Court Opinion

ID: 770548
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:36:18+00
Date Added: 2024-06-11T17:55:51.458527
License: Public Domain

227 F.3d 848 (7th Cir. 2000)
Russell Bridenbaugh, et al., Plaintiffs-Appellees,v.Karen Freeman-Wilson, Attorney General  of Indiana, et al., Defendants-Appellants.
Nos. 00-1044 & 00-1046
In the  United States Court of Appeals  For the Seventh Circuit
Argued June 8, 2000Decided September 13, 2000

Appeals from the United States District Court  for the Northern District of Indiana, South Bend Division.  No. 398cv0464AS--Allen Sharp, Judge.
Before Easterbrook and Williams, Circuit Judges.*
Easterbrook, Circuit Judge.

1
This case pits the  twenty-first amendment, which appears in the  Constitution, against the "dormant commerce  clause," which does not. Section 2 of the twenty-  first amendment provides: "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." This  directly authorizes state control over imports,  while the premise of dormant commerce clause  jurisprudence is an inference that the grant of  power to Congress in Art. I sec.8 cl. 3 implies  a limitation on state authority over the same  subject. We must decide how the combination of  express grant and implied withdrawal of state  power applies to I.C. sec.7.1-5-11-1.5(a), which  makes unlawful all direct shipments from out of  state to Indiana consumers by any "person in the  business of selling alcoholic beverages in  another state or country". Several Indiana nophiles brought suit, arguing that because the  statute restricts only those sellers engaged in  selling "in another state or country", it runs  afoul of the dormant commerce clause. The  district court held sec.7.1-5-11-1.5  unconstitutional, 78 F. Supp. 2d 828 (N.D. Ind.  1999), and the state officials responsible for  enforcing that statute (sued on the theory of Ex  parte Young, 209 U.S. 123 (1908)), joined by  intervening defendant Wine & Spirit Wholesalers  of Indiana, now appeal.

2
Before taking up the merits, we must first  decide whether the plaintiffs have standing.  Indiana (as we call the state defendants) points  out that the only law plaintiffs challenge  regulates sellers, not consumers. Section 7.1-5-  11-1.5 provides:

3
(a)  It is unlawful for a person in the business  of selling alcoholic beverages in another state  or country to ship or cause to be shipped an  alcoholic beverage directly to an Indiana  resident who does not hold a valid wholesaler  permit under this title. This includes the  ordering and selling of alcoholic beverages over  a computer network (as defined by IC 35-43-2-3  (a)).

4
(b)  Upon a determination by the commission that  a person has violated subsection (a), a  wholesaler may not accept a shipment of alcoholic  beverages from the person for a period of up to  one (1) year as determined by the commission.

5
Plaintiffs are not "in the business of selling  alcoholic beverages" and therefore could not  violate sec.7.1-5-11-1.5(a) if they tried.  Indiana contends that the only proper plaintiffs  are out-of-state sellers, none of which has sued.  Consumers might be able to invoke the interests  of third parties if the targets of the statute  would have difficulty vindicating their own  rights, see Craig v. Boren, 429 U.S. 190, 192-94  (1976), but enterprises in the liquor business  could challenge Indiana law without impediment.  Moreover, Indiana observes, other laws do target  the consumer side of transactions with  unauthorized sellers, and plaintiffs have chosen  not to challenge those. See I.C. sec.sec. 7.1-5-  10-5, 7.1-5-10-7. As Indiana sees things,  sec.7.1-5-11-1.5 causes these plaintiffs no  redressable harm, because, even if it is invalid,  other laws that are not subject to any plausible  constitutional challenge still would prevent  plaintiffs from receiving the beverages they  crave from out-of-state sellers.

6
Let us start with injury in fact. Before  Indiana enacted sec.7.1-5-11-1.5 many vintners  shipped wine direct to the plaintiffs from  California and other states, and they stopped as  soon as sec.7.1-5-11-1.5 took effect. Some of the  wines plaintiffs want to drink are not carried by  Indiana resellers. That establishes injury in  fact. Anyone who has held a bottle of Grange  Hermitage in one hand and a broken corkscrew in  the other knows this to be a palpable injury.  Moreover, Indiana dealers collect state excise  taxes on wines that pass through their hands,  while the shippers with which plaintiffs used to  deal do not; this difference in price is another  source of injury. Plaintiffs need not be the  immediate target of a statute to challenge it.  See Allen v. Wright, 468 U.S. 737, 758 (1984);  Lujan v. Defenders of Wildlife, 504 U.S. 555, 562  (1992). Plaintiffs' claim, moreover, is direct  rather than derivative: every interstate sale has  two parties, and entitlement to transact in  alcoholic beverages across state lines is as much  a constitutional right of consumers as it is of  shippers--if it is a constitutional right at all.

