Court Opinion

ID: 4345462
Source: CourtListenerOpinion
Date Created: 2018-11-29 08:00:55.849633+00
Date Added: 2024-06-11T14:49:20.600080
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 17-2495
LEBAMOFF ENTERPRISES, INC., et al.,
                                                Plaintiffs-Appellants,
                                 v.

BRUCE V. RAUNER, et al.,
                                               Defendants-Appellees,

                                and

WINE & SPIRITS DISTRIBUTORS OF ILLINOIS,
                              Intervening Defendant-Appellee.

                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
          No. 16 C 8607 — Samuel Der-Yeghiayan, Judge.
                     ____________________

 ARGUED FEBRUARY 16, 2018 — DECIDED NOVEMBER 28, 2018
                     ____________________

   Before WOOD, Chief Judge, and KANNE and ROVNER, Circuit
Judges.
2                                                     No. 17-2495

    WOOD, Chief Judge. The Twenty-ﬁrst Amendment to the
U.S. Constitution brought Prohibition to an end with a com-
promise: section 1 repeals the Eighteenth Amendment, but
section 2 hands some power back to the states insofar as it for-
bids the “transportation or importation” of liquor into a state
in violation of that state’s law. This post-Prohibition compro-
mise gives the states greater leeway to regulate alcoholic bev-
erages than they enjoy with respect to any other product. But
the Supreme Court has decided that this leeway is not bound-
less. Drawing lines that are sometimes diﬃcult to follow, it
has decreed that states may not infringe upon other provi-
sions of the Constitution under the guise of exercising their
Twenty-ﬁrst Amendment powers.
    In recent years, there has been considerable litigation over
the proper boundary between lawful exercise of Twenty-ﬁrst
Amendment powers and unlawful economic protectionism.
Indeed, the Supreme Court now has before it a case posing
the question whether the Twenty-ﬁrst Amendment permits
states to regulate liquor sales by limiting retail and wholesale
licenses to persons or entities that have resided within the
state for a speciﬁed time. See Tennessee Wine & Spirits Retailers
Ass’n v. Byrd, No. 18-96, cert. granted, 2018 WL 3496882 (Sept.
27, 2018).
     It is quite possible that the Court’s disposition of Tennessee
Wine will aﬀect the issue now before us. But the question in
that case diﬀers from the one now before us, and these diﬀer-
ences often matter to the analysis. Our case involves the abil-
ity of companies to ship alcoholic beverages to consumers in
Illinois; it does not directly address licensure for retail or
wholesale establishments. Illinois allows retailers with an in-
No. 17-2495                                                      3

state physical presence to ship alcoholic beverages to consum-
ers anywhere within Illinois. The state refuses, however, to
give out-of-state businesses the opportunity even to apply for
a similar shipping license. The plaintiﬀs argue that this diﬀer-
ence in treatment violates the Commerce Clause and Privi-
leges and Immunities Clause of the Constitution. Illinois re-
sponds that these restrictions fall within its reserved powers
under the Twenty-ﬁrst Amendment and in any event are nec-
essary to protect its legitimate interests in the health and well-
being of Illinois residents. The district court accepted Illinois’s
reasoning and dismissed the case with prejudice. We con-
clude that it was too quick to do so in the face of material con-
tested issues about the necessity for and justiﬁcations behind
the Illinois statute. We therefore reverse, but with the caveat
that there are other aspects of the Illinois law—not before us
at present—that will be diﬃcult for plaintiﬀs to surmount if
Tennessee Wine does not come out in their favor.
                                 I
    The Illinois Liquor Control Act of 1934, 235 ILCS 5/1-1, et
seq., subject to some exceptions not pertinent here, requires
any person who sells or transports alcohol in the state to ob-
tain a license from the Illinois Liquor Control Commission.
235 ILCS 5/2-1. Like most states, Illinois divides merchants
into three tiers. Licensed producers (tier 1) sell to licensed dis-
tributors (tier 2), who then sell to licensed retailers (tier 3),
who in turn sell to consumers. Each tier is heavily regulated.
Various specialized licenses are available on all three tiers of
the system, and many of those licenses are exclusive, meaning
that they preclude the holder from obtaining diﬀerent types
of licenses within the system. See 235 ILCS 5/5-1. The strict
separation between license holders on each tier of the system
4                                                      No. 17-2495

