting North Dakota v. United States, 495

U.S. 423, 482 (1990)).

Granholm does not support the Sixth Circuit’s

holding. In Granholm, this Court found provisions in

Michigan and New York’s three-tier systems to be

facially unconstitutional on Commerce Clause grounds,

including a similar in-state presence requirement. The

Court reiterated that the Twenty-first Amendment

which gives States authority to pass such alcohol

distribution laws does not “give States the authority to

pass nonuniform laws in order to discriminate against

out-of-state goods, a privilege they had not enjoyed at

any earlier time.” Granholm, 544 U.S. at 484-485.

Likewise, twenty-five years ago, the Court stated “{i]t

is by now clear that the [Twenty-first] Amendment did

not entirely remove state regulation of alcoholic

beverages from the ambit of the Commerce Clause.”

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 275 (1984).

Neither the State nor the Intervenors have even

attempted to suggest, as they cannot, that Tennessee’s

{

in-state residency requirements are not discriminatory

on their face or in effect, or that they further the core

concern of the Twenty-first Amendment, i.e.,

combating the evils of unrestricted traffic in alcohol.

The State allows Mr. Jelovsek to purchase and

consume unlimited quantities of alcohol as long as it is

purchased through these in-state vendors. Likewise,

the only mechanism for Mr. Jelovsek to pay the

required state taxes on alcohol and thus avoid criminal

liability is to purchase wine through these in-state

resident vendors. These facially discriminatory laws,

alone, and along with the prohibition against direct

shipping, offer blatant economic protectionism to in

state wholesalers and retailers and prohibit out-of-state

wholesalers and retailers from reaching the in-state

market. Even if there is an argument that the

residency requirements and other protectionist laws

promote a legitimate goal of the Twenty-first

Amendment, unless the State can establish that the

goal cannot be met in a less discriminatory manner, the

laws are invalid. “This is so despite the fact that the law

regulates the sale of alcoholic beverages, since its

discriminatory character eliminates the immunity

afforded by the Twenty-first Amendment.” Healy v.

Beer Institute, Inc., 491 U.S. 324, 344 (1989) (Justice

Seahia, concurring).

On their face and in effect, the challenged laws

protect in-state wholesalers’ and retailers’ economic

interests and eliminate competition from out-of-state

vendors. This Court has long held that such an end of

protecting in-state business interests from competition

is precluded by the Commerce Clause. See H.P. Hood

& Sons v. Du Mond, 336 U.S. 525, 542 (1949). And as

the Court found in Granholm, “{t

tlhe mere fact of non

8

residency should not foreclose a producer in one state

from access to markets in other states.” Granholm, 544

U.S. at 472. Finally, as stated by Justice Brennan in

North Dakota v. United States, this Court has “never

held that any regulation with the avowed purpose [“of

discouraging and policing unlawful diversion of liquor

into it’s domestic market]” is insulated from review

under the federal immunity doctrine or any other

constitutional ground, including the Commerce Clause.”

495 U.S. at 450, (Justice Brennan, concurring and

dissenting, joined by Justices Marshall, Blackmun, and

Kennedy.)

The Sixth Circuit’s holding is against the

precedent of this Court, including Granholm, the very

case it cites as authority.

The Sixth Circuit’s holding is also inapposite to

the decisions of other circuits. Squarely on point, in

Cooper v. McBeath, 11 F.3d 547 (5" Cir. 1994), the Fifth

Circuit addressed the issue of residency requirements

for a liquor permit, and held that the Texas Alcohol

Beverage Code’s durationa! and residency

requirements “amount to simple economic

protectionism and therefore run afoul of the Commerce

Clause. Moreover, the Twenty-first Amendment

provides no sanctuary for these parochial statutes.” 11

I’.3d at 548. Again in Dickerson v. Bailey, 336 F.3d 388

(5 Cir. 2003), in a challenge to provisions of the Texas

Aleohol Beverage Code, the Fifth Circuit recognized

that ‘Lujnder controlling precedent in this circuit and in

the Supreme Court, we are required to assess first

whether these statutes violate the Commerce Clause,

and, if we so determine, we must. then ask whether they

are saved by § 2 of the Twenty-First Amendment.” 336

Id at 394.

Y

In Brooks v. Vassar, 462 F.3d 341 (4 Cir. 2006),

the Fourth Circuit directly addressed the merits of

facial challenges under the dormant Commerce Clause

to various aspects of Virginia’s three-tier system. The

court found that the part of the law allowing in-state

producers to bypass the three-tier structure but nov

out-of-state producers had become moot by legislative

action, but affirmed that the Plaintiffs were prevailing

parties in the Commerce Clause challenge to that law.

Likewise in Bainbridge v. Turner, 311 F. 8d.1104 (11

Cir. 2002), the Eleventh Circuit addressed a Commerce

Clause challenge to the in-state exceptions to shipping

prohibitions contained within Florida’s “elaborate”

three-tier system, holding that the exceptions were

facially discriminatory.

The Petitioner respectfully submits that this

Court should grant his Petition for a Writ of Certiorari

to correct the Sixth Circuit’s misinterpretation of this

Court’s precedent on this tmportant constitutional

issue, and to resolve the split in the circuits created by

this case.

II. The Sixth Circuit erred in failing to strike down

the following challenged statutes as

discriminatory on their face or in effect, and in

violation of the Petitioner’s right of equal access

to the interstate wine market as protected by

the Commerce Clause.

A. Provisions of Tenn. Code Ann. § 57-3-203(b),

(f), (g), and (h) and Tenn. Code Ann. §§ 57-3-204(b)(2)

and (3) require in-state residency and in-state presence

in order to obtain wholesale and retail licenses to sell

and distribute alcohol within the state. (46a-48a) These

provisions severely limit the Petitioner’s choice of

10

wines to primarily mass-produced wines chosen by a

small group of some twenty ‘Tennessee wholesalers for

their highest profit margin. The laws facially and in

effect prevent participation and competition of out-of-

state vendors in favor of in-state wholesalers and

retailers. Obviously removal of the discriminatory

residency and locale requirements to allow out-of-state

wholesalers and retailers to obtain licenses would

drastically improve the Petitioner’s access to wines of

his choice available in the interstate market.*®

B. Tenn. Code Ann. § 57-3-402 (5la) prohibits direct

shipment of wine to Tennessee consumers. This statute

effectively denies the Petitioner any access to the

interstate market except on infrequent occasions and

with the additional burden and expense of travel. In

contrast, the Petitioner is allowed easy and unlimited

access to alcohol in the in-state market.

- On cursory review, it appears that while most states have a one,

two or three-tier alcohol] distribution system, only a minority of

states have these discriminatory residency requirements, or if they

do, most states have some other exception or provision allowing

out-of state retailers or wholesalers or at least such corporate

entity to obtain a permit or license, or offer a direct shipping

permit to retail vendors, or otherwise just do not restrict direct

shipping to consumers. While not claiming to be all-inclusive on

this quick review, it appears that Kansas, Kentucky, Oklahoma,

Maryland, Mississippi, Missouri, Nevada, Texas, and Vermont join

Tennessee in requiring strict in-state residency for all individual

and/or corporate wholesale or retail licenses without offering some

kind of exception or shipping permit that would allow out-of-state

retailers to reach the in-state consumers and vice versa.

11

Tenn. Code Ann. § 57-3-402 is discriminatory in

effect as well as on its face. Except for the closest

retailers in neighboring states, out-of-state retailers

would likely not go to the trouble and expense of

applying for an in-state retail license even if the

residency requirements were lifted, as the wine could

not be shipped to the customer. The law is

discriminatory in-effect and on its face as it excludes, as

a practical matter, most out-of-state retailers from the

Tennessee consumer market. See Vance v. W.A.

Vandercook Co., 170 U.S. 438, 455 (1898) quoted infra.

Also, the law does not in any way further the core

concern of the Twenty-first Amendment of promoting

temperance, as the Petitioner is allowed to buy and

drink as much alcohol as he wants from an in-state

retailer. The law on its face offers economic

protectionism to in-state retailers who do not need to

ship to reach the Tennessee market.

C. Tenn. Code Ann. § 57-3-401 (50a) subjects the

Petitioner to felony charges if he brings into the state

more than one gellon of wine purchased from an out-of-

state retailer, or possesses at any one time more than

three gallons of wine purchased from an out-of-state

retailer, upon which the proper taxes have not been

paid. However, the state offers no mechanism for the

Petitioner to pay taxes on wine purchased out-of-state.

This law on its face and in effect denies the Petitioner

any access to the out-of-state wine market except for a

very small quantity at any one time with the expense

and burden of travel. Obviously it does nothing to

promote the core concern of the Twenty-first

Amendment of temperance as the Petitioner can drink

all he wants of wine purchased in-state. Likewise, any

12

argument that this law is necessarv for the collection of

taxes or tax revenue is simply an excuse to continue the

economic protectionism of in-state wholesalers and

retailers. As found by this Court in Granholm, there

are non-discriminatory means in which a state can

collect the proper taxes. Like some thirty-five or more

other states, Tennessee could offer a permit to out-of-

state retailers to sell and ship wine to Tennessee

residents and the retailer would collect and pay the

taxes to the State. Or the State could simply offer a

place for the consumer to self-report and send taxes on

wine purchased from out-of-state retailers.’

The above challenged laws are discriminatory on

their face or in-effect, or both, and all offer blatant

protectionism of in-state wholesalers and retailers. The

precedent of this Court establishes that if a state

chooses to allow the sale and consumption of wine

within its borders, a consumer such as the Petitioner

has a right to access the interstate wine market on

reasonably equal terms as he is allowed access to the in-

state market, which necessarily includes shipping from

out-of-state. Furthermore, in Granholm, the Court

reiterated the long line of cases that support that the

See Tennessee General Assembly Fiscal review Committee,

Fiscal Note, SB 166-HB 1155, dated March 26, 2009 (App 56a)

finding a projected increase of nearly ten million dollars per year in

state revenue plus an additional over two million dollar increase in

local revenues based on the original direct shipping bill that

included permits for wholesalers, retailers and wineries. The

Tennessee legislature’s amendment of the bill to exclude retailers

and wholesalers from obtaining the shipping permit was against

the clear fiscal interest of significantly increased revenue to the

State, further evidence of the protectionist purpose of retaining

the challenged laws.

13

Commerce Clause affords residents of one state the

right to sell and ship intoxicating liquors to residents of

another state, and residents of that state the right to

receive the same:

In Leisy v. Hardin, 135 U.S. 100 (1890), the

Court struck down an lowa statute that prohibited the

sale and direct shipment of intoxicating liquors to

residents cf that state except under a state-issued

license. The Court recognized that intoxicating liquor

was a commodity having a right of traffic in commerce

like any other commodity. The Court held that in the

absence of an act of Congress, a state could not prohibit

the importation of intoxicating liquors from abroad or

from a sister state.

Congress responded by passing the Wilson Act,

27 U.S.C. § 121. (68a) The Court subsequently made it

clear that the police power granted by the Wilson Act

did not abrogate an individual’s rights under the

Commerce Clause to receive and possess intoxicating

liquors by direct shipment from out-of-state vendors if

the state otherwise allowed the sale of liquors within

that state. The Court held unequivocally that

when a State recognizes the manufacture, sale,

and use of intoxicating liquors as lawful, it

cannot discriminate against the bringing of such

articles in and importing them from other states;

that such legislation is void, as a hindrance to

interstate commerce, and an unjust preference of

the products of the enacting State as against

similar products of other States.

