Source: https://supreme.justia.com/cases/federal/us/544/460/opinion.html
Timestamp: 2017-09-26 03:43:27
Document Index: 789053148

Matched Legal Cases: ['§205', '§2', '§76', '§77', '§3', '§2', '§121', '§15', '§23', '§15', '§122', '§1011', '§1011', '§121', '§2', '§2']

Granholm v. Heald (Opinion by Justice Kennedy) :: 544 U.S. 460 (2005) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 544 › Granholm v. Heald › Opinion
Like many other States, Michigan and New York regulate the sale and importation of alcoholic beverages, including wine, through a three-tier distribution system. Separate licenses are required for producers, wholesalers, and retailers. See FTC, Possible Anticompetitive Barriers to E-Commerce: Wine 5–7 (July 2003) (hereinafter FTC Report), available at http://www.ftc.gov/os/2003/07/ winereport2.pdf (all Internet materials as visited May 11, 2005, and available in Clerk of Court’s case file). The three-tier scheme is preserved by a complex set of overlapping state and federal regulations. For example, both state and federal laws limit vertical integration between tiers. Id., at 5; 27 U. S. C. §205; see, e.g., Bainbridge v. Turner, 311 F. 3d 1104, 1106 (CA11 2002). We have held previously that States can mandate a three-tier distribution scheme in the exercise of their authority under the Twenty-first Amendment. North Dakota v. United States, 495 U. S. 423, 432 (1990); id., at 447 (Scalia, J., concurring in judgment). As relevant to today’s cases, though, the three-tier system is, in broad terms and with refinements to be discussed, mandated by Michigan and New York only for sales from out-of-state wineries. In-state wineries, by contrast, can obtain a license for direct sales to consumers. The differential treatment between in-state and out-of-state wineries constitutes explicit discrimination against interstate commerce.
This discrimination substantially limits the direct sale of wine to consumers, an otherwise emerging and significant business. FTC Report 7. From 1994 to 1999, consumer spending on direct wine shipments doubled, reaching $500 million per year, or three percent of all wine sales. Id., at 5. The expansion has been influenced by several related trends. First, the number of small wineries in the United States has significantly increased. By some estimates there are over 3,000 wineries in the country, WineAmerica, The National Association of American Wineries, Wine Facts 2004, http://www.americanwineries.org/newsroom/winefacts04.htm, more than three times the number 30 years ago, FTC Report 6. At the same time, the wholesale market has consolidated. Between 1984 and 2002, the number of licensed wholesalers dropped from 1,600 to 600. Riekhof & Sykuta, Regulating Wine by Mail, 27 Regulation, No. 3, pp. 30, 31 (Fall 2004), available at http://www.cato.org/ pubs/regulation/regv27n3/v27n3-3.pdf. The increasing winery-to-wholesaler ratio means that many small wineries do not produce enough wine or have sufficient consumer demand for their wine to make it economical for wholesalers to carry their products. FTC Report 6. This has led many small wineries to rely on direct shipping to reach new markets. Technological improvements, in particular the ability of wineries to sell wine over the Internet, have helped make direct shipments an attractive sales channel.
The Court of Appeals for the Second Circuit reversed. 358 F. 3d 223 (2004). The court “recognize[d] that the physical presence requirement could create substantial dormant Commerce Clause problems if this licensing scheme regulated a commodity other than alcohol.” Id., at 238. The court nevertheless sustained the New York statutory scheme because, in the court’s view, “New York’s desire to ensure accountability through presence is aimed at the regulatory interests directly tied to the importation and transportation of alcohol for use in New York,” ibid. As such, the New York direct shipment laws were “within the ambit of the powers granted to states by the Twenty-first Amendment.” Id., at 239.
We consolidated these cases and granted certiorari on the following question: “ ‘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).
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.” Oregon Waste Systems, Inc. v. Department of Environmental Quality of Ore., 511 U. S. 93, 99 (1994). See also New Energy Co. of Ind. v. Limbach, 486 U. S. 269, 274 (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 (1949). States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses. This mandate “reflect[s] a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization 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 (1979).