was originally seen as part of a broader set of rules preventing
so-called tied houses, which were vertically integrated organ-
izations. See Federal Alcohol Admin. Act, sec. 5(b), 27 U.S.C.
§ 205(b). (This law reﬂected broader hostility to vertical ar-
rangements that has since been abandoned by the Supreme
Court. See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc.,
551 U.S. 877 (2007).)
    The Illinois statute bars anyone from shipping or trans-
porting “any alcoholic liquor from a point outside this State
to a person in this State who does not hold a manufacturer’s,
distributor’s, importing distributor’s, or non-resident dealer’s
license issued by the Liquor Control Commission.” 235 ILCS
5/6-29.1(b). Put more simply, subject to certain exceptions,
any alcohol shipped to Illinois must go through a distributor
on the second tier of the three-tier system. Additionally, the
out-of-state shipper must itself be licensed in Illinois. See 235
ILCS 5/2-1; Ill. Admin. Code tit. 11, § 100.480(a) (“[N]o person
shall import alcoholic liquor into this State for a non-personal
or commercial use without ﬁrst obtaining a license to import
issued by the Commission.”). These restrictions ensure that
all liquor sold to consumers at tier three is ﬁrst funneled
through the top two tiers. See Granholm v. Heald, 544 U.S. 460,
489 (2005).
    Licensees at the third tier—retail—must have a physical
location in Illinois. 235 ILCS 5/6-2(a)(1); see also 235 ILCS 5/6-
29.1(b) (prohibiting “the shipping or transportation of any al-
coholic liquor from a point outside this State to a person in
this State” who does not hold a valid Illinois license). A re-
tailer’s license allows “the licensee to sell and oﬀer for sale at
retail, only in the premises speciﬁed in the license, alcoholic
liquor for use or consumption, but not for resale in any form.”
No. 17-2495                                                      5

235 ILCS 5/5-1(d). Section 5-1(d) provides that “[n]othing in
Public Act 95-634 [now codiﬁed at section 6-29.1(b)] shall
deny, limit, remove, or restrict the ability of a holder of a re-
tailer’s license to transfer, deliver, or ship alcoholic liquor to
the purchaser for use or consumption subject to any applica-
ble local law or ordinance.” 235 ILCS 5/5-1(d) (emphasis
added). In other words, Illinois-licensed retailers may ship to
customers statewide, unless local law stands in the way.
Taken as a whole, Illinois’s laws establish the diﬀerence in
treatment that is at issue in this suit: in-state retailers can ob-
tain a license to ship products to Illinois consumers, but out-
of-state retailers cannot, for the simple reason that they are
out-of-state and so by deﬁnition do not satisfy the physical-
presence requirement.
    The plaintiﬀs ﬁled this suit in 2016, contending that the Il-
linois statutory scheme violates both the Commerce Clause
and Privileges and Immunities Clause by discriminating
against out-of-state economic interests. Two of them—Leba-
moﬀ Enterprises and its co-owner Joseph Doust—operate a
wine store in Fort Wayne, Indiana. Lebamoﬀ says that it
would obtain a license to make direct shipments to Illinois
residents if it were allowed to do so. The third plaintiﬀ, Irwin
Berkley, is an Illinois resident who is a regular purchaser of
ﬁne wine; he complains that his access to rare wines is curbed
by the Illinois statutory scheme. Without traveling outside of
the state, he is limited to whatever the Illinois retailers can
send him. Consumers are often forced to travel to New York
or California in order to obtain access to the full panoply of
wines available from specialized retailers.
    The state defendants promptly moved to dismiss. The dis-
trict court viewed the complaint as a challenge to Illinois’s
6                                                     No. 17-2495

