Michigan Supreme Court 

# Order

Lansing, Michigan

November 29, 2006 Clifford W. Taylor, Chief Justice
126121 Michael F. Cavanagh
Elizabeth A. Weaver Marilyn Kelly NATIONAL WINE & SPIRITS, INC., Maura D. Corrigan Robert P. Young, Jr. NWS MICHIGAN, INC., and Stephen J. Markman, NATIONAL WINE & SPIRITS, L.L.C., Justices Plaintiffs-Appellants,

v SC: 126121 COA: 243524 Ingham CC: 02-000013-CZ STATE OF MICHIGAN, Defendant-Appellee, and

MICHIGAN BEER & WINE WHOLESALERS AS SOCIATION, Intervening Defenda nt-Appellee.

________________ _______________ __________/

On order of the Court, l eave to appeal having been granted and the case having been briefed and argued by counsel, the ord er of January 20, 2006 wh ich granted leave to appeal is VACATED and leave to appeal is DENIED because we are no longer persuaded the questions presented sh ould be reviewed by this Court.

C AVANAGH , J., dissents and states as follows:

I respectfully disagree with the majority’s determination that leave to appeal was improvidently granted in this case. The i ssues are jurisprudentia lly significant and far

reaching. I further note that this Court heard oral argumen t on the application and then chose to issue an order gran ting leave to appeal and requi ring full briefing and oral argument. After considering arguments on the issues twice , I believe that this Court should issue an opinion on the merits of th e issues presented.

K ELLY , J., joins the statement of C AVANAGH , J.

W EAVER , J., dissents and states as follows:2

I dissent from the majority’s decision that leave to appeal was improvidently granted. I would remand this case to the C ourt of Appeals for reconsideration in light of
Granholm v Heald , 544 US 460 (2005).

The statute at i ssue, MCL 436.1205(3), 1 while perhaps not un constitutional on its face, as applied, forever prohibits an out-o f-state business from operating as both an authorized distribution agent of spirits and as a distributor of wine. Michigan distributors of wine in operation before September 24, 1996, on the other hand, were permitted to also become authorized distribution agents of spirits (ADAs). As a result, § 205(3) precludes out-of-state distributors from achiev ing the benefits of a combined cost

2 economy.

In addition, § 205(3) prohibits any di stributors established after September 24, 1996, from selling or distributing a brand of wine in an area where an established distributor has already been assi gned or authorized to sell that particular brand of wine. 3

1 Section 205(3), in pertinen t part, is set forth below:

After September 24, 1996, an auth orized distribution agent or an applicant to become an authorized distribution agent who directly or indirectly becomes licensed subsequent ly as a wholesaler shall not be appointed to sell a brand of wine in a county or part of a county for which a wholesaler has been appointed to sell that brand u nder an agreement required by this act. A wholesaler who directly or indirectly becomes an authorized distribution agen t shall not sell or be appo inted to sell a brand of wine to a retailer in a county or part of a county for which another wholesaler has been appointed to sell that brand u nder an agreement required by this act, unless that whol esaler was appointe d to sell and was actively selling that brand to retailers in that county or part of that county prior to September 24, 1996 , or unless the sale and appointment is the result of an acquisition, purchase, or merg er with the existing wholesaler who was selling that brand to a retail er in that county or part of that county prior to September 24, 1996.

2 For example, when a Michigan distributor op erating as both an ADA of spirits
and as a wine distributor delivers spirits and wine to reta ilers on the same truck, it can lower its delivery costs. Ho wever, under § 205(3), out-o f-state distributors cannot conserve costs by loading wine and spirits on the same truck.

3 Before September 24, 1996, Mich igan wine distributors were not prohibited from “dualing,” a concept whereby a wi ne distributor could compete with other distributors in a particular area and sell the same competing br ands of wine. Aft er September 24, 1996, only those wine distributors es tablished in Michigan before that date could continue “dualing.”3

Thus, those Michigan distri butors established before 1996 enjoy th e competitive advantage of being able to se ll certain brands exclusively, an d to also act as authorized distribution agents of both spirits and wine.