Laws of the type at issue in the instant cases contradict these principles. They deprive citizens of their right to have access to the markets of other States on equal terms. The perceived necessity for reciprocal sale privileges risks generating the trade rivalries and animosities, the alliances and exclusivity, that the Constitution and, in particular, the Commerce Clause were designed to avoid. State laws that protect local wineries have led to the enactment of statutes under which some States condition the right of out-of-state wineries to make direct wine sales to in-state consumers on a reciprocal right in the shipping State. California, for example, passed a reciprocity law in 1986, retreating from the State’s previous regime that allowed unfettered direct shipments from out-of-state wineries. Riekhof & Sykuta, 27 Regulation, No. 3, at 30. Prior to 1986, all but three States prohibited direct-shipments of wine. The obvious aim of the California statute was to open the interstate direct-shipping market for the State’s many wineries. Ibid. The current patchwork of laws—with some States banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocity—is essentially the product of an ongoing, low-level trade war. Allowing States to discriminate against out-of-state wine “invite[s] a multiplication of preferential trade areas destructive of the very purpose of the Commerce Clause.” Dean Milk Co. v. Madison, 340 U. S. 349, 356 (1951). See also Baldwin v. G. A. F. Seelig, Inc., 294 U. S. 511, 521–523 (1935).
The New York scheme grants in-state wineries access to the State’s consumers on preferential terms. The 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. In-state producers, with the applicable licenses, can ship directly to consumers from their wineries. §§76–a(3), 76(4) (West Supp. 2005), and §77(2) (West 2000). Out-of-state wineries must open a branch office and warehouse in New York, additional steps that drive up the cost of their wine. §§3(37), 96 (West Supp. 2005). See also App. in No. 03–1274, pp. 159–160 (Affidavit of Thomas G. McKeon, General Counsel to the New York State Liquor Authority). For most wineries, the expense of establishing a bricks-and-mortar distribution operation in 1 State, let alone all 50, is prohibitive. It comes as no surprise that not a single out-of-state winery has availed itself of New York’s direct-shipping privilege. We have “viewed with particular suspicion state statutes requiring business operations to be performed in the home State that could more efficiently be performed elsewhere.” Pike v. Bruce Church, Inc., 397 U. S. 137, 145 (1970). New York’s in-state presence requirement runs contrary to our admonition that States cannot require an out-of-state firm “to become a resident in order to compete on equal terms.” Halliburton Oil Well Cementing Co. v. Reily, 373 U. S. 64, 72 (1963). See also Ward v. Maryland, 12 Wall. 418 (1871).
State laws that discriminate against interstate commerce face “a virtually per se rule of invalidity.” Philadelphia v. New Jersey, 437 U. S. 617, 624 (1978). The Michigan and New York laws by their own terms violate this proscription. The two States, however, contend their statutes are saved by §2 of the Twenty-first Amendment, which provides:
“That 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 liquids 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.” Ch. 728, 26 Stat. 313 (codified at 27 U. S. C. §121).
The Court confirmed this interpretation in Scott, supra. Scott involved a constitutional challenge to South Carolina’s dispensary law, 1895 S. C. Acts p. 721, which required that all liquor sales be channeled through the state liquor commissioner. 165 U. S., at 92. The statute discriminated against out-of-state manufacturers in two primary ways. First, §15 required the commissioner to “purchase his supplies from the brewers and distillers in this State when their product reaches the standard required by this Act: Provided, Such supplies can be purchased as cheaply from such brewers and distillers in this State as elsewhere.” 1895 S. C. Acts p. 732. Second, §23 of the statute limited the State’s markup on locally produced wines to a 10-percent profit but provided “no such limitation of charge in the case of imported wines.” 165 U. S., at 93. Based on these discriminatory provisions, the Court rejected the argument that the South Carolina dispensary law was authorized by the Wilson Act. Id., at 100. It explained that the Wilson Act 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.” Ibid. To the contrary, the Court said, the Wilson Act mandated “equality or uniformity of treatment under state laws,” ibid., and did not allow South Carolina to provide “an unjust preference” to its products “as against similar products of the other States,” id., at 101. The dissent also understood the validity of the dispensary law to turn in large part on §§15 and 23, but argued that even if these provisions were discriminatory the correct remedy was to sever them from the rest of the Act. Id., at 104–106 (opinion of Brown, J.).