three-tier system writ large and granted the motion, dismiss-
ing the case with prejudice. The plaintiﬀs now appeal both the
district court’s decision dismissing the case and its denial of
leave to amend the complaint. Because the only valid basis for
the district court’s denial of leave to amend was futility, we
consider both decisions de novo, Runnion ex rel. Runnion v. Girl
Scouts of Greater Chi. & Nw. Ind., 786 F.3d 510, 524 (7th Cir.
2015).
                                 II
    We start with the relation between the Commerce Clause
and the Twenty-ﬁrst Amendment. The Commerce Clause
grants Congress the power to “regulate Commerce … among
the several States.” U.S. CONST. Art. 1, § 8, cl. 3. The positive
grant of power implies that “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, 544 U.S. at 472 (quoting Ore.
Waste Sys., Inc. v. Dep’t of Envtl. Quality of Ore., 511 U.S. 93, 99
(1994)). Laws that directly discriminate against interstate
commerce are “generally struck down … without further in-
quiry,” while those that only indirectly aﬀect interstate com-
merce are subject to a balancing test. Lebamoﬀ Enters., Inc. v.
Huskey, 666 F.3d 455, 460 (7th Cir. 2012) (quoting Granholm,
544 U.S. at 487). The plaintiﬀs argue that the Illinois law falls
into the former camp and thus must be struck down out of
hand.
    The evident problem with their argument is that this is not
a pure Commerce Clause case. It also involves the Twenty-
ﬁrst Amendment, which qualiﬁes the Commerce Clause. Sec-
tion 2 of the Twenty-ﬁrst Amendment states that “[t]he trans-
No. 17-2495                                                     7

portation or importation into any State, Territory, or posses-
sion of the United States for delivery or use therein of intoxi-
cating liquors, in violation of the laws thereof, is hereby pro-
hibited.” U.S. CONST. amend. XXI, § 2. While early cases sug-
gested that the Twenty-ﬁrst Amendment “pro tanto ‘re-
pealed’” the Commerce Clause with respect to liquor, the Su-
preme Court has since rejected that theory as “patently bi-
zarre and … demonstrably incorrect.” Hostetter v. Idlewild Bon
Voyage Liquor Corp., 377 U.S. 324, 332 (1964). Instead, “[l]ike
other provisions of the Constitution,” the Twenty-ﬁrst
Amendment and the Commerce Clause “must be considered
in the light of the other, and in the context of the issues and
interests at stake in any concrete case.” Id. In the decades since
Hostetter, courts have tried to reconcile these constitutional
commands through a two-step inquiry: (1) does the state law
violate the Commerce Clause, and if so (2) does the Twenty-
ﬁrst Amendment save the otherwise impermissible law? Leb-
amoﬀ Enters., 666 F.3d at 460.
                                A
    The Commerce Clause analysis in this case is straightfor-
ward. Illinois allows in-state retailers to obtain a license to
ship their products anywhere in the state; it prohibits out-of-
state retailers from obtaining an analogous license. Twenty-
ﬁrst Amendment considerations aside, this is precisely the
sort of discrimination against out-of-state economic interests
that is typically “struck down … without further inquiry.”
Granholm, 544 U.S. at 487 (quoting Brown-Forman Distillers
Corp. v. New York State Liquor Auth., 476 U.S. 573, 579 (1986);
see also City of Philadelphia v. New Jersey, 437 U.S. 617, 624
(1978) (“The clearest example of such legislation is a law that
8                                                     No. 17-2495

