# Swedenburg v. Kelly

Swedenburg v. Kelly, 544 U.S. 460 (2005), along with its companion case, Granholm v. Heald, 544 U.S. 460 (2005), was a case in which the Supreme Court of the United States ruled that laws in New York and Michigan, permitting in-state wineries to ship wine directly to consumers while prohibiting out-of-state wineries from doing the same, were unconstitutional. The case was notable because the arguments centered on the rarely invoked Twenty-first Amendment to the Constitution, ratified in 1933, which ended the Prohibition.

## Background

Swedenburg and Granholm were the culmination of an eight-year fight by small wineries against laws barring out-of-state wineries from shipping their products directly to consumers. Although direct shipments to consumers constituted only about 2% of wine sales in the United States (whose total sales were $21.6 billion in 2003), direct sales were thought to be an opportunity for growth, especially for smaller wineries. Swedenburg estimated she lost 20% of her business a year because she couldn't directly ship wine to out-of-state consumers.”

### Plaintiffs

Juanita Swedenburg, a former officer in the U.S. Foreign Service and a member of Daughters of the American Revolution, developed a palate for vinifera wines while visiting overseas. She opened a small winery in the Virginia countryside in 1988, grew chardonnay and cabernet sauvignon, and produced about 2,500 cases per year. Around 10% of her sales came from people who did not visit the winery in person.
David Lucas opened his winery, The Lucas Winery, in Lodi, California, in 1978. Working as a grower relations manager for the Mondavi Woodbridge Winery introduced David and his wife, Heather, to the techniques and practices of the winemaking business. The Mondavis even arranged to take the couple to visit European vineyards and learn the organic practices of Bordeaux and Burgundy wines. Lucas primarily catered to on-site tourists and other visitors and did not produce more than 2,000 cases of wine each year.
Joining Swedenburg and Lucas were three New York residents who had ordered Swedenburg or Lucas’ wines because they could not travel to Virginia and California to purchase them.

### New York law

New York used a three-tier system where winemakers are authorized to sell their products to wholesalers. Wholesalers are permitted to sell the wines to retailers and only retailers can sell to consumers. Wines that were made in-state, however, were allowed to directly sell their wines to consumers even via mail. Since Swedenburg and Lucas’ wines were not made within New York and did not contain grapes grown within New York, they were not permitted to ship their wines directly to interested consumers.
This system made the large wholesalers very powerful in the wine industry because if a state's wholesalers decided not to purchase wine from a particular winery, that winery would be completely shut out of the state's market. Wholesalers generally avoid carrying small wineries’ products because of their inability to meet economies of scale.

### Lower courts

Plaintiffs sued New York State Liquor Authority officials in the U.S. District Court for the Southern district of New York. Defendants and local liquor distributors (who intervened in the suit) filed a motion to dismiss the case, arguing the Twenty-first Amendment to the U.S. Constitution insulates states from constitutional attacks for regulating alcoholic beverages’ delivery within its borders. The District Court denied Defendants’ motion to dismiss the case, finding New York's restrictions do not implicate the Twenty-first Amendment. The District Court later ruled that New York's law violated the Commerce Clause by discriminating against out-of-state wineries. The U.S. Court of Appeals for the Second Circuit reversed, holding New York's restrictions were “within the ambit of the powers granted to states by the Twenty-first Amendment.” Plaintiffs then sought review by the Supreme Court.
Eleanor Heald, a wine collector, and eleven other plaintiffs made the same argument in a separate case against the government of Michigan. The U.S. Court of Appeals for the Sixth Circuit ruled against the Michigan government, and the Supreme Court granted the review petition to resolve the circuit split.

## Arguments

Plaintiffs argued the restriction violated the Constitution's Dormant Commerce Clause doctrine. Article I’s Commerce Clause grants Congress the power:
   To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.
Normally, if Congress passes a law pursuant to its Commerce power, the Supremacy Clause preempts any contrary state law. The Dormant Commerce Clause works differently. The Supreme Court has repeatedly held the very presence of the Commerce Clause prohibits states from passing laws that discriminate or burden the passage of interstate commerce.
Plaintiffs argued that Ney York’s Alcoholic Beverage Control Law violated the Dormant Commerce Clause by only criminalizing direct wine shipment to New York consumers when done by out-of-state wineries but not when done by in-state wineries.
Both Michigan and New York’s attorneys’ arguments relied on Section 2 of the Twenty-first Amendment, which reads:
   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.
The states argued that Section 2 of the Twenty-First Amendment granted them unlimited power to regulate liquor. One of the states’ justifications for the laws was that regulating out-of-state wineries from directly shipping wine to consumers might hinder the shipment of alcohol to underage minors, which would serve a valid state purpose.

## Decision
### Opinion of the court

In a 5–4 decision, written by Justice Kennedy, the Supreme Court ruled the states’ laws were unconstitutional. The Twenty-first Amendment only restored the states with the alcohol regulation powers they held before the Eighteenth Amendment's ratification. The majority cited a long list of pre-Eighteenth Amendment precedents where the Court struck down states’ regulations on out-of-state alcohol transportation for violating the Dormant Commerce Clause. The Twenty-first Amendment's passage did not overrule those precedents. Thus, states have the power to regulate alcohol however they choose, including banning alcoholic beverages entirely within the state. But states cannot utilize methods violating the Dormant Commerce Clause.

### Justice Stevens' dissent

Justice Stevens noted that alcohol consumption was still viewed as a vice by most of society when the Twenty-first Amendment was ratified. Thus, the goal of § 2 was to allow states to pass the same regulations that Congress could under the Eighteenth Amendment. Furthermore, many states passed laws that would be deemed discriminatory under the majority's standard but were nevertheless not struck down. Therefore, according to Justice Stevens, viewing alcohol as just another article of commerce as modern people do is incorrect.

### Justice Thomas' dissent

Justice Thomas focused on the Webb-Kenyon Act, prohibiting the shipping or transporting of alcohol into a state in violation of the state's laws, and Supreme Court precedents elaborating on it to conclude that the Twenty-first Amendment created an exception for alcohol from other articles of interstate commerce. Since New York and Michigan's regulations fell under the Webb-Kenyon Act's terms, the regulations did not violate the Dormant Commerce Clause according to Justice Thomas.

## Aftermath

New York Governor George Pataki unveiled a bill that would limit each winery's direct sales to consumers to two cases per month per consumer. A Wall Street Journal editorial noted two cases per month is a relatively large amount of wine for a consumer, but the measure was intended to reduce competition for New York alcohol distributors. Currently, New York allows direct shipment of up to thirty-six cases (up to nine liters per case) of wine per year to consumers on a reciprocal basis. Thus, winemakers from states that allow New York-made wine to be directly shipped to consumers in that state are allowed to ship their wines to New York consumers. The direct shipper must verify the purchaser is over twenty-one years old and notify the consumer that the wine must be used for personal consumption and not resale.
Since the ruling, many more states have allowed direct shipping from out-of-state wineries. According to the Wine Institute, a public policy advocacy association of California wineries, 47 states permitted at least some form of direct shipping from wineries to consumers, as of August 2021. Different states have enacted different regulations. An editorial article on the commercial wine selling web site Appellation America states that many of the conditions in those regulations are so complex or so expensive that they discourage wineries from complying.
Juanita Swedenburg died in 2007 at the age of 82. Her estate continued operating the winery until 2013, when it was sold to a new owner and re-opened as Greenhill Winery & Vineyards.
David Lucas’ winery remains open as of June 2024. He won Visit Lodi's Winery of the Year award in 2018. His daughter took over the operations of the winery in 2019 and increased the accents of wine available for visiting winetasters.