7
Redressability is trickier. Plaintiffs wish to  purchase wine directly from out-of-state sellers.  These vendors do not have Indiana permits, yet  Indiana makes holding a permit a condition to the  sale of liquor to its residents. I.C. sec.sec.  7.1-3-21-3, 7.1-3-21-5. (It is questionable  whether out-of-state businesses are eligible for  permits, but what matters now is that the sellers  neither hold nor want permits, and plaintiffs  have conceded that they would lack standing to  challenge sec.sec. 7.1-3-21-3 and 7.1-3-21-5.)  Purchasing alcoholic beverages from a vendor that  the consumer knows to be unlicensed by Indiana is  not only a civil infraction, I.C. sec.7.1-5-10-7,  but also a criminal misdemeanor, I.C. sec.sec.  7.1-5-10-5, 7.1-5-1-8. So the purchases these  plaintiffs wish to make are unlawful, under  statutes that they do not challenge. How, then,  could a declaration that sec.7.1-5-11-1.5 is  invalid solve their problem?

8
At oral argument, plaintiffs' counsel insisted  that the unchallenged sections are ambiguous, and  that his clients could continue to order wine  from out-of-state sellers without violating state  law. That is untenable; the statutes we have  cited are plain, and plaintiffs have filed  affidavits demonstrating not only purchases from  unlicensed sellers but also knowledge that the  sellers lack Indiana permits. Their objective in  this suit is to get rid of sec.7.1-5-11-1.5 so  they can get back to violating sec.sec. 7.1-5-10-  5 and 7.1-5-10-7. Laws forbidding purchases from  sellers that lack Indiana permits are devilishly  difficult to enforce, however, for the same  reason states have insuperable problems  collecting their use taxes when people buy from  out-of-state vendors that do not collect sales  taxes. Noncompliance is almost impossible to  detect, and rampant civil disobedience ensures  that a handful of prosecutions would not be  effective. Private gains from violating the laws  vastly exceed the anticipated legal penalties.  Sellers and shippers of alcohol are fewer in  number, facilitating enforcement. What is  puzzling is that Indiana appears unwilling to  enforce its purchaser-side laws even against  consumers who proclaim and revel in their  violations, as our plaintiffs do. When a state  has two statutes, one effective and one  ineffective, the existence of the second cannot  preclude a challenge to the first, for an  injunction against the first would redress the  injury. See Larson v. Valente, 456 U.S. 228, 239-  40 (1982). Imagine that sec.A punished importing  California wine with a $50 fine, while sec.B  punished the same deed with imprisonment.  Potential customers would have standing to  challenge sec.B even though sec.A remained on the  books, because sec.A would have much less effect  on their conduct. This would be clear if the $50  were called a tax; it is equally so if the $50 is  called a fine. Likewise, Indiana's unwillingness  to enforce laws penalizing consumers who buy from  unlicensed sellers means that plaintiffs have  standing to challenge sec.7.1-5-11-1.5(a),  because it is the latter section alone that  effectively blocks their purchases, which will  resume if sec.7.1-5-11-1.5(a) is held invalid.  Plaintiffs therefore have standing. Whether it  would be sound to issue an injunction designed to  help scofflaws violate state statutes is  doubtful, but the proper use of equitable  discretion is unrelated to the requirements of  Article III. Indiana does not contend that a  judge should deny relief even if sec.7.1-5-11-  1.5(a) is unconstitutional, so we turn to the  merits.