overtly blocks the ﬂow of interstate commerce at a State’s bor-
ders.”). The Supreme Court has “viewed with particular sus-
picion state statutes requiring business operations to be per-
formed in the home State that could more eﬃciently be per-
formed elsewhere.” Granholm, 544 U.S. at 475 (quoting Pike v.
Bruce Church, Inc., 397 U.S. 137, 145 (1970)).
    Illinois defends its statutory scheme on several grounds.
First, it argues that its law does not facially discriminate
against out-of-state retailers because the “provisions impose
delivery and shipment restrictions on all retailers and the al-
coholic liquors that they sell.” In eﬀect, Illinois argues that be-
cause all retailers are barred from shipping from out-of-state,
the provision does not discriminate against out-of-state retail-
ers. For example, a retailer with locations in both Illinois and
Indiana could not ship wine to an Illinois customer from the
Indiana location. But one cannot deﬁne the problem away so
facilely. On its face, Illinois law distinguishes between in-state
and out-of-state parties for purposes of the right to ship to Il-
linois residents. This case is therefore not like Baude v. Heath,
538 F.3d 608 (7th Cir. 2008), where pursuant to the “face-to-
face” clause any customer who wanted direct shipments of
wine from any winery in or out of Indiana was subject to the
same visitation regime. We found no discrimination in that
system, and thus upheld that part of the state’s law.
    That cannot be said about the part of Illinois’s system un-
der attack here. Even assuming (counterfactually) that section
6-29.1(b)’s shipping ban is facially even-handed, we must still
contend with section 6-2 and 5-1(d), whose licensing require-
ments are not so benign. 235 ILCS 5/5-1, 5/6-2. Limiting li-
censes to in-state storefronts might make sense if all sales had
to be on an in-person basis. The great majority of out-of-state
No. 17-2495                                                     9

retailers would have no use for such a license, and the failure
of the state to oﬀer it would raise no eyebrows. But once the
license allows a store to ship product anywhere within the
state, refusing to extend that privilege to out-of-state busi-
nesses is facially discriminatory.
                                B
     The question is thus whether the Twenty-ﬁrst Amendment
saves Illinois’s law. Despite the seemingly broad language of
the Amendment, the Supreme Court has indicated that its
protection is more limited than meets the eye. In 1984, the
Court invalidated a Hawaii law exempting two local spirits
from taxation. Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984).
State laws “enacted to combat the perceived evils of an unre-
stricted traﬃc in liquor” are worthy of deference, the Court
said, but “laws that constitute mere economic protectionism”
are not. Id. at 276. The Bacchus Court thought that “the tax vi-
olates a central tenet of the Commerce Clause but is not sup-
ported by any clear concern of the Twenty-ﬁrst Amendment.”
Id. The Court later invalidated state laws that eﬀectively re-
quired producers to ﬁx prices based on the prices oﬀered in
other states. Brown-Forman, 476 U.S. 573; Healy v. Beer Inst., 491
U.S. 324 (1989). Expanding on an increasingly common
theme, the Court said that it was troubled by the lack of a
“neutral justiﬁcation for this patent discrimination.” Id. at 341.
We read these cases to dictate that the Twenty-ﬁrst Amend-
ment can save an otherwise discriminatory regulation only if
it “is demonstrably justiﬁed by a valid factor unrelated to eco-
nomic protectionism.” Id. at 340–41.
   The Supreme Court returned to the issue in 2005 in
Granholm. There it invalidated state laws that drew a distinc-
10                                                  No. 17-2495

tion between in-state and out-of-state winemakers by allow-
ing the in-state group to ship directly to consumers (bypass-
ing wholesalers and retailers) but requiring the out-of-staters
to sell through the typical three-tier system. The present case
requires us to deconstruct Granholm and see what light it may
shed on the Illinois law. The state points to dicta in Granholm
stating that the Court has “previously recognized that the
three-tier system itself is ‘unquestionably legitimate.’”
Granholm, 544 U.S. at 489 (quoting North Dakota v. United
States, 495 U.S. 423, 432 (1990) (plurality)).
    Illinois infers from this language that any legal challenge
threatening any application of the three-tier system must fail
because of the Twenty-ﬁrst Amendment. The state sees in
Granholm a rule according to which the Commerce Clause
protects out-of-state producers, but not retailers or wholesal-
ers. The plaintiﬀs contend that Granholm did no such thing.
Even taking the Twenty-ﬁrst Amendment into account, they
reason, in-state presence requirements are almost always for-
bidden. See id. at 474–75. Granholm is not to the contrary, they
say, because the case before the Court was limited to produc-
ers (i.e. wineries). The Court did not draw the distinction the
state proposes between producers, on the one side, and
wholesalers and retailers, on the other side, for the simple rea-
son that it had no occasion to do so.
    Given the ﬁnancial stakes, it is unsurprising that the par-
ties before us are not the ﬁrst to grapple over the content of
the law after Granholm. Courts have split over the best read-
ing. Some see Granholm as establishing a rule immunizing the
three-tier system from constitutional attack so long as it does
not discriminate between in-state and out-of-state producers or
No. 17-2495                                                     11

