Petition for Writ of Certiorari — Wine Country Gift Baskets.com v. Steen

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Supreme Court, U.S.

FILED

B71 Kel 22 2010

OFFICE OF THE CLERK

IN THE

Suprene Court of the United States

WINE COUNTRY GIFT BASKETS.COM,

K&L WINE MERCHANTS, BEVERAGES & MORE, INC.,

DAVID L. TAPP, RONALD L. PARRISH,

JEFFREY R. DAVIS,

Petitioners,

¥ x

JOHN T. STEEN, JR., GAN. MADDEN, JOSE CUEVAS, JR.,

ALLEN STEEN. GLAZER’S WHOLESALE DRUG CoO., INC.,

REPUBLIC BEVERAGE Co.,

Respondents.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Fifth Circuit

PETITION FOR WRIT OF CERTIORARI

JAMES F. BASILE CHRISTOPHER LANDAU, P.C.

TRACY K. GENESEN Counsel of Record

KIRKLAND & ELLIS LLP KIRKLAND & ELLIS LLP

555 California Street 655 Fifteenth St., N.W.

San Francisco, CA 94104 Washington, DC 20005

(202) 879-5000

KENNETH W. STARR

clandau@kirkland.com

336 Guittard Avenuc

Waco, TX 76706

Additional Counsel on Signature Block

November 22, 2010

QUESTION PRESENTED

Whether, notwithstanding Granfjolm v. Heald,

544 U.S. 460 (2005), the Twenty-first Amendment

overrides the Commerce Clause and allows States to

discriminate against out-of-state businesses tn the

sale of alcoholic beverages.

RULE 29.6 DISCLOSURE STATEMENT

Petitioner Wine Country Gift’ Baskets.com is

wholly owned by a privately held company, Houdini,

Ine., and no publicly held corporation owns 10% or

more of the latter’s stock.

Petitioner K&L Wine Merchants is wholly owned

by a privately held company, BBCK Enterprises,

Inc., and no publicly held corporation owns 10% or

more of the latter’s stock.

Petitioner Beverages & More, Inc. has no parent

orporation, and no publicly held corporation owns

O% or more of its stock.

TABLE OF CONTENTS

Page

QUESTION PRESENTED........................ Res eaemeeeeueen

RULE 29.6 DISCLOSURE STATEMENT .................01

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PERTINENT CONSTITUTIONAL AND

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STATEMENT OF THE CASE ......... Foteieink ete 8

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REASON FOR GRANTING THE WRIT.................. 11

The Twenty-First Amendment Does Not Override

The Commerce Clause And Allow States To

Discriminate Against Out-Of-State Businesses In

The Sale Of Alcoholic Beverages. ............................. 1]

CAPE EINE vhcickdes intcevidsvianactoveteeteeee eee 2]

APPENDIX CONTENTS

Original Fiuith Circuit opinion,

Br ig ae ae. | ee area

Amended Fifth Circuit opinion,

July 22, 2010

additions from original opinion marked by Shading,

t I ; 5

deletions marked by strikeout, ......... 00.0.0... eee. 26a

Fifth Circuit order denying rehearing en banc,

I Be eee tia reo cca na ees 3a

District court opinion,

October 16, 2009............. OPO e es i. Oo)

TABLE OF AUTHORITIES

Page(s)

Cases

Arnold's Wines, inc. v. Boyle,

571 F.3d 185 (2d Cir. 2009).................06 passim

Brimmer v. Rebman,

a WP oo ok ccc vnekscnusenensaresiassceaneons 19

Brooks v. Vassar,

MGS FF. S41 C460 Car. ZOOS cicviccin cc ccciencdicovees is

C&A Carbone, Inc. v. Town of Clarkstown, N_Y.,

eee ee so na cae enetunesomaewemes 15

Cooper v. McBeath,

OR ee ae re CE NIG a vincicescevescccccaceic ew 8

Dean Milk Co. v. City of Madison,

ce, Pe OP Divs vnc acacia vescucccososcasvannadecnvens 1

Dickerson v. Batley,

SP ee i aes | ‘eee

Fort Gratiot Sanitary Landfill, Inc. v.