Seott_v. Donald, 165 U.S. 58, 101 (1896). The Court

14

held that the South Carolina law prohibiting direct

shipping of alcohol was unconstitutional, stating that

those citizens who wish to use foreign wines and

liquors are deprived of the exercise of their own

judgment and taste in the selection of

commodities. ...It is not a law purporting to

forbid the importation, manufacture, sale and

use: of intoxicating liquors as detrimental to the

welfare of the state or the health of the

inhabitants, and hence it is not within the scope

and operation of the act of Congress of August,

1890. That law was not intended to confer upon

any State the power to discriminate injuriously

against the products of other States in articles

whose manufacture and use are not forbidden,

and which are therefore the subjects of

legitimate commerce. ... Such a law may forbid

entirely the manufacture and sale of intoxicating

liquors and be valid. Or it may provide equal

regulations for the inspection and sale of all

domestic and imported liquors and be valid.

Scott, 165 U.S. at 100.

In response, the South Carolina legislature

amended its statute to acknowledge the constitutional

right of a resident to receive liquors for his own use

from out-of-state vendors by direct shipment, but

injected certain regulations and restrictions. On

subsequent review, these regulations and restrictions

were also struck down by the Court, holding

[tlhe regulation ... compels the resident of the

15

state who desires to order for his own use to first

communicate his purpose to a state chemist. It,

moreover, deprives any nonresident of the right

to ship, by means of interstate commerce, any

liquor into South Carolina, unless previous

authority is obtained from the officers of the

state of South Carolina. On the face of these

regulations, it is clear that they subject the

constitutional right of the nonresident to

ship into the state, and of the resident in the

state to receive for his own use, to

conditions which are wholly incompatible

with and repugnant to the existence of the

right which the statute itself acknowledges.

Vance _v. W.A. Vandercook Co., 170 U.S. at 455

(emphasis added). The Court again rejected the State’s

argument that the regulations and_ restrictions

constituted an “inspection law” to determine the purity

of the product, finding the argument to be unsound as

the inspection of a sample in advance was not “in the

slightest degree” an _ inspection of the goods

subsequently shipped. Jd. at 456. However, the Court

did uphold as valid under the Wilson Act that part of

the amended statute that prohibited the direct

shipment and receipt of liquors for resale within the

state unless the liquor passed through designated state

officers. Thus the Court recognized a difference

between importation for resale and importation for

personal use, stating

it is clear that [the law], to be valid, must not

substantially hamper or burden the

constitutional right, on the one hand, to make,

16

and, on the other, to receive, such shipment... .

The power of the state to inspect an article

protected by the guarantees of the constitution,

because intended only for use, and which cannot

be sold, is, in the nature of things, restrained by

limitations arising from the _ constitutional

provisions of a more restricted nature than

would be the power to inspect articles intended

for sale within the state. The greater harm and

abuse which might arise in the latter case

suggests a wider power than is incident to the

other.

Id. at 456.

Congress next passed the Webb-Kenyon Act, 27

U.S.C. § 122. (46a) This Act specifically authorized

states to forbid shipments of alcohol to consumers

within the state for personal use. Even under the

specific language of this Act, half the members of an

equally divided Supreme Court voted to strike a West

Virginia law that prohibited direct shipping to

consumers within that State as a violation of the

Commerce Clause. The only thing that saved the West

Virginia law from being struck down was that the other

half of the Court believed it survived Commerce Clause

challenge because (unlike Tennessee) West Virginia

strictly prohibited all alcohol within the state for

Whatever purpose. Clark Distilling Co. v. Western

In 1919, the Eighteenth Amendment established

nationwide Prohibition that was finally repealed in 19338

by the Twenty-First Amendment, which Amendment

closely followed the wording of the Wilson and Webb-

Kenyon Acts, “expressing the framers’ clear intention

17

of constitutionalizing the Commerce Clause framework

established under those statutes.’”” Granholm, 544 U.S.

at 484, quoting Craig v. Boren, 429 U.S. 190, 205-

206(1976).

This long line of cases establishes that Tennessee

could prohibit all alcohol within the state, in which case

Tenn. Code Ann. § 57-3-402 would likely be upheld as a

valid exercise of the State’s authority under the

Twenty-first Amendment. However, Tennessee does

not prohibit all alcohol within the State, but rather

allows persons of age to purchase, consume, transport

and possess unlimited amounts of alcohol as long as it is

obtained through in-state licensed wholesalers and

retailers who are protected economically from out-of-

state competition by the prohibition against direct

shipping from out-of-state vendors.

As stated by this Court in Granholm,

fa] State which chooses to ban the sale and

consumption of alcohol altogether could bar its

importation; and, as our history shows, it would

have to do so to make its laws effective.

Granholm, 544 U.S. at 488-489. As held by the Court

over 100 years ago in Vance, the law prohibiting the

direct shipment of out-of-state wine to the Petitioner is

repugnant, on its face, to the Commerce Clause. See

Vance, 170 U.S. at 455.

CONCLUSION

The Petitioner respectfully submits that this

Court should grant this Petition for a Writ of Certiorari

to correct the Sixth Circuit’s misinterpretation and

18

misapplication of this Court’s precedent, to resolve the

split within the circuit’s on this important ccenstitutional

issue, and to uphold the Petitioner’s and all consumers’

important constitutional rights under the Commerce

Clause. The Court’s resolution of these issues is of

utmost importance to all American citizens.

Respectfully submitted,

SANDRA B. JELOVSEK

Counsel of Record

3520 Honeywood Drive

Johnson City, TN 37604

(423)283-0450

Attorney for the Petitioner,

Frederick Jelovsek

la

(any footnotes trail end of each document)

Nos. 07-5443/5524

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

FREDERICK JELOVSEK (07-5443); 8.L. THOMAS

FAMILY WINERY, INC. dba Thomas Family

Winery; MARTIN REDDISH (07-5524),

Plaintiffs-Appellants,

PHIL BREDESEN, in his official capacity as Governor

of the State of Tennessee; PAUL SUMMERS, in his

official capacity as Attorney General of the State of

Tennessee; SHARI ELKS, in her official capacity as

Executive Director, Tennessee Alcoholic Beverage

Commission,

Defendants - Appellees,

WINE AND SPIRITS WHOLESALERS OF

TENNESSEE,

Intervening Defendant - Appellee.

April 29, 2008, Argued

October 24, 2008, Decided

October 24, 2008, Filed

Appeal from the United States District Court for the

Eastern District of Tennessee at Greeneville. Nos. 05-

00181; 06-00149--Curtis L. Collier, Chief District Judge

Za

COUNSEL: ARGUED: Sandra B. Jelovsek, Johnson

City, Tennessee, James A. Tanford, INDIANA

UNIVERSITY SCHOOL OF LAW, Bloomington,

Indiana, for Appellants.

Lyndsay Fuller, OFFICE OF THE ATTORNEY

GENERAL, Nashville. Tennessee, Andrew L.

Colocotronis, BAKER, DONELSON, BEARMAN,

CALDWELL & BERKOWITZ, Knoxville, Tennessee,

for Appellees.

ON BRIEF: Sandra B. Jelovsek, Johnson City,

Tennessee, James A. Tanford, INDIANA

UNIVERSITY SCHOOL OF LAW, Bloomington,

Indiana, for Appellants.

Lyndsay Fuller, OFFICE OF THE ATTORNEY

GENERAL, Nashville, Tennessee, Andrew L.

Colocotronis, BAKER, DONELSON, BEARMAN,

CALDWELL & BERKOWITZ, Knoxville, Tennessee,

J. Forrest Hinton, Jr., BAKER, DONELSON,

BEARMAN, CALDWELL & BERKOWITZ,

Birmingham, Alabama, Michael A. Meyer,

TENNESSEE ATTORNEY GENERAL &

REPORTER, Nashville, Tennessee, Henry § FE.

Hildebrand III, OFFICE OF THE CHAPTER 13

TRUSTEE, Nashville, Tennessee, for Appellees.

Carter G. Phillips, SIDLEY AUSTIN, Washington,

D.C., for Amici Curiae.

JUDGES: ,efore: NORRIS, GIBBONS, and

GRIFFIN, Circuit Judges.

OPINION

ALAN E. NORRIS, Circuit Judge. These consolidated

cases ask the question whether ‘Tennessee laws

governing the wine industry violate the dormant

commerce clause of the Constitution. This is one of

several lawsuits filed across the country after the

Supreme Court invalidated wine-related laws in

Michigan and New York which allowed only in-state

wineries to sell and ship wine directly to consumers.

Granholm v. Heald, 544 U.S. 460, 125 8. Ct. 1885, 161 L.

Ed. 2d 796 (2005).

The plaintiffs-appellants include Tennessee residents

Frederick Jelovsek and Martin Reddish, individual

oenophiles who would like better access to wine

produced outside of Tennessee, and a winery based in

the state of Indiana, $.L. Thomas Family Winery, Inc.,

which would like to sell directly to Tennessee residents.

Plaintiffs sued the Governor, Attorney General, and

Executive Director of the Tennessee Alcoholic

3everage Commission, in their official capacities. In

addition, the Wine and Spirits Wholesalers of

Tennessee ("WSWT") successfully intervened as a

defendant. For convenience sake, as the Court did in

Granholm, the appellants will collectively be referred

to as “the wineries," unless distinguishing them is

appropriate, and the appellees will be referred to as

the state."

The district court granted defendants’ Fed. R. Civ. P.

12(c) motion for judgment on the pleadings. Jelovsek v.

Bresden, 482 F. Supp. 2d 1013, 1023 (k.D. Tenn. 2007).

The district court concluded that since both in- and out-

of-state wineries are prohibited from selling and

4a

shipping wine directly to Tennessee consumers, this

case is distinguishable from Granholm. The invalidated

laws in Granholm denied only out-of-state wineries the

ability to ship to consumers, a disparate treatment that

the Supreme Court ruled unconstitutional.

We agree with the district court that the Tennessee

shipping restrictions are distinguishable from those

struck down in Granholm and affirm the district court's

judgment as to the Tennessee ban on the direct

shipment of alcohol to consumers, including wine.

However, the wineries make a broader challenge to the

Tennessee regulatory scheme for alcohol, specifically

wine. As discussed below, we conclude that certain

other challenged laws are discriminatory on their face,

and thus vacate the district court judgment as to those

laws, and remand for further proceedings.

Tennessee employs what is commonly referred to as a

three-tier system of alcohol regulation. The Tennessee

Alcoholic Beverage Commission ("TABC") issues

separate classes of licenses to manufacturers and

distillers, wholesalers, and liquor retailers. Tenn. Code

Ann. § 57-3-201. Unlicensed sales of alcohol are not

permitted. /d. § 404(a). Manufacturers are limited to

selling to wholesalers; wholesalers may sell to retailers,

or in some cases other wholesalers; consumers are

required to buy only from retailers. /d. § 404(b)-(d).

Statutes curtail the importation of alcoholic beverages,

including wine, into the state, as well as the

transportation of alcoholic beverages by individuals

who are not licensees. These statutes seem to

ba

contradict each other, which creates a confusing web of

seemingly applicable laws, and in its briefing and

argument to the court the state did little to unravel the

mystery. The district court found, and the state

concedes, that a Tennessee resident may transport a

greater quantity of wine purchased from a Tennessee

winery as compared to wine purchased in another state.

Tennessee wineries are also subject to the three-tier

system, and have their own class of license. Id. § 201(4).