products. The idea is that the Twenty-ﬁrst Amendment over-
rides the Commerce Clause and permits states to treat in-state
retailers and wholesalers diﬀerently from their out-of-state
equivalents. Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 190–91
(2d Cir. 2009); Brooks v. Vassar, 462 F.3d 341, 352 (4th Cir. 2006)
(Niemeyer, J., writing only for himself)); Southern Wine & Spir-
its of Am., Inc. v. Division of Alcohol & Tobacco Control, 731 F.3d
799, 809–10 (8th Cir. 2013). More courts have read Granholm
simply to reaﬃrm a general non-discrimination principle, alt-
hough the principle may carry greater or lesser weight at dif-
ferent tiers of a three-tier system. Brooks, 462 F.3d at 354;
Cooper v. Tex. Alcoholic Beverage Comm’n, 820 F.3d 730, 743 (5th
Cir. 2016); Byrd v. Tenn. Wine & Spirits Retailers Assoc., 883 F.3d
608, 618 (6th Cir. 2018); Siesta Vill. Mkt., LLC v. Granholm, 596
F. Supp. 2d 1035, 1039 (E.D. Mich. 2008); Peoples Super Liquor
Stores, Inc. v. Jenkins, 432 F. Supp. 2d 200, 221 (D. Mass. 2006).
Finally, one judge understands Granholm to preclude any
Twenty-ﬁrst Amendment protection for state laws that other-
wise violate the dormant Commerce Clause. Brooks, 462 F.3d
at 361 (Goodwin, J., concurring in part and dissenting in part).
    Illinois, like the Second and Eighth Circuits, focuses on a
paragraph in Granholm in which the Court concludes that
“[s]tate policies are protected under the Twenty-ﬁrst Amend-
ment when they treat liquor produced out of state the same
as its domestic equivalent.” 544 U.S. at 489. This, along with
the Court’s comment that the three-tier system is “unques-
tionably legitimate,” id., means (Illinois asserts) that
Granholm’s nondiscrimination principle is limited to discrim-
ination against producers.
  We are not persuaded. The interpretation of Granholm for
which Illinois argues fails to read the Court’s statements in
12                                                    No. 17-2495

light of the opinion as a whole. See Ind. Petroleum Marketers &
Convenience Store Ass’n v. Cook, 808 F.3d 318, 321–22 (7th Cir.
2015) (noting that several passages of Granholm “cannot be
read in isolation”). At the start of Part III.C of its opinion, the
Court extracts three principles from its Twenty-ﬁrst Amend-
ment case law: (1) the Amendment does not save state laws
that violate other provisions of the Constitution (i.e. clauses
other than the Commerce Clause), (2) the Amendment “does
not abrogate Congress’ Commerce Clause powers with re-
gard to liquor,” and (3) “state regulation of alcohol is limited
by the nondiscrimination principle of the Commerce Clause.”
Granholm, 544 U.S. at 486–87. In the next two paragraphs, the
Court rejects an invitation to overrule the third principle or
limit it to the facts of Bacchus. Id. at 487–88. Only after this ex-
tended discussion of its prior cases does the Court comment
that “the three-tier system itself is unquestionably legiti-
mate,” Id. at 489 (internal quotation marks omitted), in a par-
agraph fending oﬀ concerns about the potential breadth of its
ruling.
    None of this addresses the propriety of singling out the
producer tier for special treatment. It follows a passage an-
nouncing three general principles from prior case law and de-
clining to limit those principles to the facts of those earlier
cases. We will not assume that the Supreme Court, without
saying so directly, announced a new bright-line rule creating
diﬀerent constitutional treatment for the producer tier, on the
one hand, and the lower two tiers, on the other. Indeed, such
a rule would be inconsistent with the general principles the
Court had just set out. A strict limitation of the Commerce
Clause to the producer tier is diﬃcult to square with Healy
and Brown-Forman, both of which the Court read as helping
No. 17-2495                                                   13