It is undisputed that before September 24, 1996, only Michig an businesses were
licensed as wine wholesalers in the State of Michigan. Consequently , when § 205(3) was enacted, only existing Michigan wine distributors retained the benefit of distributing all the wine brands they sold as before September 24, 1996. Conversely, no out-of-state
wine distributor could achieve the same benefit, nor coul d any out-of-state distributor ever enjoy the cost savings of becoming a di stributor of both wine and spirits.

The United States Supreme Court’s decision in Granholm had not been released at the time the Court of Appeals decided this case. Had the Court of Appeals had the
benefit of the United States Supreme Court’s ruling in Granholm , it may very well have
concluded that the burden on interstate commerce imposed by § 205(3) outweighs the state’s objective in preserving the existi ng three-tier alcohol distribution system. 4 As the United States Supreme Court noted in Granholm , protectionist state legislation that

4 The traditional Commerce Clause test was discussed by the United States Supreme Court in Brown-Forman Distillers Corp v New York State Liquor Auth, 476 US 573, 578-579 (1986):

This Court has adopted what am ounts to a two-tiered approach to analyzing state economic regulation under the Commerce Clause. When a state statute directly regulates or dis criminates against interstate commerce,
or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck do wn the statute without further inquiry. See, e. g., Philadelphia v. New Jersey , 437 U.S. 617, 98 S. Ct. 2531, 57 L. Ed. 2d 475 (1978); Shafer v. Farmers Grain Co ., 268 U.S. 189, 45 S. Ct. 481, 69 L.Ed. 909 (1925); Edgar v. MITE Corp. , 457 U.S. 624, 640-643, 102 S. Ct. 2629, 73 L. Ed. 2d 269 (1982) (plu rality opinion). When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have exam ined whether the St ate's interest is legitimate and whether th e burden on interstate commerce clearly exceeds
the local benefits. Pike v. Bruce Church, Inc. , 397 U.S 137, 142, 90 S. Ct. 844, 25 L. Ed. 2d 174 (1970). We have also recognized that there is no clear line separating the category of st ate regulation that is virtually per se invalid under the Commerce Clause, a nd the category subject to the Pike v. Bruce Church balancing approach. In either situation the critical
consideration is the overall effect of the statute on bo th local and interstate activity. See Raymond Motor Transportation, Inc. v. Rice, 434 U.S. 429, 440-441, 98 S. Ct. 787, 54 L. Ed. 2d 664 (1978)

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provides a competitive advantage to intrastate co mmerce is subject to attack under the
Commerce Clause:

Time and again this Court has held that, in all but the narrowest circumstances, state laws violate th e Commerce Clause if they mandate
“differential treatment of in-state and out-of-state economic interests that
benefits the former and burdens the latt er.” Oregon Waste Systems, Inc. v. Department of Environmen tal Quality of Ore., 511 U.S. 93, 99, 114 S. Ct. 1345, 128 L. Ed. 2d 13 (1994). S ee also New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 274, 108 S. Ct . 1803, 100 L. Ed. 2d 302 (1988).
This rule is essential to the foundations of the Union. The mere fact of
nonresidence should not foreclose a producer in one State from access to
markets in other States. H. P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 539, 69 S. Ct. 657, 93 L. Ed. 865 (1949). States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses. Th is mandate “reflect[s] a central concern
of the Framers that was an immedi ate reason for calling the Constitutional
Convention: the convicti on that in order to su cceed, the new Union would
have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies an d 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). [ Granholm at 472.]
Given the constitutional implications po sed by the applicati on of § 205(3), and given the United States Suprem e Court’s mandate against differen tial treatment of out-of

state economic interests, a remand to the Cour t of Appeals for reconsideration in light of
Granholm would be the most judicious resolution of this case.

s1121 I, Corbin R. Davis, Clerk of the Mi chigan Supreme Cour t, certify that the foregoing is a true and complete copy of the order entered at the direction of the Court.

November 29, 2006

Clerk