Michigan Dep't of Natural Res.,

Se st te ins pc yin bnncacnndccoencesuerssiunvons 18

Granholm v. Heald,

BS EF. Be Conv cevivccsccsseaccvnvicnccs passim

North Dakota v. United States,

495 U.S. 423 (1990)........... eee 12

Scott v. Donald,

AIG RR Lay , Sea eere tteeemNer ememe Sen cay 18

Southern Wine & Spirits of Tex., Inc. v. Steen,

486 F. Supp. 2d 626 (W.D. Tex. 2007) ............. 9

Tiernan v. Rinker,

Oe Ghee, 0 CLO ve sicscesccccesseveces secaketeunieeaia ta 18

Walling v. Michigan,

116 U.S. 446 (1886).....cccccccccccccccceecceccescesceeeeee. 18

Constitution, Statutes, and Rules

goons cccwhiestxcivenssasnsecssantavsvss fate neo 4

Cal. Bus. & Prof. Code § 23661.2...........0.0.s.scsccsceeess. 13

8 ee | ae arn 13

La. Rev. Stat. § 26:359.......... Fee Payee VST UE IeRN OE 13

Bio. Bev. Stat. § 311.4672 .........02....06.002.0.. nA Geer lee 13

ooo cn anecvnnnvuansensavasnanvsavvoeneene 13

ei Nt os ccs urs decetntacieciasdcsdveseeviseesescss 13

a es sun sucusangueveboecedssauesdencers 13

Fe, TI, Ce F GOD) cncavinciccnscsccsesnscecsenisnccecces 5

Tex. Alco. Bev. Code § 6.03(1)............................0, 8, 14

Tex. Alco. Bev. Code § 22.03(a)....... RAP ERO T 6, 9, 18

TOE, BiGO. TOV. CORE & B4E.03 ..0...ce.ccicccecescsscvscasss 6, 9, 18

TOR, FIOO. MOV. COGS S BEES oi... cccccccesesessscsscses 7,9, 18

BOM, ACO. BEV. COGS S LOZ.O1 o.csccccccssscscscscccsescess 8, 14

Tex. Alco. Bev. Code § 102.01(a)...... 0c. ccc ee eee eee 7

Tek. AlCd. HOV. COG S 107.OG(B) o.o.cccecccescsccvsccccecscessee 7

Tex. Alco. Bev. Code § 107.07 (f)...................cccceeeee 7,18

Tex. Alco. Bev. Code § 109.53 .....................cscecsssesseses. 7

ete ON, WE, FO OE i Boon cvcnccnscsncevacencaasreoes passim

Erte ONION, BERNDT, TIRE ocnvecsesccotssccssacecnssrececesen passim

Va. Code § 4.1-209. 1 ........ccccssece. aes wee

W. Va. Code § 60-8-6.. 13

Wyo. Stat. § 12-2-204 ... L3

Other Authorities

lederal Trade Commission,

Possible Anticompetitive Barriers to E

Commerce: Wine (July 20038) ............3, 8, 14, 20

INTRODUCTION

For decades, the cornerstone of this Court's

Commerce Clause jurisprudence has been the

principle that “in all but the narrowest

circumstances, state laws violate the Commerce

Clause if they mandate differential treatment of in-

state and out-of-state economic interests that

benefits the former and burdens the _ latter.”

Granholm v. Heald, 544 U.S. 460, 472 (2005)

(internal quotation omitted). “This rule is essential

to the foundations of the Union”: if States were free

to yield to the natural tendency to protect their own

businesses from out-of-state competition, the Nation

asa whole would experience “economic

Balkanization” and “a proliferation of trade zones.”

Id. Thus, “State laws that discriminate against

interstate commerce face a virtually per se rule of

invalidity.” Jd. at 476 (internal quotation omitted).

In this case, however, the Fifth Circuit upheld a

Texas law that facially discriminates between in-

state and out-of-state businesses: in-state retailers

may remotely sell and directly ship alcoholic

beverages to in-state consumers, but out-of-state

retailers may not. Thus, a hquor store in Pasadena,

Texas, may take an order for a case of wine over the

telephone and ship it by Federal Express to a

household in Houston, but an identical store in

Pasadena, California, may not. The Fifth Circuit did

not identify any compelling justification for such

differential treatment. Rather, the court held that

the ‘Twenty-first Amendment, which repealed

Prohibition, categorically immunized the Texas law

from Commerce Clause scrutiny.