However, wineries are subject to further regulation, as

well as being afforded some exceptions from the

general liquor control statutes, through Tennessee's

Grape and Wine Law. /d. § 207. The Grape and Wine

Law, inter alia, restricts winery licenses to individuals

who have been Tennessee residents for at least two

years, or to corporations whose stock is wholly owned

by Tennessee residents of. at least two years; and

permits Tennessee wineries which use a sufficient

percentage of Tennessce-grown grapes in their wine

production to serve complimentary samples to patrons,

and to sell at retail directly to customers without any

additional license. Jd. § 207(d), (ff). The Grape and Wine

Law also provides’ that, notwithstanding’ the

transportation restrictions in other statutes, wine

purchased at a Tennessee winery may be transported

within the state of Tennessee. /d. § 207(i).

(I.

"We review a district court's grant of a motion for

judgment on the pleadings de novo." Roger Miller

Music, Inc. v. Sony/ATV Publ'g, LLC, 477 F.3d 388, 389

(6th Cir. 2007) (citing HREOC v. J.H. Routh Packing Co..,

246 F.3d 850, 851 (6th Cir. 2001)). "The manner of

6a

review under [Fed. R. Civ. P.] 12(c) is the same as a

review under Rule 12(b)(6); we must ‘construe the

complaint in the light most favorable to the plaintiff,

accept all of the complaint's factual allegations as true,

and determine whether the plaintiff undoubtedly can

prove no set of facts in support of the claims that would

entitle relief." Vickers v. Fairfield Med. Ctr., 453 F.3d

757, 761 (6th Cir. 2006) (quoting Grindstaff v. Green,

133 F.3d 416, 421 (6th Cir. 1998)).

Plaintiffs allege that the challenged _ statutes

impermissibly discriminate against out-of-state

wineries, and favor in-state wineries, in violation of the

Commerce Clause. The scope of the Commerce Clause,

which grants the exclusive power to Congress to

regulate interstate commerce, recently has _ been

summarized by the Supreme Court:

The Commerce Clause empowers Congress "[t]o

regulate Commerce . . . among the several

States," Art. I, § 8, cl. 3, and although its terms

do not expressly restrain "the several States" in

any way, we have sensed a negative implication

in the provision since the early days, see, e.g.,

Cooley v. Board of Wardens of Port of

Philadelphia ex rel. Soc. for Relief of Distressed

Pilots, 53 U.S. 299, 12 How. 299, 318-319, 13 L.

Ed. 996 (1852); cf. Gibbons v. Ogden, 22 U.S. 1,9

Wheat. 1, 209, 6 L. Ed. 23 (1824) (Marshall, C. J.)

(dictum). The modern law of what has come to

be called the dormant Commerce Clause is

driven by concern about “economic

protectionism -- that is, regulatory measures

designed to benefit in-state economic interests

by burdening out-of-state competitors." New

7a

Energy Co. of Ind. v. Limbach, 486 U.S. 269,

273-274, 108 8S. Ct. 1803, 100 L. Ed. 2d 302

(1988). The point is to "effectuatle] the Framers'

purpose to ‘prevent a State from retreating into

{the] economic isolation," Fulton Corp. v.

Faulkner, 516 U.S. 325, 330, 116 S. Ct. 848, 133

L. Ed. 2d 796 (1996) (quoting Oklahoma Tax

Comm'n v. Jefferson Lines, Inc., 514 U.S. 17,

180, 115 S. Ct. 1331, 181 L. Ed. 2d 261 (1995);

brackets omitted), "that had plagued relations

among the Colonies and later among the States

under the Articles of Confederation," Hughes v.

Oklahoma, 441 U.S. 322, 325-326, 99 S. Ct. 1727,

60 L. Ed. 2d 250 (1979).

Under the resulting protocol for dormant

Commerce Clause analysis, we ask whether a

challenged law discriminates against interstate

commerce. See Oregon Waste Systems, Inc. v.

Department of Environmental Quality, of Ore.,

011 U.S. 938, 99, 1148. Ct. $545, 128 L. Ed. 2d 13

(1994). A discriminatory law is "virtually per se

invalid," 2bid.; see also Philadelphia v. New

Jersey, 437 U.S. 617, 624, 98 S. Ct. 2531, 57 L.

Ed. 2d 475 (1978), and will survive only if it

"advances a legitimate local purpose that cannot

be adequately served by reasonable

nondiscriminatory alternatives," Oregon Waste

Systems, supra, at 101, 114 S. Ct. 1845, 128 L.

Ed. 2d 18 (internal quotation marks omitted);

see also Maine v. Taylor, 477 U.S. 131, 138, 106

S. Ct. 2440, 91 L. Ed. 2d 110 (1986).

Sa

Dep't of Revenue v. Davis, 128 8. Ct. 1801, 1808, 170 L.

Ed. 2d 685 (2008).

Applying this constitutional principle to the regulation

of alcohol at times has been problematic for courts, due

in part to the existence of the Twenty-first Amendment

to the Constitution, which repealed prohibition and

grants broad authority to the states to regulate alcohol

importation and distribution. There was a _ period

following ratification of the Twenty-first Amendment

when the states’ power to regulate alcohol was thought

to be virtually limitless. However, more recent case

law has concluded that "[t]he aim of the Twenty-first

Amendment was to allow States to maintain an

effective and uniform system for controlling liquor by

regulating its transportation, importation, and use. The

Amendment did not give States the authority to pass

nonuniform laws in order to discriminate against out-of-

state goods, a privilege they had not enjoyed at any

earlier time." Granholm, 544 U.S. at 484-85. Similarly,

‘the Twenty-first Amendment... does not displace the

rule that States may not give a discriminatory

preference to their own producers." /d. at 486; accord

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 275-76, 104

S. Ct. 3049, 82 L. Ed. 2d 200(1984). A statute may be

shown to violate the Commerce Clause based either

upon its discriminatory purpose, or discriminatory

effect. Bacchus, 468 U.S. at 270.

A. Direct Shipping and Tennessee's Three-Tier System

The Federal Trade Commission ("FTC") recently

drafted a report strongly in favor of permitting online

wine sales, and direct shipping from wineries to

consumers. Federal Trade Commission, Possible

Ya

Anticompetitive Barriers to H-Commerce (2003),

available at

http://w ww.ftc.gov/os/2003/07/winereport2.pdf. In_ it,

the FTC extolls the many benefits to consumers by

allowing internet sales and direct shipping, including a

much greater variety of wines available, and lower

prices. Jd. at 18-19. It also goes on to address the most

common concerns with such programs, preventing

underage drinking and collecting state tax revenue. /d.

at 26-39.

Despite the FTC conclusion that states should allow the

direct shipping of wine, Tennessee's refusal to do so

presents no constitutional problem. The Commerce

Clause does ot require that states optimize commerce,

only that "fi]f a State chooses to allow direct shipment

of wine, it must do so on evenhanded terms."

Granholm, 544 U.S. at 493. As the district court noted,

"[t]he logical corollary to evenhanded permissiveness is

evenhanded restrictiveness -- a State may choose to

ban direct shipment of wine." Jelouvsek, 482 F. Supp. 2d

at 1019. We agree and affirm the judgment of the

district court with respect to upholding Tennessee's

ban on direct shipment of alcoholic beverages, including

wine, to consumers, as it applied equally to in-state and

out-of-state wineries.

Likewise, Tennessee's decision to adhere to a three-tier

distribution system is immune from direct challenge on

Commerce Clause grounds. See Granholm, 544 U.S. at

489 ("States may ... funnel sales through the three-tier

system. We have previously recognized that the three-

tier system itself is ‘unquestionably legitimate."’)

(quoting North Dakota v. United States, 495 U.S. 423,

432,110S. Ct. 1986, 109 L. Ed. 2d 420 (1990)).

10a

B. Grape and Wine Law

Turning to Tennessee's Grape and Wine Law,

appellants assert that the state has already decided to

eschew the three-tier system through the multitude of

exceptions offered to Tennessee wineries as part of the

Grape and Wine law, exceptions which impermissibly

favor in-state economic interests.

The district court reasoned that purchasing wine at a

winery in person "is different . .. from the convenience-

oriented market that would be created and facilitated

by a law allowing direct shipping." Jelovsek, 482 F.

Supp. 2d at i021. The court went on to rule that

"[p]laintiffs have failed to demonstrate that the Grape

and Wine Law _ discriminates against interstate

commerce by practical effect,” id., and noted that the

distinctions that are present "would have a de minimis

impact on interstate commerce." /d. at 1021 n.8.

We discern two problems with the court's analysis. The

first is that there is no de minimis exception when

evaluating whether a law is discriminatory on its face.

"Where [a] statute regulates even-handedly to

effectuate a legitimate local public interest, and its

effects on interstate commerce are only incidental, it

will be upheld unless the burden imposed on such

commerce is clearly excessive in relation to the putative

local venefits." Pike v. Bruce Church, Inc., 397 U.S. 137,

142, 90S. Ct. 844, 25 L. Ed. 2d 174 (1970) (citing Huron

Portland Cement Co. v. Detroit, 362 U.S. 440, 448, 80S.

Ct. 818, 4 L. Ed. 2d 852 (1960)) (emphasis added).

However, only when a statute passes this initial

scrutiny is a state afforded "a more flexible approach

permitting inquiry into the balance between local

lla

benefits and the burden on interstate commerce."

Bacchus, 468 U.S. at 270 (citing Pike, 397 U.S. at 142).

It is not appropriate to conclude that a statute

regulates evenhandedly because its clear facial

discrimination has only a de minimis effect on

interstate commerce.

Second, while the district court focused on whether the

Grape and Wine Law has the practical effect of

discriminating in favor of in-state interests, it appears

that the very purpose behind the Grape and Wine Law

was to discriminate in favor of in-state wineries,

especially those that use grapes grown in-state. "A

finding that state legislation constitutes ‘economic

protectionism’ may be made on the basis of .

discriminatory purpose ... ." /d. (citing Hunt v.

Washington Apple Advertising Comm'n, 432 U.S. 333,

352-53, 97S. Ct. 2434, 53 L. Ed. 2d 383 (1977)).

The parties, as well as the district court, spent a great

deal of effort examining whether, and to what extent,

Granholm applies to the cases before us. We believe

Bacchus is also instructive in this case. In Bacchus, the

state adopted a law favoring fruit wine produced from

products grown in the state. Bacchus, 468 U.S. at 265.

The legislature's stated purpose when enacting the law

“was to encourage and promote the establishment of a

new industry" and that granting benefits to "fruit wine

manufactured in the State from products grown in the

State was intended to help in stimulating the local fruit

wine industry." /d. at 270-71 (citation omitted). Thus,

the Court concluded that it "need not guess at the

legislature's motivation, for it is undisputed that the

purpose ... was to aid [in-state] industry. Likewise, the

effect ... is clearly discriminatory, in that it applies

l2a

only to locally produced beverages ... ." /d. at 271. The

Court rejected the reasoning of the state supreme court

that the low sales volume of the benefitted local wine

meant those "products pose[d] no competitive threat to

other liquors produced elsewhere and consumed in

[state]." Jd. at 269 (citation omitted).

Nor do we need to guess the legislature's purpose here.

Included in the statement of purpose for Tennessee's

Grape and Wine Law is the following:

WHEREAS, It is recognized that development

of an additional cash crop would benefit the rural

areas and the general economy of the State of

Tennessee; and

WHEREAS, It appears that many areas of

Tennessee are especially suitable for growing

grapes but are unsuitable or less suitable for

growing any other cash crops; and

WHEREAS, Under existing law no persons

have ever been licensed to operate a winery and

stimulate grape growing in Tennessee’ by

providing an initial and minimum market for

native grapes;

1977 Tenn. Pub. Acts 255 (emphasis added).

This stated purpose is difficult to distinguish from the

stated purpose of the law struck down in Bacchus.

