April 6th, 2011
Editor’s Note: The following is a guest post, written by Karin Moore of WSWA, in our series on the CARE Act of 2011.
The intersection between the Commerce Clause and the 21st Amendment is about as clear as mud. The lack of clarity is a reason legal scholars and others find it fascinating–that and because it is alcohol we’re discussing. But this ambiguity has repercussions: it costs states millions of dollars to defend laws that have been debated and passed, at a time when they can ill afford the price. Litigation is being used as an end-run around the regulatory process, which should involve locally-elected officials and democratic procedures. The CARE Act is intended to clear the mud and underscore the fact that alcohol is different from other consumer goods.
The CARE Act itself is clearly constitutional. It is contentious to be sure. But unconstitutional? No. The Supreme Court has held on numerous occasions that Congress has clear authority to insulate state laws from dormant Commerce Clause challenges. “Our decisions do not, however, limit the authority of Congress to regulate commerce among the several States as it sees fit. In the exercise of this plenary authority, Congress may confe[r] upon the States an ability to restrict the flow of interstate commerce that they would not otherwise enjoy.” Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 44 (1980); see also Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 U.S. 648 (1981); H. P. Hood & Sons, Inc. v. DuMond, 336 U.S. 525, 542-543 (1949); Schutz v. Thorne, 415 F.3d 1128 (10th Cir. 2005). You may disagree with the reasons for insulating state laws (or insulating them at all), but the fact that Congress can do so if it chooses is clear.
It has been over a decade since the Granholm case was first filed. And we are all clear on precisely who Granholm applies to. We just don’t all agree. All signs – and statements by the Plaintiff’s attorney in the recent certiorari denial –indicate that this issue will continue to be litigated. In Granholm v. Heald, 544 U.S. 460 (2005), the New York and Michigan statutes at issue treated of in-state producers differently than out-of-state producers and the Court found the statutes to be facially discriminatory (“facial discrimination” means that the language of the statutes in question discriminated “by their own terms” or on their face), see, e.g. 544 U.S. at 476. But the Court also said that facially discriminatory laws could be constitutional if the states could justify the disparate treatment, and it proceeded to analyze the states’ proffered justifications, id. at 489-93. New York and Michigan failed to meet this “exacting” burden, of course, id. at 493, but the Court still performed the analysis. The CARE Act embodies this exact balancing test.
I simply cannot embrace the argument that Granholm’s discussion of the three-tier system meant something other than to bless its channeling of liquor through in-state distributors (and, by extension, in-state retailers). Granholm was a case about discrimination. So, if the Court wasn’t talking about that aspect of the three-tier system, there would have been no need to mention it. Recall that the opinion quotes Justice Scalia’s concurrance in North Dakota v. United States: “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”. See 544 U.S. at 489 (quoting 495 U.S. at 447).
Will the CARE Act end all litigation? Of course not: it only focuses on one aspect of beverage alcohol litigation. The CARE Act won’t affect in any way preemption challenges (like the Washington Costco case, the Maryland TFWS case, or the current New Mexico USAirways case), equal protection challenges to state laws (current Kentucky Maxwell’s Pic Pac case), or even some ongoing dormant Commerce Clause challenges to state laws (current Illinois ABInBev case).
The CARE Act would also protect state laws that are not facially or intentionally discriminatory at the producer level, including direct-to-consumer shipping laws. The CARE Act would allow a state to pass a law which provides for differential treatment for small producers (size-based distinctions) as long as the law was evenhanded and thus applied equally to both in-state and out-of-state producers and was not intentionally discriminatory. And states could require that all sales be consummated in a face-to-face manner, once again, as long as the law was evenhanded and thus applied equally to sales by both in-state and out-of-state producers.
At the time of ratification, I’m certain that the authors of the 21st Amendment thought they were being crystal clear. In the words of Hugo Black, who lived through Prohibition and, while a United States senator, supported the enactment of the 21st Amendment, the purpose was to return “’absolute control’ of liquor traffic to the States, free of all restrictions which the Commerce Clause might before that time have imposed.” Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 US 324 (1964) (Black, J., dissenting). There was indeed clarity on the purpose of the amendment.
There are those of us who feel that purpose is still clear, while the Courts have made it less so. While Justice Thomas did not vote for the passage of the 21st Amendment, he did argue in a lengthy dissent in the 2005 Granholm decision that the plain meaning of Section 2 removed “any doubt regarding its broad scope, the Amendment simplified the language of the Webb-Kenyon Act and made clear that States could regulate importation destined for in-state delivery free of negative Commerce Clause restraints.” 544 U.S. 460, 514 (2005) (Thomas, J., dissenting). Despite the clarity at the time, Section 2 of the Amendment has been the source of every Supreme Court ruling directly addressing 21st Amendment issues. Section 2 of the 21st Amendment was clearly about WHO should make decisions regarding alcohol policy, not WHAT those policies should be. And that is what the CARE Act is about.
V.P. & Co-General Counsel
Wine & Spirits Wholesalers of America
Karin Moore has been with WSWA for three years. Prior to that she was an antitrust litigator for twelve years with O’Melveny & Myers LLP and the U.S. Federal Trade Commission. Karin received her J.D. from George Mason University School of Law, and her B.A. in economics from Hobart and William Smith Colleges.