That holding cannot be squared with this Court’s

landmark decision in Granholm, which confirmed

that the Twenty-first Amendment “does not

supersede other provisions of the Constitution,”

including the Commerce Clause. /d. at 486. In

particular, the Amendment “restored to the States

the powers they had” before Prohibition, but “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.”

Id. at 484-85. “Allowing States to discriminate

against out-of-state wine invites a multiplication of

preferential trade areas destructive of the very

purpose of the Commerce Clause.” T/d. at 473

(internal quctation omitted).

The Fifth Circuit—echoing an earlier decision by

the Second Circuit, Arnold’s Wines, Inc. v. Boyle, 571

F.3d 185 (2d Cir. 2009)-—has now turned Granholm

upside down. Rather than construing Granholm as a

prohibition of discrimination, these courts have

interpreted that decision as a_ license for

discrimination. Under this view, the relevant

constitutional analysis under Granholm starts and

ends with the proposition that a three-tier system of

alcohol distribution (which separates producers from

wholesalers from retailers) is “unquestionably

legitimate” under the Twenty-first Amendment.

After deeming discrimination between in-state and

out-of-state retailers inherent in a three-tier system,

these courts held that the Twenty-first Amendment

categorically insulates such discrimination from

Commerce Clause scrutiny, and purported _ to

distinguish Granholm as limited to forbidding

discrimination against out-of-state producers, not

out-of-state retailers.

Ss,

Such a distinction has no basis in law or logic.

Granholm’s teaching could scarcely be more clear: “If

a State chooses to allow direct shipment of wine, it

must do so on evenhanded terms.” 544 U.S. at 493.

There is no inconsistency whatsoever between a

three-tier system, on the one hand, and direct

shipping by _ out-of-state businesses (whether

producers or retailers) on the other. See FTC,

Possible Anticompetitive Barriers to E-Commerce:

Wine 7 (July 2003) (FTC Report), available at

http://www.ftc.gov/0s/2003/ 07/winereport2.pdf

(last visited on November 18, 2010) (“Direct shipping

refers to wineries or retailers shipping wine directly

to consumers outside the three-tier system, usually

to their home or work via a package delivery

company ....”) (emphasis added).

Granholm sought to end “an ongoing, low-level

trade war” between States over the remote sale and

direct shipping of wine and other alcoholic beverages.

544 U.S. at 473. But this case shows that the war

rages on—the battlefield has simply shifted from

producers to retailers. And this case, like Arnold’s

Wines, shows that the lower courts do not know how

to interpret and apply Granholm. See, e.g., Arnold’s

Wines, 571 F.3d at 192-93 (Calabresi, J., concurring)

(asserting that current jurisprudence “leaves lower

courts at a loss in seeking to figure out what the

Twenty-first Amendment means”). The time has

come for this Court to clear up the confusion and end

this festering interstate trade war for once and for

all. Accordingly, this Court should grant the petition

and reverse the decision below.

OPINIONS BELOW

The Fifth Circuit’s initial opinion, subsequently

withdrawn, is reported at 595 F.3d 249, and

reprinted in the Appendix (“App.”) at 1-25a. The

Fifth Circuit’s subsequent substitute opinion, issued

upon denial of petitioners’ initial petition for

rehearing en banc, is reported at 612 F.3d 809, and

reprinted at App. 26-52a. The Fifth Circuit’s

unreported order denying petitioners’ subsequent

petition for rehearing en banc is reprinted at App.

53-54a. The district court’s opinion is reported at

530 F. Supp. 2d 848, and reprinted at App. 55-106a.

JURISDICTION

The Fifth Circuit denied a timely petition for

rehearing en banc on August 24, 2010. App. 58a.

Petitioners invoke this Court’s jurisdiction under 28

U.S.C. § 1254(1).

PERTINENT CONSTITUTIONAL AND

STATUTORY PROVISIONS

The Commerce Clause provides:

The Congress shall have Power ... To regulate

Commerce with foreign Nations, and among

the several States, and with the Indian tribes.

U.S. Const. art. 1 § 8 cl. 3.

The Twenty-first Amendment provides:

Section 1. The eighteenth article of

amendment to the Constitution of the United

States is hereby repealed.

Section 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.

Section 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.

U.S. Const. amend. XXI.