Compare Bacchus, 468 U.S. at 270 (stating the explicit

purpose was to to benefit in-state industry). Another

telling comparison between Tennessee's Grape and

Wine Law and the tax exemption for locally-produced

l3a

alcohol law struck down in Bacchus is the following

provision of the law:

Wine produced in Tennessee from agricultural

products produced in Tennessee shall be taxed at

the same rate as wine produced out-of-state. It is

hereby provided, however, that should the

United States Constitution, as authoritatively

interpreted by the final decision of a federal or

Tennessee court, permit a lesser tax to be

imposed on wine produced in Tennessee from

agricultural products produced in Tennessee

than on wine produced out-of-state, then there

Shall be levied a tax of five cents (5 cent(s)) per

gallon on wine produced in Tennessee from

agricultural products produced in Tennessee.

Such wine from Tennessee products shall then be

exempt from all other alcoholic beverage taxes

and fees.

Tenn. Code Ann. § 57-3-207(1) (emphasis added). The

constitutional caveat was added later; the original Act

exempted in-state wine from all taxes save for the five-

cent per-gallon tax. 1977 Tenn. Pub. Acts 256. We do

not cite this particular provision as especially egregious

in its current form, but rather as an illustration of the

discriminatory intent behind passage of Tennessee's

Grape and Wine Law and its similarity to the statute

struck down in Bacchus. Compare id. with Bacchus,

468 U.S. at 265 (stating that the Hawaii statute at issue

exempted locally produced fruit wine from the

otherwise mandatory 20% excise tax).

Other provisions of the Grape and Wine Law are

discriminatory on their face, and in their purpose. For

l4a

example, the Grape and Wine Law requires a two-year

Tennessee residency before a winery license may be

obtained and, if the applicant is a corporation, all of the

capital stock must be owned by two-year Tennessee

residents. Tenn. Code Ann. § 57-3-207(d). Only if 75% of

the agricultural products used in producing its wine are

grown in Tennessee may a Tennessee winery serve

samples of the wine without charge at its facility, and

sell wine at retail directly to consumers. Jd. § 207(f). In

addition, "any nonprofit association organized to

encourage and support grape growing and winemaking

in [Tennessee] with ten (10) or more Tennessee licensed

wineries as members" is permitted to hold festivals and

‘transport, serve and offer complimentary samples" of

Tennessee wine, 7d. § 207(0), and wineries using at least

75% agricultural products from Tennessee may “donate

wine without charge to nonprofit religious, educational

or charitable institutions or associations." Jd. § 207(f)(5).

Each of these provisions impermissibly favor

Tennessee interests at the expense of interstate

commerce.

The Thomas plaintiff in particular also complains that,

under the Grape and Wine Law, consumers may

lawfully transport “any amount [of wine] which the

customer may legally purchase from a Tennessee

licensed winery," 7d. § 207(i), while a consumer

purchasing wine in person from an out-of-state winery

appears to be prohibited from transporting the wine to

his home in Tennessee. Jd. § 402(a).

Finding that a law "directly regulates or discriminates

against interstate commerce, or when its effect is to

favor in-state economic interests over out-of-state

interests, [the Supreme Court] has generally struck

15a

down the statute without further inquiry." Granholm,

544 U.S. at 487 (quoting Brown-Forman Distillers

Corp. v. N.Y. State Liquor Auth., 476 U.S. 578, 579, 106

S. Ct. 2080, 90 L. Ed. 2d 552 (1986)). Even so, as the

Granholm Court did, a court must still "consider

whether [the] state's regime ‘advances a legitimate

local purpose that cannot be adequately served by

reasonable nondiscriminatory alternatives.'" Jd. at 489

(quoting New Energy Co. v. Limbach, 486 U.S. 269, 278,

108 8S. Ct. 1803, 100 L. Ed. 2d 302 (1988)).

In Granholm, the states advanced two obvious

arguments--that the restriction on shipping helped

keep alcoholic beverages out of the hands of minors and

facilitated tax collection. /d. Both justifications were

rejected, as the Court found nondiscriminatory

alternatives existed to serve the states' proffered

concerns. Jd. at 490-93. The state in this cases has yet to

offer justification for the challenged laws, but rather

has steadfastly maintained that they are _ not

discriminatory.

[IT.

Our conclusion that the Grape and Wine Law is facially

discriminatory does not end the inquiry. We must

decide what is to be done about it. The Grape and Wine

law does not act to directly burden out-of-state

wineries, but rather to favor in-state wineries. Thus,

striking the law as written or surgically excising

offending provisions would, while remedying the

constitutional infirmities, serve to hurt in-state

Tennessee wineries, none of which are parties to this

action. And, it would not benefit out-of-state wineries

or any plaintiff in this case. The state defendant does

l6a

not express an opinion as to an appropriate remedy,

while the intervening defendant WSWT argues in the

alternative that if the scheme is found to be

discriminatory, the appropriate remedy would be to

strip the law's benefits from in-state wineries rather

than extending direct-sale benefits to out-of-state

wineries.

In support of their argument, WSWT cites Beskind v.

Easley, 325 F.3d 506, 519 (4th Cir. 2003), for the

proposition that "[the state] would wish us to take the

course that least destroys the regulatory scheme that it

has put into place pursuant to its powers under the

Twenty-first Amendment." In Beskind the district

court "declar[ed] unconstitutional the core statutes that

prohibit such direct shipment and enjoinled| their

enforcement." Jd. at 517. The court of appeals upheld

the district court's judgment that the law was

unconstitutional, but reversed the remedy, noting that

"it causes less disruption to [the state's alcoholic

beverage] laws to strike the single provision

creating the local preference." Jd. at 519.

The Fifth Circuit reached a different result. It noted

that the "Supreme Court has held that 'when the right

invoked is that of equal treatment, the appropriate

remedy is a mandate of equal treatment, a result that

can be accomplished by withdrawal of benefits from the

favored class as well as by extension of benefits to the

excluded class." Dickerson v. Bailey, 336 F.3d 388, 407

(5th Cir. 2003) (quoting Heckler v. Mathews, 465 U.S.

728, 740, 104 S. Ct. 1887, 79 L. Ed. 2d 646 (1984))

(emphasis in original). The Fifth Circuit found the

Supreme Court's remedy in Bacchus to be analogous,

striking down the discriminatory tax on out-of-state

17a

entities rather than extending the excise tax Lo in-state

entities. Jd. at 408. The court concluded that "it is not

the function of litigants seeking redress for violations of

their constitutional rights under the Commerce Clause

to seek the imposition of affirmative burdens on other

parties competing in the marketplace. The

constitutional right the Plaintiffs here seek to protect is

their right to participate in interstate commerce that is

unimpeded by protectionist state policies." Jd. at 408.

Koth decisions are well reasoned, but neither is

perfectly analogous to the cases before us. The district

court acknowledged that "the record in this case is not

as detailed as it could be." Jelovsek, 482 F. Supp. 2d at

1015. The court also found "the State's response to be

particularly inadequate in addressing the more

substantive issues as it .. . failed to provide a

justification for Tennessee's alcoholic beverage

restrictions." /d. at 1016 n.8. As a result, we conclude

the best course of action is to remand the case to the

district court for further consideration consistent with

this opinion. The state should be afforded the

opportunity to justify the facially discriminatory Grape

and Wine Law as serving a legitimate local purpose and

establish that no non-discriminatory alternatives exist.

If the state is unable to do so, the court should devise a

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

equally. In addition, because striking down the Grape

and Wine Law would affect in-state wineries, it may be

that they will wish to seek intervention on remand.

IV.

We affirm the district court's judgment upholding the

Tennessee law banning the direct shipment of alcoholic

lSa

beverages to consumers, including wine. However, we

conclude that Tennessee's Grape and Wine Law is

discriminatory on its face. We therefore vacate the

district court judgment to the contrary, and remand for

further proceedings consistent with this opinion.

Footnotes

lIt appears the Tennessee governor's name is

misspelled in the style of the case. It is Phil Bredesen,

not "Bresden."

2Tenn. Code Ann. § 57-3-40l{a) prohibits the

transportation or possession of more than three gallons

of untaxed alcoholic beverage. Subsection (b) prohibits

the importation, shipment, or delivery of untaxed

alcoholic beverages in excess of one gallon. Elsewhere,

there appears to be a flat ban on the importation or

transportation of alcoholic beverages, unless destined

for a Tennessee license holder. See Tenn. Code Ann. §

57-3-402(b) ("No common carrier or other person shall

bring or carry into this state for delivery or use in this

state any alcoholic beverages unless the same shall be

consigned to a manufacturer or wholesaler duly

licensed ... ."); id. § 402(c) ("It is unlawful for any

person, railroad company or other common carrier, to

transport or accept delivery of alcoholic beverages,

consigned to any person except those duly authorized

and holding a wholesaler's license.").

3The ‘Twenty-first Amendment states: "The

transportation or importation into any State .. . of

intoxicating liquors, in violation of the laws thereof, is

hereby prohibited." U.S. Const. amend. XXI, § 2. Fora

thorough discussion of the history and evolution of

19a

jurisprudence as it relates to the tension between the

dormant Commerce Clause and the Twenty-first

Amendment, see Granholm, 544 U.S. at 476-87. See

also Thomas E. Rutledge & Micah C. Daniels, Who's

Selling the Next Round: Wines, State Lines, the

Twenty-first Amendment and the Commerce Clause,

33 N. Ky. L. Rev 1, 8-22 (2006).

20a

Filed 3/30/07

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF TENNESSEE

AT GREENEVILLE

Case No. 2:05-CV-181 Chief Judge Curtis L. Collier

FREDERICK JELOVSEK,

Plaintiff,

V.

PHIL BRESDEN, PAUL SUMMERS, and SHARI

ELKS,

Defendants,

and

WINE & SPIRITS WHOLESALERS OF

TENNESSEE,

Intervenor.

Case No. 2:06-CV-149 Chief Judge Curtis L. Collier

S.L. THOMAS FAMILY WINERY, INC., d/b/a

THOMAS FAMILY WINERY, and

MARTIN REDISH,

Plaintiffs,

V.

PHIL BRESDEN, PAUL SUMMERS, and SHARI

IcLKS,

Defendants.

2la

MEMORANDUM

LINTRODUCTION AND PROCEDURAL HISTORY

Before the Court are two consolidated cases’

challenging the State of Tennessee's statutory scheme

for regulating wine licensing, distribution, and shipping.

Tenn. Code Ann. §§ 57-32070(1), 303(e)(1), 402 & 404(a)

& (c). Tennessee is one of a decreasing number of

States which currently prohibit the direct shipment of

wine from out-of-state wineries to in-state consumers.

See Wine Inst., Direct Shipment Laws By State (as of

Jan. 2007); Linda Greenhouse, Court Litts Ban on Wine

Shipping, N.Y. Times, May 17, 2005.

Plaintiffs Jelovsek and Redish are oenophiles who

allege they would purchase wine directly from out-of-

state wineries and have such wine shipped in-state, if

the law permitted (Court File No. 1, Pars. 7-8). Plaintiff

S.L. Thomas Family Winery, Inc., d/b/a Thomas Family

Winery (collectively, "Plaintiffs") is an Indiana-based

commercial winery which alleges it would ship wine

directly to instate consumers (Case No. 2:06-CV-149,

Court File No. 1). Plaintiffs bring their claim under 42

U.S.C. § 1983, and allege that Tennessee's Grape and

Wine Law and laws prohibiting the shipping of alcoholic

beverages deprive them of their rights under the

Commerce Clause of the U.S. Constitution, art. I, § 8,

cl. 3 (id. at Par. 1). Plaintiffs seek a declaratory

judgment to such effect and an injunction against

enforcement of these laws. Plaintiffs cite Granholm v.