to establish the “nondiscrimination principle of the Com-
merce Clause” with respect to state regulation of alcohol.
Granholm, 544 U.S. at 487. Healy involved importers and ship-
pers, not just producers, 491 U.S. at 327–31, and Brown-Forman
states that “[e]conomic protectionism is not limited to at-
tempts to convey advantages on local merchants; it may in-
clude attempts to give local consumers an advantage over
consumers in other States.” 476 U.S. at 580. Read together,
Healy, Brown-Forman, and Granholm actually contradict a pro-
ducers-only rule. “A fair reading of this passage leads to one
conclusion: the Supreme Court discussed the relationship be-
tween the dormant Commerce Clause and the Twenty-ﬁrst
Amendment in the context of ‘producers’ simply because
Granholm involved statutes addressing that step in the three-
tier system.” Byrd, 883 F.3d at 621.
    There are also serious problems with reading Granholm to
protect against discrimination only in the parts of the three-
tier system that are not “inherent” or “integral” to its exist-
ence. Prime among them are the fuzziness and impracticality
of such a line. “There is no archetypal three-tier system from
which the ‘integral’ or ‘inherent’ elements of that system may
be gleaned.” Southern Wine & Spirits of Am., 731 F.3d at 810.
States successfully have implemented varying regulatory
schemes. Missouri, for example, has four tiers; the usual three,
plus one for “solicitors.” Id. at 802. And how are we supposed
to decide which parts of Illinois’s scheme are “integral”? We
count 30 categories of licenses and permits in section 5-1
alone. Is an airplane license subject to constitutional challenge
while an ordinary retail license is not? See 235 ILCS 5/5-1.
Even setting aside the administrative problems posed by this
approach, there is no reason to think that the Twenty-ﬁrst
Amendment accords privileged status to only one form of
14                                                   No. 17-2495

state liquor regulation. The Amendment gives states the
power to structure their liquor distribution systems; it does
not give states that adopt one structure over another outsized
deference.
    The better understanding of Granholm is that it simply re-
aﬃrmed the position ﬁrst announced in Bacchus. As the
Fourth Circuit summarized, “these cases stand for the propo-
sition that a State’s regulation of the transportation, importa-
tion, and use of alcoholic beverages in the State is protected
by the Twenty-ﬁrst Amendment, but economic protectionism
is not … .” Brooks, 462 F.3d at 354. To be sure, the Supreme
Court reaﬃrmed in Granholm that most aspects of the three-
tier system pass constitutional muster. Among other things,
the state can require licenses at each tier of the system or route
liquor through wholesalers “to promote temperance or to
carry out any other purpose of the Twenty-ﬁrst Amendment.”
Bacchus, 468 U.S. at 276. But when the state creates exceptions
to the system or modiﬁes the rights that come with licenses in
the system, those modiﬁcations must not oﬀend the Com-
merce Clause (or any other constitutional provision). By al-
lowing statewide shipments, Illinois has signaled that it is not
quite so concerned about face-to-face sales. At the same time,
it has made its retailer licenses attractive to out-of-state busi-
nesses while barring those businesses from obtaining a license
solely on the basis of state residency.
    Granholm’s acceptance of the three-tier system as a general
matter does not say anything about these aspects of Illinois’s
regulatory choice. We must thus examine “whether the inter-
ests implicated by a state regulation are so closely related to
the powers reserved by the Twenty-ﬁrst Amendment that the
No. 17-2495                                                    15