The Texas Alcoholic Beverage Code provides in

relevant part:

It is the public policy of this state and a

purpose of this section to require that, except

as provided in Subsection (k) of this section or

otherwise in this code, a permit or license may

not be issued to a person who was not a citizen

of this state for a one-year period preceding

the date of the filing of the person's

application for a license or permit.

Tex. Alco. Bev. Code § 6.03(a).

It is also the public policy of this state and a

purpose of this section to maintain and enforce

the three-tier system (strict separation

between the manufacturing, wholesaling, and

retailing levels of the industry) and thereby to

prevent the creation or maintenance of a “tied

house” as described and prohibited in Section

102.01 of this code.

Tex. Alco. Bev. Code § 6.03(i).

The holder of a package store permit or wine

only package store permit issued for a location

within a city or town or within two miles of the

corporate hmits of a city or town, who also

holds a local cartage permit, may make

deliveries of and _ collections for alcoholic

beverages off the premises in areas where the

sale of the beverages is legal. The permittee

must travel by the most direct route and may

make deliveries and collections only within the

county or the city or town or within two miles

of its corporate limits, and only in response to

bona fide orders placed by the customer, either

in person at the premises, in writing, by mail,

or by telegraph or telephone. This section

shall not be construed as preventing a holder

of a package store permit or wine only package

store permit from delivering alcoholic

beverages to the holder of a carrier’s permit

for transportation to persons who have placed

bona fide orders and who are located in an

area that the holder of a package store permit

or wine only package store permit, who also

holds a local cartage permit, is authorized to

directly deliver to under this section. The

holder of a package store permit or wine only

package store permit may also. deliver

alcoholic beverages to the holder of a carrier's

permit for transportation outside of this state

In response to bona fide orders placed by

persons authorized to purchase the beverages.

Tex. Alco. Bev. Code § 22.03(a).

The holder of a wine only package store permit

may make deliveries to and collections from

customers as provided in Section 22.03 of this

code.

Tex. Alco. Bev. Code § 24.03.

Any person who does not. hold an out-of-state

winery direct shipper’s permit who sells and

ships alcohol from outside of Texas to an

ultimate consumer in Texas commits on first

offense a Class B misdemeanor, on second

offense a Class A misdemeanor, and on third

offense a state jail felony

Tex. Alco. Bev. Code § 54.12.

In this section, “tied house” means’ any

overlapping ownership or other’ prohibited

relationship between those engaged in the

alcoholic beverage industry at different levels,

that is, between a manufacturer and a

wholesaler or retailer, or between a wholesaler

and a retailer ....

Tex. Alco. Bev. Code § 102.01(a).

No person may import liquor into the state

and deliver it to a person not authorized to

import it.

Tex. Alco. Bev. Code § 107.05(a).

Kxcept as provided by Chapter 54, any person

in the business of selling alcoholic beverages

in another state or country who ships o>

causes to be shipped any alcoholic beverage

directly to any Texas resident under this

section is 1n violation of this code.

Tex. Alco. Bev. Code § 107.07(f).

No person who has not. been a citizen of Texas

for a period of one year immediately preceding

the filing of his application therefor shall be

eligible to receive a permit under this code.

Tex. Alco. Bev. Code § 109.53.

STATEMENT OF THE CASE

A. Background

Like many other States, Texas has established a

three-tier system governing the distribution’ of

alcoholic beverages to prevent vertical integration by

producers, wholesalers, and retailers. See generally

‘Tex. Alco. Bev. Code § 6.03(2) (“It is ... the public

policy of this state and a purpose of this section to

maintain and enforce the three-tier system (strict

separation between the manufacturing, wholesaling,

and retailing levels of the industry) and thereby to

prevent the creation or maintenance of a ‘tied house’

as described and prohibited in Section 102.01 of this

code.”); id. § 102.01 (“[T]ied house’ means any

overlapping ownership or other — prohibited

relationship between those engaged in the alcoholic

beverage industry at different levels, that is, between

a manufacturer and a wholesaler or retailer, or

between a wholesaler and a retailer ..... ”). As these

provisions make clear, the key point of a three-tier

system is to ensure separate ownership of alcohol

producers, wholesalers, and_ retailers. See ETC

Report 5-7.