Heald, 544 U.S. 460 (2005), in support of this position.

In Granholm, the United States Supreme Court

overturned wine direct-shipping laws in Michigan and

New York, finding such State laws impermissibly

22a

burdened interstate commerce. Plaintiffs request the

Court apply Granholm to overturn the "licensing,

residency, payment of tax, direct shipping, criminal and

civil penalties, and other prohibitive and discriminatory

requirements of Tennessee laws pertaining to the

direct sale and shipment of wine .. ." (Court File No. 1,

p. 16).

Defendants are sued in their capacities as State officials

(id. at Par. 18). The defendants include Tennessee's

Governor, Attorney General, and the Executive

Director of the Alcoholic Beverage Commission (the

"Commission"), the agency charged with enforcing state

liquor laws (id. at Pars. 14-18). The Court also granted

the Intervenor petition (Court File No. 19) of Wine &

Spirits Wholesalers of Tennessee ("WSWT";

collectively, "Defendants") (Court File No. 30).

Defendants argue that Tennessee's wine licensing,

distribution and shipping laws are _ constitutional

because such laws are equally as restrictive on in-state

wineries as they are on out-of-state wineries (Court

File No. 17, p. 1-2). Defendants rely on the Twenty-

First Amendment, which gives States great discretion

in regulating alcoholic beverages, including wine (Court

File No. 31, p. 10; No. 32, p. 5).

The Court has already denied (Court File No. 16)

Defendant's prior motion to dismiss for lack of standing

(Court File No. 7). The Court determined (1) Plaintiffs

had standing to assert their claims and (2) Plaintiffs had

sufficiently alleged a claim to avoid dismissal under

Fed. R. Civ. P. 12(b)(6) (Court File No. 16, p. 5). The

question currently before the Court, based on Plaintiff's

complaint and the parties' cross-motions, is: are the

challenged statutes facially discriminatory in favor of

23a

in-state wineries and against out-of-state wineries. If

so, following the analysis in Granholm the Court wiil

need to ask whether Tennessee's laws are narrowly

tailored to advance a legitimate local purpose.

Plaintiffs and the state officials filed cress-motions for

judgment on the pleadings pursuant to Fed. R. Civ. P.

12(c) (Case No. 2:06-CV-149, Court File Nos. 2 & 5).

WSWT responded to both motions, asking the Court to

deny both motions as premature (Court File No. 37, p.

2; hereinafter "WSWT Resp.").fn2WSWT would prefer

to develop a full factual record; WSWT feels there is

little development on the record as to the (1) impact of

the challenged statutes or: interstate commerce and (2)

the "legitimate local purpose(s)" which underlie such

statutes (id. at 7-9). Again, the Court must weigh the

purpose behind the statutes against their impact on

interstate commerce if the Court finds the statutes are

facially discriminatory.

The Court fully agrees with WWST, the record in this

case is not as detailed as it could be. The parties have

failed to litigate a "full, fact-intensive Commerce Clause

analysis." The Court did consider whether to require

Plaintiffs and the State Defendants to supplement and

support their motions.’ However, after careful review

of the motions and pleadings, the Court determined

that the challenged statutes, in particular the Grape

and Wine Law and the prohibition on the import and

transport of alcoholic beverages such as wine, 1s

constitutionally permissible. This case is factually and

legally distinguishable from Granhohn. Therefore, the

Court need not review the challenges statutes under

strict scrutiny and has not required the parties to

supplement the record.

24a

By Order attached to this Memorandum, and for the

reasons set forth below, this Court will GRANT

Defendants' motion to dismiss (Court File No. 2).!

Accordingly, the Court will DENY Plaintiffs' motion to

dismiss (Court File No. 5), and will also DENY the

request of WSWT to permit the case to go forward to

discovery.

Il. STANDARD OF REVIEW UNDER FED. R. CIV.

P. 12(c)

The standard of review for a Fed. R. Civ. P. 12(c)

motion for judgment on the pleadings is the same

standard of review as a motion to dismiss under Fed. R.

Civ. P. 12(b)(6). Grindstaff v. Green, 138 F.3d 416,421

(6th Cir. 1998); Morgan v. Church's Fried Chicken, 829

F.2d 10, 11 (6th Cir. 1987). The Court must (1) construe

the complaint in the light most favorable to Plaintiff, (2)

accept as true all factual allegations in the complaint,

and (3) determine if "it appears beyond doubt that the

plaintiff can prove no set of facts in support of his claim

which would entitle [the plaintiff] to relief." Conley v.

Gibson; 355 U.S. 41, 45-46 (1957); Tritent Int'l Corp. v.

Kentucky, 467 F.3d 547, 553-54 (6th Cir. 2006); Bioch v.

Ribar, 156 F.3d 6738, 677 (6th Cir. 1998). The Court

accepts factual allegations as true but is not required to

accept legal conclusions or “unwarranted factual

inferences." Tritent Int'l Corp., 467 F.3d at 544

(citations omitted); Scheid v. Fanny Farmer Candy

Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988).

Ill. © BACKGROUND ON ~~ TENNESSEE'S

REGULATION OF WINE

Like many States, Tennessee has established a three-

25a

tiered system of required licenses to regulate the sale

and distribution of wine and other alcoholic beverages.

With reference to wine, the tiers include: (1) wineries,

(2) wholesalers, and (3) retailers. Tenn. Code Ann. § 57-

3-201. Wine is generally included in the definition of

"alecholic beverage," id. § 101(a)(1)(A), and is also

governed specifically by the Grape and Wine Law,

which permits the manufacture and bottling of

"alcoholic vinous beverages," id. § 207(b). Winery

licenses are restricted to Tennessee residents of two

years or more or corporations owned by such residents.

Id. § 207(c)-(d). Wineries are prchibited from selling

directly to retailers, all alcoholic beverages must pass

through wholesalers before reaching retailers and

consumers. Id. § 404(a)-(c). The Grape and Wine Law

does include one exception. Any winery whose wine is

made using at least 75% Tennessee-grown agricultural

products may, on the winery's premises, serve

complimentary samples and sel] a limited quantity of its

own wine at retail. Id. § 2070(3).°

Customers may ,ossess and transport such wine

anywhere in the state in quantities not in excess

of that allowed by other state law, but such wine

must be accompanied by a bill of sale

A Tennessee licensed winery may sell no more

than five (5) cases or sixty (60) liters of wine to

any single customer in one (1) day. Any other

section of the law to the — contrary

notwithstanding, it shall be legal for any such

purchaser to transport within the state of

Tennessee any amount which the customer may

legally purchase from a Tennessee winery.

26a

Id. $§ 2070(3) & (1).

Tennessee authorizes the Alcoholic Beverage

Commission to promulgate. regulations, to enforce

compliance, and to license retailers, wholesalers,

manufacturers of alcoholic beverages, and wineries. Id.

§ 207(m). Tennessee has made criminal the importation

or transportation of wine and other alcoholic beverages

from any other State, territory, or country. Id. § 402(a).

Common carriers and "other persons" may not bring or

carry wine (or other alcohol) into the State, and may

not accept delivery or transport of alcohol unless the

sender or intended recipient is a licensed manufacturer

or wholesaler of alcoholic: beverages. Id. § 402(b). Out-

of-state wineries interested in marketing their wine in-

state must contract with a licensed wholesaler. "No

more than one wholesaler may sell such brand in any

specified area." Id. § 301(e)(1). Similarly, in-state

wineries must sell wine through licensed wholesalers as

well, and are prevented from holding wholesalers

licenses. Id. § 404(c).

IV. GRANHOLM V. HEALD

In Granholm v. Heald, 544 U.S. 460 (2005), the Supreme

Court addressed the issue: "Does a State's regulatory

scheme that permits in-state wineries directly to ship

alcohol to consumers but restricts the ability of out-of-

State wineries to do so violate the dormant Commerce

Clause in light of § 2 of the Twenty-First Amendment?"

541 U. S. 1062 (2004). To answer this question, the

Court employed a two-step analysis. First, the Court

evaluated whether each of the laws had a

discriminatory effect on interstate commerce.

27a

Michigan's law prohibited the direct shipment of wine

to consumers by out-of-state wineries but explicitly

allowed licensed in-state wineries to direct-ship. Id. at

473-74. The Court described this scheme as "obvious"

discrimination. New York's law was less openly

restrictive. It permitted in-state wineries to direct-ship

to consumers; out-of-state wineries were permitted to

direct-ship if they established a branch office and/or

warehouse in-state. Id. at 474-75. The Court saw little

to distinguish the overt from the subtle, and found

"[t]he suggestion of a limited exception for direct:

shipment from out-of-state wineries does nothing to

eliminate the discriminatory nature of New York's

regulations." Id. at 474. In both cases, the

discriminatory laws ran afoul of the "dormant"

Commerce Clause, art. I, § 8, cl. 3. The Court

reaffirmed, "State laws that discriminate against inter-

state commerce face ‘a virtually per se rule of

invalidity."" Id. at 476 (internal citation omitted).

Moreover, the Court affirmed that § 2 of the Twenty-

First Amendment,® which grants States wide latitude

in regulating alcohol, is not an unbridled power. The

Court reviewed its "modern" § 2 jurisprudence and

found three rules:

First, the Court has held that state laws that

violate other provisions of the Constitution are

not saved by the Twenty-First Amendment....

Second, the Court has held that § 2 does not

abrogate Congress' Commerce Clause powers

with regard to liquor.... Finally, and most

relevant to the issue at hand, the Court has held

that state regulation of alcohol is limited by the

nondiscrimination principle of the Commerce

Clause.

28a

Id. at 486-87. Importantly, the Court stated that the

three-tiered system was not necessarily at risk from its

holding in Granholm. The Court stated, "[t]he Twenty-

First Amendment grants the States virtually complete

control over whether to permit importation or sale of

liquor and how to structure the liquor distribution

system." Id. at 488-89. |

After determining the Michigan and New York laws

were discriminatory and were not saved by the aegis of

the Twenty-First Amendment, the Court examined the

laws under strict scrutiny to see if they advanced "a

legitimate local purpose that cannot be adequately

served by reasonable nondiscriminatory alternatives."

Id. at 489. The States offered two main justifications:

(1) preventing underage drinking and (2) facilitating the

collection of liquor tax. Id. at 489-91. The Court rejected

each of these arguments, finding there were less-

discriminatory policies the States could employ to

protect such interests. Thus the Court ruled the

Michigan and New York laws were unconstitutional. Id.

at 492-93 (holding "[olur Commerce Clause cases

demand more than mere speculation to support

discrimination against out-of-state goods. The burden is

on the State to show that ‘the discrimination is

demonstrably justified."’).

V. DISCUSSION

A. Tennessee's Wine Laws Are Distinguishable From

Those Struck Down in Granholm Because the Laws Do

Not Discriminate Against Out-of-State Wincries.

Here, Defendants construe Granholm to be a case about

shipping. To such end, they argue, "nothing in the

29a

statute or rule, however, authorizes direct shipment of

wine to consumers, retailers, or restaurants." (Case No.

2:06-CV-149, Court File No. 3, p. 3, hereinafter "Def.'s

Mem."; see also WSWT Resp.12.) Plaintiffs counter

with alternative arguments. First, nothing in the law

prohibits direct shipment by in-state wineries (Case

No. 2:06-CV-149, Court File No. 6, p. 6, hereinafter

"Pl.'s Mem."). Second, Granholm is not just about

shipping: Granholm is about differential treatment, and

here, in-state wineries may sell on-site at retail and out-

of-state wineries may not enter the Tennessee market

except through a wholesaler (id. at 5). The Court agrees

with Plaintiffs, that Granholm applies more broadly

than Defendants argue. At the same time, Plaintiff's

interpretation is over-broad, and Granholm _ is

inapplicable to these facts.