9
Title 7.1 of the Indiana Code establishes an  elaborate regulatory regime for the distribution  of alcohol. Like most states, Indiana has chosen  a three-tiered system of alcohol distribution,  with different classes of permits for  manufacturers, distributors, and retailers. This  facilitates what appellants call "orderly market  conditions"--a euphemism for reducing competition  and facilitating tax collection. Direct shipments  from other states undermine both of these  objectives. If the product were cheese rather  than wine, Indiana would not be able either to  close its borders to imports or to insist that  the shippers collect its taxes, despite the  effect on its treasury, e.g., Quill Corp. v.  North Dakota, 504 U.S. 298 (1992), though it  might be able to enforce its preferred system of  distribution in other ways. See, e.g., Exxon  Corp. v. Governor of Maryland, 437 U.S. 117  (1978). For more than a century the Supreme Court  has treated the grant of commerce power to  Congress as a prohibition against border-closing  laws and other efforts by states to discriminate  against interstate commerce. See, e.g., Cooley v.  Board of Port Wardens, 53 U.S. (12 How.) 299, 319  (1851); Welton v. Missouri, 91 U.S. 275, 280  (1875); General Motors Corp. v. Tracy, 519 U.S. 278, 287 (1997). Indiana permits local wineries,  but not wineries "in the business of selling . .  . in another state or country", to ship directly  to Indiana consumers. The district court  concluded that this violates the Constitution.  But sec.2 of the twenty-first amendment empowers  Indiana to control alcohol in ways that it cannot  control cheese. Does sec.2 shield sec.7.1-5-11-  1.5(a) from what would otherwise be its fate  under dormant commerce clause jurisprudence?

10
The parties believe that we should address this  question by exploring the "core purposes" of  sec.2. Plaintiffs, fortified chiefly by district  court cases and a student note, Alcohol Direct  Shipment Laws, the Commerce Clause, and the  Twenty-First Amendment, 85 Va. L. Rev. 353  (1999), insist that the "core concern" of the  twenty-first amendment is temperance. After  Prohibition, a state that wanted to remain dry  could use sec.2 to do so. But sec.7.1-5-11-1.5(a)  is hard to justify as a temperance measure--  though tax collection does raise the price and  thus depress the consumption of any product--and  it was on this ground that the district court  held that sec.2 does not authorize Indiana's law.  Defendants argue that, although temperance is a  "core concern," there are others, including  raising revenue and "ensuring orderly market  conditions." See, e.g., North Dakota v. United  States, 495 U.S. 423, 432 (1990) (plurality  opinion); Joseph E. Seagram & Sons, Inc. v.  Hostetter, 384 U.S. 35, 47-48 (1966), overruled  on other grounds by Healy v. The Beer Institute,  491 U.S. 324, 342-43 (1989). Section 7.1-5-11-  1.5(a) furthers these other objectives, so,  according to defendants, the section is  authorized by the twenty-first amendment. If  "core concerns" spelled the difference, we would  follow the Supreme Court rather than district  courts and student notes. But our guide is the  text and history of the Constitution, not the  "purposes" or "concerns" that may or may not have  animated its drafters. Objective indicators  supply the context for sec.2; suppositions about  mental processes are unilluminating.

11
Before the eighteenth amendment and the Volstead  Act banned alcohol nationwide, the temperance  battle was fought state by state. The movement  won victories in many legislatures, and the Court  held that state laws banning the production and  consumption of alcohol were constitutional,  Mugler v. Kansas, 123 U.S. 623 (1887), but to  enforce these laws states had to deal with liquor  arriving from other states and nations--and their  ability to do so was regularly defeated by  decisions invoking the commerce clause. See  generally Owen M. Fiss, Troubled Beginnings of  the Modern State, 1888-1910, VIII Holmes Devise  History of the Supreme Court 266-92 (1993);  Alexander M. Bickel, The Judiciary and  Responsible Government, 1910-21, IX Holmes Devise  History of the Supreme Court 438-46 (1984). For  example, when Iowa attempted to restrict  importation of liquor to persons possessing a  permit, the Court held this law an impermissible  burden on interstate commerce. Bowman v. Chicago  & Northwestern Ry., 125 U.S. 465 (1888). When  Iowa reacted to Bowman by forbidding the sale of  alcohol altogether, no matter its source, it was  frustrated once again. Leisy v. Hardin, 135 U.S. 100 (1890), held that resale is incident to  importation, so that imported liquor remains an  article of interstate commerce--which states  could not regulate--as long as it stays in its  original package. See also Brown v. Maryland, 25  U.S. (12 Wheat) 419, 441-42 (1827). (The  original-package doctrine has been jettisoned,  see Michelin Tire Corp. v. Wages, 423 U.S. 276  (1976), but it remains vital to understanding the  twenty-first amendment.) The combination of Leisy  and Mugler meant that states could forbid  domestic production of alcoholic beverages but  could not stop imports; the Constitution  effectively favored out-of-state sellers.