Unhke many other States, Texas has long used

its Alcoholic Beverage Code and three-tier system to

discriminate against out-of-state businesses. In

1994, the Fifth Circuit invalidated the Code’s

durational residency and citizenship requirements

for retailers, characterizing them as “parochial

statutes” that “amount to simple economic

protectionism.” Cooper v. McBeath, 11 F.3d 547, 548

(5th Cir. 1994). In 2003, the Fifth Circuit

invalidated the Code’s provisions allowing sales and

direct shipping by in-state, but not out-of-state,

wineries, see Dickerson v. Bailey, 336 F.3d 388, 409

(5th Cir. 2003), thereby foreshadowing this Court's

subsequent decision in Granholm. And in 2007, a

district court invalidated the Code’s durational!

residency and_ citizenship requirements for

wholesalers of alcoholic beverages, Southern Wine &

Spirits of Tex., Inc. v. Steen, 486 F. Supp. 2d 626, 633

(W.D. Tex. 2007)—a decision the State did not even

appeal.

In the wake of Dickerson, Texas amended the

Code to allow out-of-state producers of wine to

remotely sell and directly ship to Texas consumers,

but expressly prohibited out-of-state retailers of

wines and other alcoholic beverages from doing the

same. See Tex. Alco. Bev. Code § 54.12. Under the

latter provision, it is a crime (indeed, after two

offenses, a felony) for any out-of-state retailer to

remotely sell and directly ship alcoholic beverages to

any Texas consumers. See id. In sharp contrast, the

Code allows in-state retailers to remotely sell and

directly ship wine and other alcoholic beverages to

Texas consumers in the same county. See _ td.

} 22.03(a); see also id. § 24.03.

B. Proceedings Below

Petitioners are out-of-state wine retailers who

wish to remotely sell and directly ship wine to Texas

consumers, and Texas consumers who wish to buy

wine from such retailers. They brought this lawsuit

in 2006 challenging the constitutionality of the Texas

Alcoholic Beverage Code insofar as it discriminates

between in-state and out-of-state retailers with

respect to the remote sale and direct shipment. of

wine. The complaint sought both declaratory and

injunctive relief from the official respondents here,

the members of the Texas Alcoholic Beverage

Commission. ‘Two in-state wholesalers, the private

respondents here, thereafter intervened to defend

the constitutionality of the challenged Code

provisions.

The district court (Fitzwater, C.J., N.D. Tex.)

granted petitioners’ motion for summary judgment,

holding that the provisions of the Texas Alcoholic

Beverage Code that allow in-state, but not out-of-

state, retailers to remotely sell and directly ship wine

to Texas consumers violate the Commerce Clause.

App. 77-9la. The court held that these provisions

facially discriminate against the out-of-state

retailers and that the State had failed to show that

such discrimination advanced a legitimate state

interest that could not be adequately served by

reasonable nondiscriminatory alternatives. See id.

The district court, however, gave petitioners no real

remedy for that constitutional violation, holding that

out-of-state retailers must purchase any wine

remotely sold and directly shipped to Texas

consumers from Texas wholesalers. App. 92-105a.

Both sides appealed.

The Fifth Circuit reversed the district court's

decision that the challenged provisions of the Texas

Code violate the Commerce Clause. App. 1-25a. The

appellate court held that this case is governed by the

Twenty-first Amendment, not the Commerce Clause.

According to the Fifth Circuit, the Twenty-first

Amendment legitimizes the three-tier system, and

discrimination between in-state and _ out-of-state

retailers is an “inherent” part of that system, and

thus cannot violate the Commerce Clause. App. 17-

23a. Because the Fifth Circuit concluded that the

challenged provisions did not violate the Federal

Constitution, the court did not reach the issue of

remedy. App. 6a, 7a.

Petitioners sought rehearing en banc. Several

months later, the panel denied the petition, but

issued a revised opinion. App. 26-52a. The Fifth

Circuit denied a subsequent petition for rehearing en

banc, App. 53-54a, and this petition follows.

REASON FOR GRANTING THE WRIT

The Twenty-First Amendment Does Not

Override The Commerce Clause And Allow

States To Discriminate Against Out-Of-State

Businesses In The Sale Of Alcoholic Beverages.

This petition presents the question whether this

Court meant what it said in Granholm: the Twenty-

first Amendment “does not supersede’ other

provisions of the Constitution,” including’ the

Commerce Clause. 544 U.S. at 486. The lesson of

Granholm is that the Twenty-first Amendment does

not displace the rule that “the Commerce Clause

prevent[s] States from discriminating against

imported liquor.” /d. at 476.