First, it appears Plaintiffs misread the Alcoholic

Beverage Commission Rules, 0100-7-.04. There is no

statute in Tennessee which explicitly authorizes or

prohibits wineries, in-state or out-of-state, from taking

orders online or by phone, fax, or mail from Tennessee

consumers. See generally Tenn. Code Ann. Title 57.

However, though no statute explicitly authorizes or

prohibits the sale, Tennessee law explicitly prohibits

the transport of wine into and within the State.

Tennessee's strict prohibition is unlike Michigan's or

New York's allowance of direct-delivery. See Tenn.

Code Ann. § 57-3-402(b) ("No common carrier or other

person shall bring or carry into this state for delivery

[any alcoholic beverage]") & (c) ("It is unlawful for any

person, railroad company, or other common carrier, to

transport or accept delivery of alcoholic beverages ...

[except to or from those] holding a_ wholesaler's

license."). Tennessee iaw prohibits importation of wine

ll

30a

into the State except to a licensed wholesaler; it

additionally prohibits delivery originating within the

State except from a licensed wholesaler. Through this

requirement, both in- and out-of-state wineries are

forced into the three-tiered system. Out-of-state

wineries must consign their wines to a wholesaler to

get them lawfully into the State, id. § 402(b), while in-

state wineries must consign their wines to a wholesaler

since only wholesalers can lawfully arrange transport

or delivery, id. § 402(c).

The Supreme Court concluded its analysis in Granholm

by noting, "States have broad power to regulate liquor

under § 2 of the Twenty-First Amendment." 544 U.S. at

493. Despite this broad power, a State may not

discriminate against interstate commerce. The Court

held, if a State decided to allow the direct shipment of

wine, "it must do so on evenhanded terms." The logical

corollary to evenhanded permissiveness is evenhanded

restrictiveness - a State may choose to ban direct ship-

ment of wine and require all wineries to operate within

the three tiers. See id. at 488-89 (holding § 2 of the

Twenty-First Amendment gives States "virtually

complete control over whether to permit importation or

sale of liquor and how to structure the liquor

distribution system" and "States may also assume direct

control of liquor distribution through state-run outlets

or funnel sales through the three-tier system"). In other

words, to be constitutional, the ban must simply be

nondiscriminatory. See id.; Brown-Forman Distillers

Corp. v. N. Y. State Liquor Auth., 476 U.S. 573, 579

(1986) (citing Pike v. Bruce Church, Inc., 397 U.S. 137,

142 (1970)); see also Exxon Corp. v. Gov. of Md., 437

U.S. 117, 126 (1978) (the fact that a state regulation

burdens some interstate companies is not, without

sla

more, a Commerce Clause violation); Minnesota v.

Clover Leaf Creamery Co., 449 U.S. 456, 471-72 (1981)

(challenged statute constitutional because it "regulated

evenhandedly . . . without regard to whether the

[commerce came] from outside the State"). Tennessee

has evenhandedly' restricted’ direct shipment.

Tennessee's shipping restrictions (Term. Code. Ann. §

573-402) does not facially discriminate against out-of-

state wineries in favor of in-state concerns.’

B. The Grape and Wine Law Does Not Impermissibly

Differentiate Between In-State and Out-of-State

Wineries in Violation of the Dormant Commerce

Clause.

1. Plaintiffs Are "Ignoring Geography and Mixing

Apples with Oranges." Plaintiffs argue, because the

Grape and Wine Law contains a limited exception by

which instate wineries may sell their product at retail

on-site (up to a certain statutory production limit), "in-

state wineries may bypass the wholesalers and sell

wine directly to consumers. Out-of-state wineries may

not." (Pl.'s Mem. 5.) This argument is creative and

interesting, but ultimately unpersuasive. The Court has

determined Tennessee's laws on the direct-shipping of

wine are equally restrictive on in- and out-of-state

wineries. The Court concludes there is a significant

difference in kind, magnitude, and market, between

permitting direct shipment of wine into or within the

State and permitting wineries to sell a limited quantity

of their wine on-site. Plaintiffs' counsel attempted to

make a similar argument in the United States District

Court for the District of Delaware, and Chief Judge Sue

Robinson arrived at the same conclusion - on-site sales

and direct-shipment of wine may, Constitutionally, be

d2a

treated separately for purposes of a dormant

Commerce Clause analysis:

(T]he crux of [plaintiffs] argument appears to

be... "ignore|]| geography and mix[] apples with

oranges." Count I of plaintiffs' complaint alleges

that certain Delaware laws violate’ the

Commerce Clause by allowing in-state wineries

to sell directly to Delaware residents, while out-

of-state wineries wishing to do the same are

required to go through one or _ more

intermediaries. This misstates what plaintiffs are

actually trying to accomplish: they wish to be

able to sell and ship wine directly to Delaware

residents' homes, a right that is not even

afforded to in-state wineries.

Delaware wineries are permitted to sell directly

to customers on their premises ... Likewise,

[plaintiff out-of-state winery] may sell its wine

directly to Delaware’ residents’ on _ its

Pennsylvania premises. The key fact in the case

at bar is that, under the current statutory

scheme, neither in-state nor _ out-of-state

wineries are allowed to deliver wine directly to

Delaware residents' homes.... the court finds that

both types of wineries are treated the same with

respect to direct wine shipments to Delaware

residents. Unlike the state statutes that were

invalidated by Granholm, "the object and effect’

of Delaware's laws are not "to allow in-state

wineries to sell wine directly to consumers in

that State but to prohibit out-of-state wineries

from doing so, or, at the least, to make direct

sales impractical from an economic standpoint.’

30a

Hurley v. Minner, 2006 WL 2789164, *5-6 (D. Del. Sept.

26, 2006) (emphasis in original); see also Cherry Hills

Vineyard, LLC v. Balducci, 2006 WL 2121192, * 8-9 (D.

Me. July 27, 2006). As Judge Robinson points out,

Plaintiffs conflate two separate ideas. Plaintiffs assert

that to access the Tennessee wine market they are

required to utilize a _ licensed wholesaler’ while

Tennessee-based wineries are not. This is simply

untrue. To access the Tennessee wine market, in-state

wineries must also contract with a wholesaler - under

the same statute challenged by Plaintiffs, Tenn. Code

Ann. § 57-3-404(a)-(c). The only time at which an in-

state winery is arguably advantaged is if a consumer, of

any state, travels to the winery and purchases wine

there. But it seems the market for on-site wine

purchases, requiring the effort (or pleasure) of a trip to

the winery, is different in kind and reach from the the

convenience-oriented market that would be created and

facilitated by a law allowing direct-shipping. Plaintiffs

are trying to compare separate markets that need not

be compared in a Commerce Clause analysis. See Gen.

Motors Corp. v. Tracy, 519 U.S. 278, 298 (1997) ("any

notion of discrimination assumes a comparison of

similarly situated entities"); Lenscrafters, Inc. v.

Robinson, 403 F.3d 798, 804 (6th Cir. 2005).

In Tennessee, an adult consumer is permitted to visit

an in-state winery and make retail purchases on-site of

the house wine. Tenn. Code Ann. § 2070(1). However,

as already addressed, the winery is unable to direct-

ship any wine purchased. The consumer is permitted to

personally transport a statutorily limited quantity of

wine within the State. Id. §§ 207(i) & 401.° Similarly a

Tennessee resident who visits the Napa Valley is

permitted to purchase wine at out-of-state wineries

34a

(Case No. 2:06-CV-149; Court File No. 7, p. 2 n. 1), and

may personally transport a limited quantity of such

wine back into the State (and, under federal law, ship a

limited amount if he is unable to carry it on the

airplane). See Tenn. Code Ann. §§ 2070(1) & 401; H.R.

2215, 21st C. Dept of Justice Approp. Auth. Act, Nov. 2,

2002. In short, Plaintiffs have failed to demonstrate

that the Grape and Wine Law discriminates against

interstate commerce by practical effect, because in- and

out-of-state wineries and consumers are generally

treated the same and the Law impacts a different

market from the market impacted by the laws

prohibiting direct-shipping. Lenscrafters, 403 F.3d at

804 (rejecting plaintiff's claims that optometrists and

out-of-state optical companies were similarly situated

because they competed for the same customers in the

same market for retail eyewear).

2. The Grape and Wine Law Does Not "Make a Market”

in the Same Manner as the Challenged Statutes in

Michigan and New York.

Further, Plaintiffs are comparing apples and oranges

when they compare the statutes at issue in Granholm

with the statutes at issue here. In Michigan and New

York, the direct-shipping exceptions granted tangible

rights and privileges to in-state wineries which were

withheld from outof-state wineries. The _ statutes

created or opened a direct-shipping market for in-state

wine because such wine could be shipped within the

State and out-of-state, but competing wine could not be

direct-shipped. Michigan and New York opened the

entire area of the respective State as a market to their

own wineries. Granholm, 544 U.S. at 474-76 (noting that

the New York "scheme grants instate wineries access

30a

to the State's consumers on preferential terms" and

noting there was a "farm winery license" distinction

whereby only in-state wineries could obtain such

license, "the license that provides the most direct means

of shipping to New York customers"). Tennessee, by

prohibiting the shipping component, creates no

specially advantagecus State market which is then

available only to State residents. See also Cherry Hill

Vineyard, 2006 WL 2121192 at *8. As WSWT points

out, "States do not have a general obligation under the

dormant Commerce Clause to ensure that all potential

market participants, no matter how geographically

remote, have the same economic opportunities as in-

state producers." (WWST Resp. 10.) As long as the

State does not create the market itself and

impermissibly advantage in-state businesses (thereby

burdening interstate commerce), some measure of

inequality based on nondiscriminatory factors is

acceptable. See Tracy, 519 U.S. at 298; see also

Granholm, 544 U.S. at 472 (States may not burden out-

of-state business to give in-state business a competitive

advantage).

3. Tennessee's Wine Regulations Would Likely Pass a

Pike Analysis.

The Court need not strictly scrutinize the challenged

statutes because the statutes are nondiscriminatory in

purpose or even in effect. Neither the State Defendants

nor Plaintiffs have briefed the -Pike balancing test,

presumably because Plaintiffs believed the Court would

apply a strict scrutiny review. It is not wholly clear

why the State Defendants failed to offer a justification

for Tennessee's regulation of alcoholic beverages. In

typical dormant Commerce Clause jurisprudence, if a

36a

statute is found to be nondiscriminatory, "the question

becomes whether ‘the burden imposed on interstate

commerce is clearly excessive in relation to the putative

local benefits. "' Pike v. Bruce Church, 397 U.S. 187, 142

(1970). Plaintiffs, as challengers to Tennessee's wine

regulation, bear the weight of proving the "burdens

placed on interstate commerce outweigh the benefits

that acerue to intrastate commerce." Lenscrafters, 403

F.3d at 806 (citing E. Ky. Res. v. Fiscal Ct. of Magoffin

County, Ky., 127 F.3d 532, 545 (6th Cir. 1997). The First

Circuit has held that a party can waive application of

Pike if it bases its constitutional challenge exclusively

on the theory that strict scrutiny applies. Alliance of

Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 35 (1st Cir. 2005)

(citing United States v. Zannino, 895 F.2d 1, 17 (1st Cir.

1990) (arguments not seasonably made are deemed

abandoned). Although the parties have seemingly

waived a Pike application, the Court will state for the

record that Plaintiffs would likely have a difficult time

satisfying Pike scrutiny.