This second holding, that consumers had the right to receive alcoholic beverages shipped in interstate commerce for personal use, was only implicit in Scott. 165 U. S., at 78, 99–100. The Court expanded on this point, however, not only in Vance but again in Rhodes. Rhodes construed the Wilson Act narrowly to avoid interference with this right. The Act, the Court said, authorized States to regulate only the resale of imported liquor, not direct shipment to consumers for personal use. 170 U. S., at 421. Without a clear indication from Congress that it intended to allow States to ban such shipments, the Rhodes Court read the words “upon arrival” in the Wilson Act as authorizing “the power of the State to attach to an interstate commerce shipment,” only after its arrival at the point of destination and delivery there to the consignee.” Id., at 426. See also id., at 424; Bridenbaugh v. Freeman-Wilson, 227 F. 3d 848, 852 (CA7 2000). The Court interpreted the Wilson Act to overturn Leisy but leave Bowman intact. Rhodes, supra, at 423–424. The right to regulate did not attach until the liquor was in the hands of the customer. As a result, the mail-order liquor trade continued to thrive. Rogers, Interstate Commerce in Intoxicating Liquors Before the Webb-Kenyon Act, 4 Va. L. Rev. 353, 364–365 (1917).
After considering a series of bills in response to the Court’s reading of the Wilson Act, Congress responded to the direct-shipment loophole in 1913 by enacting the Webb-Kenyon Act, 37 Stat. 699, 27 U. S. C. §122. See Rogers, supra, at 363–370. The Act, entitled “An Act Divesting intoxicating liquors of their interstate character in certain cases,” provides:
“That the shipment or transportation … of any spirituous, vinous, malted, fermented, or other intoxicating liquor of any kind, from one State … into any other State … 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 … is hereby prohibited.” 37 Stat., at 699–700.
The constitutionality of the Webb-Kenyon Act itself was in doubt. Vance and Rhodes implied that any law authorizing the States to regulate direct shipments for personal use would be an unlawful delegation of Congress’ Commerce Clause powers. Indeed, President Taft, acting on the advice of Attorney General Wickersham, vetoed the Act for this specific reason. S. Rep. No. 103, 63 Cong., 1st Sess., 3–6 (1913); 30 Op. Atty. Gen. 88 (1913). Congress overrode the veto and in Clark Distilling Co. v. Western Maryland R. Co., 242 U. S. 311 (1917), a divided Court upheld the Webb-Kenyon Act against a constitutional challenge.
Michigan and New York now argue the Webb-Kenyon Act went even further and removed any barrier to discriminatory state liquor regulations. We do not agree. First, this reading of the Webb-Kenyon Act conflicts with that given the statute in Clark Distilling. Clark Distilling recognized that the Webb-Kenyon Act extended the Wilson Act to allow the States to intercept liquor shipments before those shipments reached the consignee. The States’ contention that the Webb-Kenyon Act also reversed the Wilson Act’s prohibition on discriminatory treatment of out-of-state liquors cannot be reconciled with Clark Distilling’s description of the Webb-Kenyon Act’s purpose—“simply to extend that which was done by the Wilson Act.” 242 U. S., at 324. See also McCormick & Co. v. Brown, 286 U. S. 131, 140–141 (1932).
The statute’s text does not compel a different result. The Webb-Kenyon Act readily can be construed as forbidding “shipment or transportation” only where it runs afoul of the State’s generally applicable laws governing receipt, possession, sale, or use. Cf. id., at 141 (noting that the Act authorized enforcement of “valid” state laws). At the very least, the Webb-Kenyon Act expresses no clear congressional intent to depart from the principle, unexceptional at the time the Act was passed and still applicable today, Hillside Dairy Inc. v. Lyons, 539 U. S. 59, 66 (2003), that discrimination against out-of-state goods is disfavored. Cf. Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 U. S. 648, 652–653 (1981) (holding that the McCarran-Ferguson Act, 15 U. S. C. §1011 et seq., removed all dormant Commerce Clause scrutiny of state insurance laws; 15 U. S. C. §1011 provides: “Congress declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States”).