Here, however, the Fifth Circuit upheld a facially

discriminatory state law without conducting any

analysis whatsoever under the Commerce Clause.

While acknowledging that “|t}]he dormant Commerce

Clause applies” to interstate commerce in alcoholic

beverages, the court insisted that in this context the

Clause “applies differently than it does to products

whose regulation is not authorized by a_ specific

constitutional amendment.” App. 47a.

But the court did not apply the Commerce Clause

“differently” in this case; it did not apply the

Commerce Clause at all. The court sought to justify

this approach by invoking Granholm’s observation

that “the three-tier system is ‘unquestionably

legitimate.” 544 U.S. at 489 (quoting North Dakota

v. United States, 495 U.S. 423, 4382 (1990)). That

observation, the Fifth Circuit declared, means that

“the foundation on which we build is that Texas may

have a three-tier system.” App. 44a; see also App.

49a (“Granholm told us that the three tiers are

legitimate under the Twenty-first Amendment.”);

App. 44a (“Thle] [three-tier] system has been given

constitutional approval. The discrimination that

would be questionable ... is that which is_ not

inherent in the three-tier system itself. If

Granholm’s legitimizing of the tiers is to have

meaning, it must at least mean that.”); id.

(characterizing this “legitimizing” of the three-tier

system as a “caveat” to the principle that the

Commerce Clause prevents States from

discriminating against out-of-state businesses).

Having thus made the legitimacy of the three-tier

system the starting point for the inquiry, the Fifth

Circuit proceeded to declare—without analysis—that

discrimination between in-state and _ out-of-state

retailers of alcoholic beverages is “an inherent

aspect” of such a system and thus necessarily

constitutional. App. 49a; see also App. 48a (“When

analyzing whether a State’s alcoholic beverage

regulation discriminates under the dormant

Commerce Clause, a beginning premise is that

retailers may be required to be within the State.”);

App. 47a (“Because of Granholm and its approval of

a three-tier system, we know that Texas may

authorize its in-state, permit-holding retailers to

make sales and may prohibit out-of-state retailers

from doing the same.”); App. 50a (“[P]hysical location

. 1s a critical component of the three-tier system.”);

see also Arnold’s Wines, 571 F.3d at 190

(characterizing challenge to New York law that

discriminated against out-of-state retailers as “a

frontal attack on the constitutionality of the three-

tier system itself’); Brooks v. Vassar, 462 F.3d 341,

352 (4th Cir. 2006) (opinion of Niemeyer, J.) (same);

but see id. at 361 (Traxler, J., concurring in part and

concurring in the judgment) (refusing to join this

portion of Judge Niemeyer’s opinion); td. at 361-63

(Goodwin, J., dissenting) (rejecting this portion of

Judge Niemeyer’s opinion).

The assumption that discrimination against out-

of-state retailers of alcoholic beverages is “inherent”

in a three-tier system is baseless. There is no reason

why a State with a three-tier system must limit

retail sales of alcoholic beverages to in-state

businesses. To the contrary, many States with three-

tier systems have adopted legislation that

specifically allows out-of-state retailers to remotely

sell and directly ship wine and/or other alcoholic

beverages on the same terms as in-state retailers.

See, e.g., Cal. Bus. & Prof. Code § 23661.2; Idaho

Code § 23-1309A; La. Rev. Stat. § 26:359; Mo. Rev.

Stat. § 311.462; N.H. Rev. Stat. § 178:27; N.M. Stat.

§ 60-7A-3; Or. Rev. Stat. § 471.282; Va. Code § 4.1-

209.1; W. Va. Code § 60-8-6; Wyo. Stat. § 12-2-204.

Indeed, a ‘Task Force of the National Conference of

State Legislatures has endorsed a Model Direct

Shipping Bill, cited with approval in Granholm, see

544 U.S. at 491-92, that establishes a template for

state statutes allowing nondiscriminatory remote

sales and direct shipping by out-of-state retailers.

These statutes and the Model Bill refute the

assumption of the Fifth and Second Circuits that

discrimination between in-state and _ out-of-state

retailers is “inherent” in a three-tier system, App.

49a, so that a challenge to such discrimination is “a

frontal attack on the constitutionality of the three-

tier system itself,” Arnold’s Wines, 571 F.3d at 190.