regulation may prevail, notwithstanding that its require-
ments directly conﬂict with express federal policies.” Byrd,
883 F.3d at 614 (quoting Bacchus, 468 U.S. at 275–76).
    The district court did not conduct this inquiry because it
took the plaintiﬀs’ challenge to be one to the three-tier system
as a whole. This was error. It should have asked whether Illi-
nois has justiﬁed requiring an in-state presence for retailers
now that it allows state-wide mail-order sales. (We note that
distance from the store is not a promising theory: downtown
Chicago, in northeastern Illinois, is 370 miles from Cairo, in
far southern Illinois, while it is just 24 miles from downtown
Hammond, Indiana.) Perhaps Illinois can show that the dif-
ferential treatment is necessitated by permissible Twenty-ﬁrst
Amendment interests, but this sort of inquiry is ill-suited for
the motion to dismiss stage. The consolidated cases in
Granholm were both decided after summary judgment, 544
U.S. at 470–72, and the Illinois statute itself shows why evi-
dence is crucial to evaluate the constitutionality of the statute.
The interstate shipment provision decries “direct marketing”
of liquor as a “serious threat” not only to the health of state
residents, but also “to the economy of this State.” 235 ILCS
5/6-29.1(b). The ﬁrst reason touches the core of the Twenty-
ﬁrst Amendment, while the second smacks of protectionism.
Interestingly, Illinois previously allowed out-of-state wine re-
tailers to make sales by shipment. See 235 ILCS 5/6-29 (1991),
amended by Ill. Legis. Serv. P.A. 95-634 (eﬀ. June 1, 2008) (af-
fording reciprocal wine shipment privileges). Illinois must
show why its restrictions are necessary to further the ﬁrst ob-
jective, and not just the second.
   Illinois argues that any factual development is a fool’s er-
rand, because lifting the in-state presence requirement and
16                                                    No. 17-2495

out-of-state shipment ban would not give the plaintiﬀs any
real relief. The reason this is so, according to the state, is that
it would be impossible for a hypothetical out-of-state licensed
retailer to comply with other aspects of the regulatory
scheme. In particular, it says, as long as Illinois is entitled to
insist that retailers authorized to sell in Illinois must buy all
their stock from Illinois wholesalers, the out-of-state retailers
would gain exactly nothing by winning this suit. They would
simply be blocked from the market at a diﬀerent stage. The
Second Circuit found a similar practical impossibility argu-
ment persuasive when addressing a similar New York law.
Arnold’s Wines, 571 F.3d at 192 n.3. But just as we part from
the Second Circuit’s analysis of Granholm as limited to pro-
ducers, we do the same on this point. First, the legality of
those restrictions is contestable, as the Supreme Court’s grant
of review in Tennessee Wines illustrates. Second, it is not clear
that the other regulatory hurdles facing out-of-state retailers
favor the state’s position. If Illinois can limit the dangers of
mail-order sales through other requirements, why does it
need to discriminate against interstate commerce and ﬂatly
bar out-of-state retailers from obtaining a license?
    It is too early in this case to provide deﬁnitive answers to
those questions. All we can say is that the record is not devel-
oped enough at this point to allow us to say deﬁnitively that
there is no possibility of eﬀective relief. We are reluctant to
short-circuit the adversary process on such a central point.
Perhaps some out-of-state retailers could still ﬁnd a way to
comply and compete on equal terms with Illinois retailers, or
perhaps they could not; these issues have not been developed
properly. Nor do we consider the question about the compat-
ibility of these remaining barriers with the Commerce Clause
No. 17-2495                                                   17