Last, and most importantly, the Webb-Kenyon Act did not purport to repeal the Wilson Act, which expressly precludes States from discriminating. If Congress’ aim in passing the Webb-Kenyon Act was to authorize States to discriminate against out-of-state goods then its first step would have been to repeal the Wilson Act. It did not do so. There is no inconsistency between the Wilson Act and the Webb-Kenyon Act sufficient to warrant an inference that the latter repealed the former. See Washington v. Miller, 235 U. S. 422, 428 (1914) (noting that implied repeals are disfavored). Indeed, this Court has twice noted that the Wilson Act remains in effect today. Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U. S. 324, 333, n. 11 (1964); Department of Revenue v. James B. Beam Distilling Co., 377 U. S. 341, 345, n. 7 (1964). See 27 U. S. C. §121.
The Wilson Act reaffirmed, and the Webb-Kenyon Act did not displace, the Court’s line of Commerce Clause cases striking down state laws that discriminated against liquor produced out of state. The rule of Tiernan, Walling, and Scott remained in effect: States were required to regulate domestic and imported liquor on equal terms. “[T]he intent of … the Webb-Kenyon Act … was to take from intoxicating liquor the protection of the interstate commerce laws in so far as necessary to deny them an advantage over the intoxicating liquors produced in the state into which they were brought, yet, [the Act does not] show an intent or purpose to so abdicate control over interstate commerce as to permit discrimination against the intoxicating liquor brought into one state from another.” Pacific Fruit & Produce Co. v. Martin, 16 F. Supp. 34, 39–40 (WD Wash. 1936). See also Friedman, Constitutional Law: State Regulation of Importation of Intoxicating Liquor Under Twenty-first Amendment, 21 Cornell L. Q. 504, 509 (1936) (“The cases under the Webb-Kenyon Act uphold state prohibition and regulation in the exercise of the police power yet they clearly forbid laws which discriminate arbitrarily and unreasonably against liquor produced outside of the state” (footnote omitted)).
Some of the cases decided soon after ratification of the Twenty-first Amendment did not take account of this history and were inconsistent with this view. In State Bd. of Equalization of Cal. v. Young’s Market Co., 299 U. S. 59, 62 (1936), for example, the Court rejected the argument that the Amendment did not authorize discrimination:
It is unclear whether the broad language in Young’s Market was necessary to the result because the Court also stated that “the case [did] not present a question of discrimination prohibited by the commerce clause.” 299 U. S., at 62. The Court also declined, contrary to the approach we take today, to consider the history underlying the Twenty-first Amendment. Id., at 63–64. This reluctance did not, however, reflect a consensus that such evidence was irrelevant or that prior history was unsupportive of the principle that the Amendment did not authorize discrimination against out-of-state liquors. There was ample opinion to the contrary. See, e.g., Young’s Market Co. v. State Bd. of Equalization of Cal., 12 F. Supp. 140 (SD Cal. 1935), rev’d, 299 U. S. 59 (1936); Pacific Fruit & Produce Co. v. Martin, supra, at 39; Joseph Triner Corp. v. Arundel, 11 F. Supp. 145, 146–147 (Minn. 1935); Friedman, supra, at 511–512; Note, Recent Cases, Twenty-first Amendment—Commerce Clause, 85 U. Pa. L. Rev. 322, 323 (1937); W. Hamilton, Price and Price Policies 426 (1938); Note, Legislation, Liquor Control, 38 Colum. L. Rev. 644, 658 (1938); Wiser & Arledge, Does the Repeal Empower a State to Erect Tariff Barriers and Disregard the Equal Protection Clause in Legislating on Intoxicating Liquors in Interstate Commerce? 7 Geo. Wash. L. Rev. 402, 407–409 (1939); de Ganahl, The Scope of Federal Power Over Alcoholic Beverages Since the Twenty-first Amendment, 8 Geo. Wash. L. Rev. 819, 822–828 (1940); Note, 55 Yale L. J. 815, 819–820 (1946).
First, the Court has held that state laws that violate other provisions of the Constitution are not saved by the Twenty-first Amendment. The Court has applied this rule in the context of the First Amendment, 44 Liquormart, Inc. v. Rhode Island, 517 U. S. 484 (1996); the Establishment Clause, Larkin v. Grendel’s Den, Inc., 459 U. S. 116 (1982); the Equal Protection Clause, Craig, supra, at 204–209; the Due Process Clause, Wisconsin v. Constantineau, 400 U. S. 433 (1971); and the Import-Export Clause, Department of Revenue v. James B. Beam Distilling Co., 377 U. S. 341 (1964).