In other words, a_ three-tier system can

accommodate remote sales and direct shipping by

out-of-state alcohol retailers just as easily as remote

sales and direct shipping by out-of-state alcohol

producers. A three-tier system, after all, focuses on

the ownership of businesses, not the location of

businesses. As the Texas Alcoholic Beverage Code

itself makes clear, the system seeks to prevent a

“tied house,” t.e., “any overlapping ownership or

other prohibited relationship between those engaged

in the alcoholic beverage industry at different levels.”

Tex. Alco. Bev. Code § 102.01; see also id. § 6.03(i).

There is no reason to suppose that this Court was

referring to anything more than such separation of

ownership by noting in Granholm that a three-tier

system is “unquestionably legitimate.” 544 U.S. at

489 (internal quotation omitted); see also id. at 488

(“The 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.”) (emphasis added;

internal quotation omitted). Indeed, Granholm drew

its definition of a three-tier system from an FTC

report that endorsed direct shipment of wine by both

out-of-state wineries and_ retailers without

suggesting any inconsistency with a_ three-tier

system. See id. at 466 (citing FTC Report 5-7).

Thus, it does not follow that a three-tier system

requires’ differential treatment of out-of-state

retailers. To the contrary, such differential

treatment necessarily conflicts with the Commerce

Clause, which creates a single national market and

renders state lines invisible insofar as interstate

commerce is concerned. See, e.g., C&A Carbone, Inc.

v. Town of Clarkstown, N.Y., 511 U.S. 383, 393

(1994). Or, as Granholm put it, “[t]he mere fact of

nonresidence should not foreclose a [business] in one

State from access to markets in other States.” 544

U.S. at 472.

To interpret Granholm’s approval of the three-

tier system as a blessing of differential treatment of

in-state and out-of-state businesses is to attribute

acute schizophrenia to that decision, which could

hardly have been more emphatic in its condemnation

of such differential treatment. See id. (“Time and

again this Court has held that, in all but the

narrowest circumstances, state laws violate the

Commerce Clause if they mandate differential

treatment of in-state and out-of-state economic

interests that benefits the former and burdens the

latter.”) (nternal quotation omitted); id. at 475

(“States cannot require an _ out-of-state firm to

become a resident in order to compete on equal

terms.) (anternal quotation omitted).

To hold that the three-tier system trumps the

Commerce Clause, moreover, 1s to elevate that

system to quasi-constitutional status and open a new

frontier of federal constitutional law: the definition of

a “three-tier system.” According to the Fifth Circuit,

Granholm held that the Twenty-first Amendment

allows each tier of the system “to do what producers,

wholesalers, and retailers do.” App. 45a. But that

requires a court to determine the scope of these

various activities as a matter of federal

constitutional law. Indeed, the Fifth Cuircuit

explained that its task here was to “analyzfe|]

‘retailing’ for Twenty-first Amendment purposes.”

App: 46a.

The Fifth Circuit, however, quickly “pull[ed] back

from any effort to define the reach of a traditional

three-tier retailer’ as a matter of federal

constitutional law. App. 46a. Instead, the court

simply held that “what Texas has allowed here” is

not “so substantially different from what retailing

must include as not to be third-tier retailing at all.”

Id. The court characterized “over-the-counter sales”

by in-state retailers as “Granholm-approved

retailing,” and asserted that the remote sales and

direct shipping authorized by Texas law are

sufficiently similar to such sales to fall within the

scope of constitutionally approved “retailing.” App.

47a. Thus, the court declared, the Texas laws at

issue here pass federal constitutional muster because

“Irjetailers are acting as retailers and making what

conceptually are local deliveries.” J/d.; see also App.

48a (“We view local deliveries as a constitutionally

benign incident of an acceptable three-tier system.”).

The court warned that “[a] State’s right to authorize

a variety of retail practices for alcoholic beverages

free of dormant Commerce Clause barriers may not

be limitless,” App. 49a, but offered no guidance as to

the scope of constitutionally sanctioned “retailing.”

The Fifth Circult’s rapid descent into this

quagmire underscores the fundamental infirmity of

its approach. The three-tier system is a creature of

state law, not federal constitutional law. ‘This

Court’s observation in Granholm that a three-tier

system is “unquestionably legitimate,” 544 U.S. at

489 (internal quotation omitted), was not an

invitation for courts to invent a federal constitutional

definition of a “three-tier system.” There is no such

thing as “retailing’ for Twenty-first Amendment

purposes,” App. 46a, because the Twenty-first

Amendment does not refer to retailing—or, for that

matter, to a three-tier system.