and the Twenty-ﬁrst Amendment to be properly before us at
this time.
    Aside from the Second Circuit, which relied on the pro-
ducer-exception reading of Granholm, no circuit has ad-
dressed a statute allowing in-state retailers to make direct
shipments to consumers throughout the state while prohibit-
ing out-of-state retailers from doing so. The Fifth Circuit has
upheld a statute allowing retailers to make local deliveries as
“a constitutionally benign incident of an acceptable three-tier
system.” Wine Country Gift Baskets.com v. Steen, 612 F.3d 809,
820 (5th Cir. 2010). But local deliveries are diﬀerent in kind
from state-wide deliveries through a carrier. The former de-
livery scheme is logically tied to an in-state presence (how else
would the deliveries be accomplished locally?), while the lat-
ter form of delivery makes an in-state presence unnecessary.
Cf. Granholm, 544 U.S. at 475 (noting the “suspicion” accorded
to state laws requiring in-state presence for operations “more
eﬃciently … performed elsewhere”) (quoting Pike, 397 U.S. 15
145). The Eighth Circuit upheld a wholesaler residency re-
quirement, but in that case the plaintiﬀ’s “protectionist-intent
argument” was waived. Southern Wine & Spirits of Am., 731
F.3d at 807. By contrast, this case involves state-wide deliver-
ies and a statute that frankly admits some degree of protec-
tionist intent. On remand, the parties can further explain how
these diﬀerences in Illinois law should weigh on the scales.
   The plaintiﬀs have successfully alleged a violation of the
dormant Commerce Clause, and on the pleadings the Twenty-
ﬁrst Amendment does not bar their challenge. The Commerce
Clause claim should therefore not have been dismissed.
18                                                 No. 17-2495

                              III
    The plaintiﬀs also argue that Illinois’s scheme violates the
Privileges and Immunities Clause. That clause provides that
“The Citizens of each State shall be entitled to all Privileges
and Immunities of Citizens in the several States,” U.S. CONST.
art. IV, § 2, cl. 1. It protects those privileges and immunities
that are “fundamental,” meaning that it does not categorically
prevent states from using state citizenship or residency as a
distinguishing factor. McBurney v. Young, 569 U.S. 221, 226
(2013). Before Prohibition and its repeal, the Supreme Court
held in several cases that state laws regulating, or even pro-
hibiting, liquor sales did not violate the Fourteenth Amend-
ment’s Privileges or Immunities Clause. See, e.g., Crowley v.
Christensen, 137 U.S. 86, 91 (1890); Mugler v. Kansas, 123 U.S.
623, 657 (1887). The ground shifted, however, with the pas-
sage of the Twenty-ﬁrst Amendment. There is scant precedent
considering the interaction of the Privileges and Immunities
Clause and the Twenty-ﬁrst Amendment. What we do know
is that “state laws that violate other provisions of the Consti-
tution are not saved by the Twenty-ﬁrst Amendment.”
Granholm, 544 U.S. at 486–87 (cataloging cases applying the
First Amendment, Establishment Clause, Equal Protection
Clause, Due Process Clause, and Import-Export Clause to liq-
uor regulations). Although we are dubious that the plaintiﬀs
can overcome the Court’s consistent narrow view of the Four-
teenth Amendment’s Privileges or Immunities Clause, see the
Slaughter-House Cases, 83 U.S. 36, 74–75 (1872), they should
have the opportunity to try.
    Before leaving this subject, we note that even if a funda-
mental privilege or immunity is burdened, the state can jus-
tify diﬀerential treatment if “(i) there is a substantial reason
No. 17-2495                                                   19

for the diﬀerence in treatment; and (ii) the discrimination
practiced against nonresidents bears a substantial relation-
ship to the State’s objective.” Id. at 284. This balancing test
would allow for Twenty-ﬁrst Amendment considerations to
be brought to bear, but just as with the Commerce Clause
claim, it is premature to balance these interests at this early
stage in the litigation. And there is one more important diﬀer-
ence from the Commerce Clause analysis: corporations are
not protected by the Privileges and Immunities Clause. Paul
v. Virginia, 75 U.S. 168, 180–81 (1868). Doust is a co-owner of
Lebamoﬀ Enterprises, and it is unclear on this record whether
he conducts any business individually, or if all of it is con-
ducted through the corporate form. If it is the latter, his Priv-
ileges and Immunities Clause theory may be doomed to fail,
but a deﬁnitive answer must await further development of the
record.
                               IV
    The plaintiﬀs have stated a claim that Illinois’s refusal to
license retailers without an in-state presence violates the
Commerce Clause and Privileges and Immunities Clause. Be-
cause both their initial complaint and proposed amended
complaint met that bar, we do not separately reach the ques-
tion whether leave to amend should have been granted. The
judgment of the district court is REVERSED and the case is
REMANDED for further proceedings consistent with this opin-
ion.