Second, the Court has held that §2 does not abrogate Congress’ Commerce Clause powers with regard to liquor. Capital Cities Cable, Inc. v. Crisp, 467 U. S. 691 (1984); California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980). The argument that “the Twenty-first Amendment has somehow operated to ‘repeal’ the Commerce Clause” for alcoholic beverages has been rejected. Hostetter, 377 U. S., at 331–332. Though the Court’s language in Hostetter may have come uncommonly close to hyperbole in describing this argument as “an absurd oversimplification,” “patently bizarre,” and “demonstrably incorrect,” ibid., the basic point was sound.
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. Bacchus, 468 U. S., at 276; Brown&nbhyph;Forman Distillers Corp. v. New York State Liquor Authority, 476 U. S. 573 (1986); Healy v. Beer Institute, 491 U. S. 324 (1989). “When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry.” Brown-Forman, supra, at 579.
Bacchus provides a particularly telling example of this proposition. At issue was an excise tax enacted by Hawaii that exempted certain alcoholic beverages produced in that State. The Court rejected the argument that Hawaii’s discrimination against out-of-state liquor was authorized by the Twenty-first Amendment. 468 U. S., at 274–276. “The central purpose of the [Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition.” Id., at 276. Despite attempts to distinguish it in the instant cases, Bacchus forecloses any contention that §2 of the Twenty-first Amendment immunizes discriminatory direct-shipment laws from Commerce Clause scrutiny. See also Brown-Forman, supra, at 576 (invalidating a New York price affirmation statute that required producers to limit the price of liquor based on the lowest price they offered out of state); Healy, 491 U. S., at 328 (invalidating a similar Connecticut statute); id., at 344 (Scalia, J., concurring in part and concurring in judgment) (“The Connecticut statute’s invalidity is fully established by its facial discrimination against interstate commerce … . 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”).
Recognizing that Bacchus is fatal to their position, the States suggest it should be overruled or limited to its facts. As the foregoing analysis makes clear, we decline their invitation. Furthermore, Bacchus does not stand alone in recognizing that the Twenty-first Amendment did not give the States complete freedom to regulate where other constitutional principles are at stake. A retreat from Bacchus would also undermine Brown-Forman and Healy. These cases invalidated state liquor regulations under the Commerce Clause. Indeed, Healy explicitly relied on the discriminatory character of the Connecticut price affirmation statute. 491 U. S., at 340–341. Brown-Forman and Healy lend significant support to the conclusion that the Twenty-first Amendment does not immunize all laws from Commerce Clause challenge.
The States argue that any decision invalidating their direct-shipment laws would call into question the constitutionality of the three-tier system. This does not follow from our holding. “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.” Midcal, supra, at 110. A 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. States may also assume direct control of liquor distribution through state-run outlets or funnel sales through the three-tier system. We have previously recognized that the three-tier system itself is “unquestionably legitimate.” North Dakota v. United States, 495 U. S., at 432. See also id., at 447 (Scalia, J., concurring in judgment) (“The Twenty-first Amendment … empowers North Dakota to require that all liquor sold for use in the State be purchased from a licensed in-state wholesaler”). State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent. The instant cases, in contrast, involve straightforward attempts to discriminate in favor of local producers. The discrimination is contrary to the Commerce Clause and is not saved by the Twenty-first Amendment.
Our determination that the Michigan and New York direct-shipment laws are not authorized by the Twenty-first Amendment does not end the inquiry. We still must consider whether either State regime “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” New Energy Co. of Ind., 486 U. S., at 278. The States offer two primary justifications for restricting direct shipments from out-of-state wineries: keeping alcohol out of the hands of minors and facilitating tax collection. We consider each in turn.
In summary, the States provide little concrete evidence for the sweeping assertion that they cannot police direct shipments by out-of-state wineries. Our 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,’ ” Chemical Waste Management, Inc. v. Hunt, 504 U. S. 334, 344 (1992) (emphasis in original). The Court has upheld state regulations that discriminate against interstate commerce only after finding, based on concrete record evidence, that a State’s nondiscriminatory alternatives will prove unworkable. See, e.g., Maine v. Taylor, 477 U. S. 131, 141–144 (1986). Michigan and New York have not satisfied this exacting standard.