By starting and ending the federal constitutional

analysis by reference to the legitimacy of the three-

tier system, the Fifth Circuit (like the Second Circuit

before it, see Arnold’s Wines, 571 F.3d at 190-92), has

condemned the district courts in those circuits to the

impossible task of defining a legitimate three-tier

system as a matter of federal constitutional law. Cf.

id. at 192 (Calabresi, J., concurring) (noting that

current jurisprudence “leaves lower courts at a loss

in seeking to figure out what the Twenty-first

Amendment means’); td. at 201 (“[W]hile the general

direction of Supreme Court jurisprudence has been

toward prohibiting any discriminatory _ state

regulation, it is not for our court to say how far or

how fast we should move along that vector.”).

What makes this brave new world of Twenty-first

Amendment jurisprudence particularly troubling is

that Granholm specifically rejected the proposition

that the Twenty-first Amendment “saves” any

discrimination against interstate commerce

otherwise prohibited by the Commerce Clause. See

544 U.S. at 476-89. As Granholm explained, the

States were never authorized to discriminate against

interstate commerce with respect to alcoholic

beverages, and the Twenty-first Amendment did not

create any new right to do so. See id. at 477-83

(citing, inter alia, Scott v. Donald, 165 U.S. 58

(1897); Walling v. Michigan, 116 U.S. 446 (1886);

Tiernan v. Rinker, 102 U.S. 123 (1880)). “The

[Twenty-first] 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. Thus,

notwithstanding the Twenty-first Amendment, “state

regulation of alcohol is limited by the

nondiscrimination principle of the Commerce

Clause.” Granholm, 544 U.S. at 487.

There can be no doubt that the provisions of the

Texas Alcoholic Beverage Code at issue here violate

that principle. As noted above, those provisions

allow in-state retailers to remotely sell and directly

ship wine and other alcoholic beverages to consumers

anywhere within the same county, see Tex. Alco. Bev.

Code §§ 22.03(a), 24.03, but prohibit out-of-state

retailers from remotely selling and directly shipping

such beverages anywhere in Texas, see id. §§ 54.12,

107.07(f).

The Fifth Circuit asserted that out-of-state

retailers are not “similarly situated to Texas

retailers and cannot make a logical argument of

discrimination” because they are not present in any

particular Texas county. App. 47a. As this Court

has long held, however, a State “may not avoid the

strictures of the Commerce Clause” by crafting

economically protectionist legislation on a local or

county-wide, rather than State-wide, basis. Fort

Gratiot Sanitary Landfill, Inc. v. Michigan Dep’t of

Natural Res., 504 U.S. 353, 361 (1992): see also Dean

Milk Co. v. City of Madison, 340 U.S. 349, 354 & n.4

(1951); Brimmer v. Rebman, 138 U.S. 78, 82-83

(1891). As the district court recognized, out-of-state

retailers are obviously in a worse position than in-

state retailers because they cannot remotely sell and

directly ship wine or other alcoholic beverages to any

county in Texas. App. 81-86a & n.17. Indeed, the

Texas Solicitor General acknowledged below that

“the geographical limits” in the Texas Alcoholic

Beverage Code are “irrelevant” for federal

constitutional purposes, App. 46a, and the result in

this case would be the same if in-state retailers could

remotely sell and directly ship anywhere in the State.

The Fifth Circuit thus missed the point by

characterizing remote sales and direct shipping as

mere “consumer-friendly practices” incidental to a

retailer's in-state location, like carrying a customer's

groceries from a store to a car. App. 49a. The key

point here, as the district court recognized, is that

the challenged provisions of the Texas Alcoholic

Beverage Code do not involve over-the-counter

transactions, but instead remote sales and direct

shipping. App. 85-86a. But for those provisions, out-

of-state retailers are just as capable as in-state

retailers of carrying out such remote sales and direct

shipping. Jd. While a State need not allow the

remote sale and direct shipping of alcoholic

beverages at all, once it does so, it may not

discriminate between in-state and _ out-of-state

businesses. See Granholm, 544 U.S. at 488-89, 493;