Plaintiffs have identified no specific burden on

interstate commerce because Plaintiffs have been

trying to compare distinctive markets. Further, there

are but twenty-two wineries registered in the State

Department of Agriculture's directory,

http://www.picktnproducts. org/food/wine.html, and it

is likely Plaintiffs would: discover the impact on

interstate commerce of the on-site retail of wine

produced by these twenty-two wineries is de minimis.

On the opposing side Tennessee could identify as a

"putative local interest" its interest in maintaining State

control of wine importation and transportation, a right

granted by § 2 of the Twenty -First Amendment and

reinforced as legitimate by Granholm, 544 U.S. at 484,

37a

488-89 ("the aim of the Twenty-First Amendment was

to allow States to maintain an effective and uniform

system for controlling liquor by regulating its

transportation, importation, and use").

V. CONCLUSION

Even when construing the complaint and viewing the

facts in the light most favorable to Plaintiffs, it appears

beyond doubt that Plaintiffs can prove no set of facts in

support of their claim which would entitle Plaintiffs to

relief. Accordingly, the Court will DENY Plaintiffs'

motion for judgment on the pleadings (Court File No.

5). The Court will GRANT Defendants’ motion for

judgment on the pleadings (Court File No. 2).

An order will enter.

Footnotes

1 Case No. 2:05-CV-181 is the designated "lead" case,

and all citations are to its Court File unless otherwise

noted.

2 Interestingly, neither Plaintiffs nor the state

Defendants made an effort to respond to WSWT's brief.

3 The Court found the State's response to be

particularly inadequate in addressing the more

substantive issues as it simply (1) restated the

Attorney General's Opinion No. 04-010 from 2004, (2)

included little citation, and (8) failed to provide a

justification for ‘Tennessee's alcoholic beverage

restrictions.

38a

4 The Court has not come to this de’ ion lightly, but it

appears here Plaintiffs are asking for too much over too

little. As explained in this memorandum it seems

Plaintiffs are trying to take a small difference in the

direct, on-site access of in-state and out-of-state

wineries to consumers, and have the Court magnify this

difference to find unconstitutional the licensing,

residency, tax, penalty, and other provisions of

Tennessee's regulatory scheme for alcoholic beverages.

As WSWT points out, Plaintiffs request relief

disproportionate to the harm they allege (WSWT Resp.

5 n.2).

Additionally, it is the State Legislature's role to adapt

its laws to the will of the Tennessee citizenry and the

modern market. An indication of the State's willingness

to adept to changed circumstances is Senate Bill 1977

(fiB 1850), which was introduced on February 15, 2007.

The bill "authorizes persons licensed in this state or

another state as wine manufacturers ... to ship wine

directly to [of age] Tennessee residents" pursuant to a

newly created wine direct shipper license. See S.B.

1977, 105th Leg. 1st Sess. (Term. Feb. 15. 2007).

5 Wineries are limited, generally, to selling 20,000

gallons or 20% of their product on-sale at retail. If a

winery uses at least 50% Tennessee-grown grapes in

making its wine, such winery may sell on its premises

above the 20,000 gallon cap. Tenn. Code. Ann. § 2070(6)

(amended, added by 2006 Pub. Acts, ec. 826, § 1 (eff. June

2, 2006)).

6 "The transportation or importation into any State,

Territory, or possession of the United States for

delivery or use therein of intoxicating liquors’ in

39a

violation of the laws thereof, is hereby prohibited." U.S.

Const. amdt. XXI, § 2.

7It should be noted, other courts have found States'

wine regulations unconstitutional after Granholm. See,

e.y., Action Wholesale Liquors v. Okla. Alcoholic

Beverage Laws Enforcement Comm'n, 463 F. Supp. 2d

1294 (W.D. Okla. Nov. 15, 2006) (in-state wineries could

direct-ship and sell directly to retailers); Huber Winery

v. Wilcher, 2006 WL 2457992 (W.D. Ky. Aug. 21, 2006)

(in-state wineries could direct-ship); Cestco Wholesale

Corp. v. Hoen, 407 F. Supp. 2d 1247 (W.D. Wash. 2005)

(in-state wineries could self-distribute). These cases are

as distinguishable as Granholm and for the same

reasons: they are overturning laws which granted

differential treatment, whereas Tennessee's laws were

not facially discriminatory. The closest case is Cherry

Hill Vineyard, LLC v. Hudgins, 2006 WL 3791986

(W.D. Ky. Dec. 26, 2006). Here, the law permitted

direct-shipping by in- and out-of-state wineries of up to

two cases, so long as the purchases were made in-

person. The district court rejected the in-person

requirement as_ protectionist towards Kentucky

wineries. Cherry Hill Vineyard is distinguishable

because, as explained below, Tennessee has not made a

market available which advantages in-state wineries as

compared to out-of-state wineries.

8 The Court recognizes a distinction: Tennessee

wineries are authorized to sell five cases of wine to an

individual in-state, while Tennessee law limits import

from out-of-state to one or three gallons. Tenn. Code

Ann. § 57-3-401. If anything, this distinction wou!d have

a de minimis impact on interstate commerce. In

addition, it is unclear if Tennessee law would permit an

40a

individual to personally carry more than the one gallon

limit imposed in § 401; Defendants assert "Tennessee

residents may travel to other states and purchase

limited quantities of wine directly from out-of-state

wineries" (Case No. 2:06-CV-149, Court File No. 7, p.2)

(citing Tenn. Code Ann. § 57-38-3504.)

4la

Filed 3/30/07

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF TENNESSEE

AT GREENEVILLE

Case No. 2:05-CV-181 Chief Judge Curtis L. Coilier

FREDERICK JELOVSEK,

Plaintiff,

V.

PHIL BRESDEN, PAUL SUMMERS, and SHARI

ELKS,

Defendants,

and

WINE & SPIRITS WHOLESALERS OF

TENNESSEE,

Intervenor.

Case No. 2:06-CV-149 Chief Judge Curtis L. Collier

S.L. THOMAS FAMILY WINERY, INC., d/b/a

THOMAS FAMILY WINERY, and

MARTIN REDISH,

Plaintiffs,

V.

PHIL BRESDEN, PAUIL SUMMERS, and SHARI

ELKS,

Defendants.

42a

ORDER

For the reasons set forth in the accompanying

memorandum, the Court GRANTS the defendants'

motion for judgment on the pleadings (Court File No.

2). The Court DENIES the plaintiffs’ motion for

judgment on the pleadings (Court File No. 5). The

Court DISMISSES the plaintiff's claims and DIRECTS

the Clerk to CLOSE this case.

SO ORDERED.

/s/

CURTIS L. COLLIER

CHIEF UNITED STATES DISTRICT JUDGE

43a

Nos. 07-5443/5524

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

FREDERICK JELOVSEK (07-5443); 8.L. THOMAS

FAMILY WINERY, INC. dba Thomas Family

Winery; MARTIN REDDISH (07-5524),

Plaintiffs-Appellants,

Vv.

PHIL BREDESEN, in his official capacity as Governor

of the State of Tennessee; PAUL SUMMERS, in his

official capacity as Attorney General of the State of

Tennessee; SHARI ELKS, in her official capacity as

Executive Director, Tennessee Alcoholic Beverage

Commission,

Defendants - Appellees,

WINE AND SPIRITS WHOLESALERS OF

TENNESSEE,

Intervening Defendant - Appellee.

JUDGES: BEFORE: NORRIS, GIBBONS, and

GRIFFIN, Circuit Judges.

January 26, 2009, Filed

ORDER

The court having received a petition for rehearing en

bane, and the petition having been circulated not only

to the original panel members but also to all other

active judges of this court, and no judge of this court

having requested a vote on the suggestion for

44a

rehearing en banc, the petition for rehearing has been

referred to the original panel.

The panel has further reviewed the petition for

rehearing and concludes that the issues raised ir the

petition were fully considered upon the _ original

submission and decision of the case. Accordingly, the

petition is denied.

45a

APPENDIX : Relevant Constitutional and Statutory

Provisions

United States Constitution, Article I

Section 8. Powers of Congress

1. ARTICLE I. LEGISLATIVE DEPARTMENT

Section 8. Powers of Congress

The Congress shall have Power

To regulate Commerce with foreign Nations, and

among the several States, and with the Indian Tribes;

United States Constitution,

Amendment XXI. Repeal of Eighteenth Amendment

SECTION. 1. The eighteenth article of amendment to

the Constitution of the United States is hereby

repealed.

SEC. 2. The transportation or importation into any

State, Territory, or possession of the United States for

delivery or use therein of intoxicating liquors, in

violation of the laws thereof, is hereby prohibited.

SEC. 3. This article shall be inoperative unless it shall

have been ratified as an amendment to the Constitution

by conventions in the several States, as provided in the

Constitution, within seven years from the date of the

submission hereof to the States by the Congress.

46a

27 USC § 122 (Webb-Kenyon Act)

2. Title 27 - INTOXICATING LIQUORS

Chapter 6 - TRANSPORTATION IN INTERSTATE

COMMERCE

27 USC § 122. Shipments into States for possession or

sale in violation of State law

The shipment or transportation, in any manner or by

any means whatsoever, of any spirituous, vinous,

malted, fermented, or other intoxicating liquor of any

kind, from one State, Territory, or District of the

United States, or place noncontiguous to but subject to

the jurisdiction thereof, into any other State, Territory,

or District of the United States, or place noncontiguous

to but subject to the jurisdiction thereof, or from any

foreign country into any State, Territory, or District of

the United States, or place noncontiguous to but

subject to the jurisdiction thereof, which said

spirituous, vinous, malted, fermented, or other

intoxicating liquor is intended, by any person

interested therein, to be received, possessed, sold, or in

any manner used, either in the original package or

otherwise, in violation of any law of such State,

Territory, or District of the United States, or place

noncontiguous to but subject to the jurisdiction thereof,

is prohibited.

(Aug. 27, 1935, ch. 740, Sec. 202(b), 49 Stat. 877.)

Tenn. Code Ann. § 57-3-203. Wholesaler's licenses -

Qualifications of applicants - Permits - Salespersons

- Employees - Fees - Disposition of alcoholic

beverages after nonlicensed persons secure title.

47a

:

(b) Each applicant for a wholesale license shall pay to

the commission a one-time, non-refundable fee in the

amount of three hundred dollars ($300) when the

application is submitted for review. Such wholesaler's

license, however, shall not be issued unless and until

there shall be paid to the commission a separate license

fee therefor of three thousand dollars ($3,000), and no

license shal! be issued except to individuals who are

citizens of the state of Tennessee and either have been

for at least the two (2) years next preceding citizens of

the state of Tennessee or have been citizens of the state

of Tennessee at any time for at least fifteen (15)

consecutive years.

(

fey:

(e).. .

(f) A wholesaler's license may, in the discretion of the

commission, be issued to a corporation; provided, that

no license shall be issued to any corporation unless such

corporation meets the following requirements:

(1) All of its capital stock must be owned by individuals

who have been residents of Tennessee for not less than

five (5) years next preceding or who at any time have

been residents of the state of Tennessee for at least

fifteen (15) consecutive years, and who have not been

convicted within a period of five (5) years preceding

acquisition of such stock for violation of either state or

United States prohibition

48a

laws or revenue laws relating to intoxicating liquors;

(3) No stock of any corporation licensed under this

subsection shall be transferred to any person who has

not been a resident of Tennessee for at least five (5)

years next preceding or who at any time has not been a

resident of Tennessee for at least fifteen (15)

consecutive years.

The commission is hereby authorized to revoke the

wholesale license of any corporation which fails to

comply with the provisions of this subsection.