12
Leisy invited Congress to eliminate this  anomaly, see 135 U.S. at 108, and Congress took  up the invitation. The Wilson Act, 26 Stat. 313  (1890), empowered states to regulate imported  liquor "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." This Act eliminated the privileged  status of interstate sellers but did not  authorize discrimination against them. See Scott  v. Donald, 165 U.S. 58 (1897). It reversed the  result of Leisy and empowered states to regulate  the sale of all liquor, imported or domestic. But  one problem remained: shipments direct from out-of-state sellers to consumers. In re Rahrer, 140 U.S. 545 (1891), held that Congress may authorize  state laws regulating liquor imports, but the  Court construed the Wilson Act in light of  dormant-commerce-clause jurisprudence to leave  Bowman untouched, so that although states could  regulate resale of imported liquor in its  original package, states were still powerless  against interstate shipments direct to consumers.  See Rhodes v. Iowa, 170 U.S. 412 (1898); Vance v.  W.A. Vandercook Co., 170 U.S. 438, 452 (1898).

13
Could Congress empower states to create non-  uniform rules governing direct shipments, like  the statute challenged in this case? Rhodes and  Vance implied a negative answer--that Congress  could not "delegate" its commerce power to the  states, see Cooley, 53 U.S. at 318--leading the  national government to exercise national power by  piggybacking state prohibitions onto a federal  prohibition: "[T]he shipment or transportation  [into a state] . . . of any . . . liquor . . .  [which] 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." By the time  this law, the Webb-Kenyon Act, 37 Stat. 699  (1913), was held constitutional by Clark  Distilling Co. v. Western Maryland Ry., 242 U.S. 311 (1917), the temperance movement had the upper  hand and the eighteenth amendment was soon  ratified.

14
America changed course in 1933 and repealed the  eighteenth amendment by sec.1 of the twenty-  first. But the twenty-first amendment did not  return the Constitution to its pre-1919 form.  Section 2 tracks the Webb-Kenyon Act and  effectively incorporates its approach into the  Constitution. Like the Webb-Kenyon Act, sec.2  incorporates state prohibitions into a federal  rule; like the Webb-Kenyon Act, sec.2 closes the  loophole left by the dormant commerce clause,  abetted by Bowman and Rhodes: direct shipments  from out-of-state sellers to consumers that  bypass state regulatory (and tax) systems. No  longer may the dormant commerce clause be read to  protect interstate shipments of liquor from  regulation; sec.2 speaks directly to these  shipments. Indeed, all "importation" involves  shipments from another state or nation. Every use  of sec.2 could be called "discriminatory" in the  sense that plaintiffs use that term, because  every statute limiting importation leaves  intrastate commerce unaffected. If that were the  sort of discrimination that lies outside state  power, then sec.2 would be a dead letter.

15
No decision of the Supreme Court holds or  implies that laws limited to the importation of  liquor are problematic under the dormant commerce  clause. What the Court has held, however, is that  the greater power to forbid imports does not  imply a lesser power to allow imports on  discriminatory terms. See Brown-Forman Distillers  Corp. v. New York State Liquor Authority, 476 U.S. 573, 579 (1986). Immediately after the  amendment's ratification the Supreme Court  tolerated discriminatory regulation, see  California Board of Equalization v. Young's  Market Co., 299 U.S. 59 (1936); Indianapolis  Brewing Co. v. Liquor Control Commission, 305 U.S. 391, 394 (1939), but more recently the Court  held a discriminatory tax invalid. See Bacchus  Imports, Ltd. v. Dias, 468 U.S. 263, 267 (1984)  ("The central purpose of [sec.2] was not to  empower States to favor local liquor industries  by erecting barriers to competition."). Cases  such as Brown-Forman and Bacchus apply an  unconstitutional-conditions approach to use of  the sec.2 power. They treat sec.2 as eliminating  economic discrimination against in-state commerce  of the sort caused by Leisy, Bowman, and the  original package doctrine, without authorizing  discrimination against out-of-state sellers. Like  the Wilson Act and the Webb-Kenyon Act before  Prohibition, sec.2 enables a state to do to  importation of liquor--including direct  deliveries to consumers in original packages--  what it chooses to do to internal sales of  liquor, but nothing more.