(g) Notwithstanding any language contained in

subsection (f), the commission, in its discretion, may

issue a wholesale license to any corporation which has

been domiciled in the state of Tennessee for twenty-

five (25) years, and the majority of whose assets are

located in the state of Tennessee and all of whose active

officers shall be residents of Tennessee. If any officers

of such corporation shall have been convicted of any

violation of the criminal code or of any violation relating

to the enforcement of the liquor laws, no license shall

issue.

a...

(i) No license entitling the holder thereof to sell or dea!

in alcoholic spirituous beverages at wholesale shall be

granted except in respect to premises situated within a

municipality having a population of not less than one

hundred thousand (100,000) as shown. by the federal

census of 1960 or any succeeding federal census.

49a

Tenn. Code Ann. § 57-3-204. Retailer's licenses -

Fees - Permits for employees - Permit renewal -

Disposition of alcoholic beverages after nonlicensed

persons secure title - Sign required - Penalty for

failure to comply.

Ee

(b) (1)...

(2) A retail license under this section may be issued to

individuals who are residents of the state of Tennessee

and either have been bona fide residents of the state for

at least two (2) years next preceding or who have at

any time been residents of the state of Tennessee for at

least ten (10) consecutive years.

(3) The commission may, in its discretion, issue such a

retail license to a corporation; provided, that no such

license shall be issued to any corporation unless such

corporation meets the following requirements:

(A) All of its capital stock must be owned by individuals

who are residents of the state of Tennessee and either

have been residents of the state for at least two (2)

years next preceding or who have at any time been

residents of the state of Tennessee for at least ten (10)

consecutive years;

3 eae

(C) No stock of any corporation licensed under this

section shall be transferred to any person who is not a

50a

resident of the state of Tennessee and either has not

been a resident of the state for at least two (2) years

next preceding or who at any time has not been a

resident of Tennessee for at least ten (10) consecutive

years.

Tenn. Code Ann. § 57-3-205. Location of retail

license restricted.

(a) No license entitling the holder thereof to sell or deal

in alcoholic spirituous beverages at retail shall be

granted with respect to premises not situated within

either a municipality as defined in § 57-3-101 or within a

civil district of a county, which district shall have a

population of thirty thousand (30,000) persons or more

according to the federal census for the year 1950 or any

subsequent census, but which civil district shall not

have lying either wholly or partially within its

boundaries a municipality as defined in § 57-3-101.

(b) This section shall not be construed to apply to any

civil district of any county of this state which county

has a population of not more than one hundred seventy-

eight thousand five hundred (178,500) nor less than one

hundred seventy-eight thousand four hundred (178,400)

according to the federal census of 1940 or any

subsequent federal census.

Tenn. Code Ann. § 57-3-401. Transportation or

possession of untaxed alcoholic beverages in

quantities of more than three gallons - Penalty.

(a) It is unlawful for any person, firm or corporation,

other than a commun carrier, tv transport, either in

5la

person or through an agent, employee or independent

contractor, untaxed alcoholic beverages as defined in §

57-3-101 within, into, through, or from the state of

Tennessee, in quantities in excess of three gallons (8

gais.), including either wet or dry counties. It is

unlawful for any person, firm, corporation or association

to possess untaxed alcoholic beverages as defined in §

57-3-101 in this state in quantities in excess of three

gallons (8 gals.) in either wet or dry counties. A

violation of this subsection is a Class E felony.

(b) It is unlawful for any person, firm, corporation or

association to import, ship or deliver, cause to be

imported, shipped or delivered into this state any

alcoholic beverages in excess of one gallon (1 gal.) upon

which the tax imposed in this chapter has not been paid,

or where such is not transported in accordance with §

57-3-402. A violation of this subsection is a Class E

felony.

Tenn. Code Ann. §57-3-402. Importation or

transportation limited.

(a) It is unlawful, except as permitted in this chapter,

for any person to import or transport, or cause to be

imported or transported from any other state,

territory, or country, into this state, any alcoholic

beverages defined in § 57-3-101. This provision shall not

apply to alcoholic beverages imported or transported

into this state pursuant

to former § 39-17-705(5).

(b) No common carrier or other person shall bring or

carry into this state for delivery or use in this state any

alcoholic beverages unless the same shall be consigned

52a

to a manufacturer or wholesaler duly licensed under

this chapter, or unless the alcoholic beverages shall be

consigned to a post exchange, ship's service store, mess,

club, commissary, or other agency under’ the

jurisdiction of the department of defense, in which

event notice of the shipment shall be given to the

commission as required by 8 57-3-110.

(c) It is unlawful for any person, railroad company or

other common carrier, to transport or accept delivery of

alcoholic beverages, consigned to any person except

those duly authorized and holding a_ wholesaler's

heense. This shall not apply to:

1) Shipments from a duly licensed wholesaler in this

state to a retailer duly licensed or to points outside the

state;

(2) Alcoholic beverages consigned to a post exchange,

ship's service store, club, commissary, or mess, or any

other agency under the jurisdiction of the department

of defense after notice of such shipment is given to the

commission as required by § 57-3-110; or

(3) Alcoholic. beverages transported by a licensee

pursuant to the rules and regulations of the commission

for the purposes of conducting an educational seminar

by a business licensed pursuant to § 57-3-204.

(d) Transportation of alcoholic beverages as defined in

this chapter, within, into, through or over this state in

quantities in excess of three gallons (3 gals.) is

permitted only in conformity with this chapter, except

in counties wherein the sale of alcoholic beverages has

been legalized.

0a

27 USC § 121

1. Title 27 - INTOXICATING LIQUORS

Chapter 6 - TRANSPORTATION IN INTERSTATE

COMMERCE

27 USC § 121. State statutes as operative on

termination of transportation; original packages

All fermented, distilled, or other intoxicating liquors or

liquids transported into any State or Territory or

remaining therein for use, consumption, sale, or storage

therein, shall upon arrival in such State or Territory be

subject to the operation and effect of the laws of such

State or Territory enacted in the exercise of its police

powers, to the same extent and in the same manner as

though such hquids or liquors had been produced in

such State or Territory, and shall not be exempt

therefrom by reason of being introduced therein in

original packages or otherwise.

(Aug. 8, 1890, ch. 728, 26 Stat. 313.)

54a

TENNESSEE GENERAL ASSEMBLY FISCAL

REVIEW COMMITTEE

FISCAL NOTE

SB 166 - HB 1155 March 26, 2009

SUMMARY OF BILL: Creates a_ wine — direct

shipper license to allow a wine manufacturer or supplier

licensed in Tennessee or in any other state to ship up to

12 - 9 liter cases of wine per year directly to a Tennessee

resident.

ESTIMATED FISCAL IMPACT:

Increase State Revenue - Net Impact - $4,668,200

/General Fund/ Fk Y09-10

Net Impact - $9,516,000 /General Fund/FY10-11 and

Subsequent Years $150,000/ABC Fund/FY09-10

$75,000/ABC Fund/F Y10-11 and Subsequent Years

Increase State Expenditures - $37,600/One-Time

$33,800/Recurring Increase Local Revenue~ -

$1J25,000/F Y0O9-10 $2,280,000/F Y 10-11 and Subsequent

Years

Assumptions:

° A one-time increase in state expenditures of

$32,800 for systems changes required by the

Department of Revenue.

° A recurring increase in state expenditures of $200

for annual systems changes required by the

Department of Revenue.

55a

The Alcoholic Beverage Commission will require

one new administrative assistant to handle the

administrative duties associated with the

licensing of out of state wineries. The recurring

cost for salary and benefits for this position is

$33,600. The one-time cost for supplies associated

with the position is $4,800.

Four types of taxes will be impacted by this bill.

The excise tax on wine, state sales tax, local sales

tax, and the enforcement tax on the sale of

alcoholic beverages.

Wine sales are subject to a $1.21 per gallon

excise tax. FY09-10 collections are estimated

to be approximately $10,200,000. FY10-11

excise tax collections are estimated to be

approximately $10,300,000. FY0O9-10 state

sales tax collections are estimated to be

approximately $21,000,000. FY 10-11 state

sales tax collections are estimated to be

approximately $21,500,000.

FY09-10 local sales tax collections § are

estimated to be approximately $7,600,000.

The provisions of the bill will result in a 30%

percent increase in excise, state, and local

taxes.

Because retailers are required by the bill to

remit taxes on the total amount of tax due on

sales for the calendar year, and the bill takes

effect in the middle of a calendar year, first

year collections will only reflect sales for half

56a

of one year.

The increase in excise tax revenue for F Y09-

10 is estimated to be approximately $1,530,000

($10,200,000 x 30% x.5 = $1,530,000).

The increase in excise tax revenue for FY 10-

il and subsequent years is estimated to be

approximately $3,090,000 ($10,300,000 x 30% _

$3,090,000).

The increase in state sales tax revenue for

FY09-10 is estimated to be approximately

$3,150,000 ($21,000,000 x 30% x5 =

$3,150,000). The increase in state sales tax

revenue for FY 10-11 is estimated to be

approximately $6,450,000 ($21,500,000 x 30% _

$6,450,000).

The increase in local sales tax revenue for

FYOY9-10 is estimated to be approximately

$1,125,000 ($7,500,000 x 30% x.5 = $1,125,000).

The increase in local sales tax revenue for FY

10-11 is estimated to be approximately

$2,280,000 ($7,600,000 x 30% _ $2,280,000).

Current law authorizes a $0.15 per case tax

upon the sale of alcoholic beverages sold at

wholesale in Tennessee. FY 09-10 collections

attributable to wine sales are estimated to be

approximately $470000. FY 10-1] revenue

from this tax attributable to wine sales is

estimated to be approximately $480,000.

Because the provisions of the bill would allow

consumers to make retail purchases from out

57a

of state, there is anticipated to be a decline in

wholesale sales and subsequent collection of

this tax. It is assumed that 50 percent of the

revenue generated from this’ tax is

attributable to wine sales. It is further

assumed that there would be a five percent

decrease in wholesale sales subject to this tax.

Therefore, in FY09-10 there is estimated to be

a decrease in state revenues of approximately

$11,750 ($470,000 x .05 decrease x 5 =

$11,750). In FY 10-11 there is estimated to be

a decrease in state revenue of approximately

$24,000 ($480,000 x.05 = $24,000).

The bill authorizes a $300 fee for new

licensees shipping wine directly to consumers.

Assuming 500 new licenses are sold there

would be a one-time increase in state revenue of

$150,000 (500 x $300 = $150,000) in F Y08-09.

The bill requires a $150 annual renewal fee for

licensees shipping wine directly to consumers.

Assuming 500 renewals per year in FY0910 and

thereafter, the recurring increase in state

revenue is estimated to be $75,000 ($150 x 500 =

$75,000).

The net increase in state revenue to the General

Fund for FYO9-10 is’ estimated to be

approximately $4,668,200 ($1,530,000 +

$3,150,000 - $11,800 = $4,668,400).

The net increase in state revenue to the General

Fund for FY 10-11 is” estimated to be

approximately $9,516,000 ($3,090,000 f

58a

$6,450,000 - $24,000 = $9,516,000).

° The F Y0O9-10 increase in state revenue to the

ABC Fund attributable to new licensee fee

revenue is estimated to be $150,000.

“ The IYI 0-11 and thereafter increases in state

revenue to the ABC Fund attributable to

licensee renewal are estimated to be $75,000.

° The increase in local government revenue for

FYO9-10 is estimated to be approximately

$1,125,000.

The increase in local government revenue for FY 10-11

and thereafter is estimated to be approximately

$2,280,000.

CERTIFICATION:

This is to duly certify that the information contained

herein is true and correct to the best of my knowledge.