16
Indiana Code sec.7.1-5-11-1.5(a), like the  statute in Bowman, regulates importation. And the  shipments it regulates, direct shipments to  consumers, are precisely the sort that prompted  the Webb-Kenyon Act, the forefather of sec.2.  Section 2 thus authorizes I.C. sec.7.1-5-11-  1.5(a) unless the state has used its power to  impose a discriminatory condition on importation,  one that favors Indiana sources of alcoholic  beverages over sources in other states, as Hawaii  did in Bacchus. Plaintiffs contend that sec.7.1-  5-11-1.5(a) discriminates in this fashion, but we  do not see how. Indiana insists that every drop  of liquor pass through its three-tiered system  and be subjected to taxation. Wine originating in  California, France, Australia, or Indiana passes  through the same three tiers and is subjected to  the same taxes. Where's the functional  discrimination? Plaintiffs observe that holders  of Indiana wine wholesaler or retailer permits  may deliver directly to consumers' homes. See  sec.sec.7.1-3-13-3(a), 7.1-3-14-4(c). But these  permit holders may deliver California and Indiana  wines alike; firms that do not hold permits may  not deliver wine from either (or any) source; and  even an Indiana citizen that is "in the business  of selling alcoholic beverages in another state  or country" is forbidden by sec.7.1-5-11-1.5(a)  to deliver wine directly from out of state to a  consumer in Indiana, no matter the wine's source.  (An Indiana citizen holding an Indiana permit may  not, for example, make direct deliveries of  Indiana's, or any other state's, wines from a  warehouse in Illinois. The wine must be  reimported through an Indiana wholesaler or  retailer.)

17
This regime has its anomalies. An Indiana wine  retailer, holding an appropriate permit, that is  also "in the business of selling alcoholic  beverages" in Illinois, is permitted to ship  directly to Indiana consumers by sec.7.1-3-14-  4(c), and forbidden to do so by sec.7.1-5-11-1.5.  Indiana's judiciary has yet to consider how, if  at all, these statutes may be reconciled. Nor  need we try to do so. Though this conflict may  bedevil wholesalers and retailers, plaintiffs are  consumers, and the statutory conflict does not  disable any wholesaler from importing liquor to  Indiana and reselling to consumers. Plaintiffs do  not complain about the statute that apparently  limits distribution permits to Indiana's  citizens. These plaintiffs are concerned only  with direct shipments from out-of-state sellers  who lack and do not want Indiana permits.

18
So far as these plaintiffs are concerned, the  main effect of Indiana's system is to subject  their purchases to taxation, by requiring the  beverages to pass through the hands of permit  holders whose business is closely monitored to  ensure tax collection. Sellers that quit shipping  to plaintiffs after sec.7.1-5-11-1.5 took effect  have admitted in affidavits that they never paid  a dollar of Indiana excise taxes. This situation  resembles that created by Bowman, Leisy, Rhodes,  Vance, and the original package doctrine a  century ago, when states discriminated against  in-state sellers, because they could not  effectively govern direct shipments from  elsewhere. Congress adopted the Webb-Kenyon Act,  and later proposed sec.2 of the twenty-first  amendment, precisely to remedy this reverse  discrimination and make alcohol from every source  equally amenable to state regulation. Section  7.1-5-11-1.5 has one real economic effect on out-  of-state sellers who neither have nor seek  Indiana permits: it channels their sales through  Indiana permit-holders, enabling Indiana to  collect its excise tax equally from in-state and  out-of-state sellers. As the history of the  twenty-first amendment confirms, this is  precisely what sec.2 is for.

19
The judgment is reversed, and the case is  remanded with instructions to enter judgment for  defendants.

Notes:

*
 Circuit Judge Kanne recused himself and did not participate in the consideration or decision of this case, which is being decided by quorum of the panel. 28 U.S.C. 46(d).