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H.R. 1161: Supported by the U.S. Constitution

Editor’s Note: The following is a guest post, written by Paul Pisano of NBWA, in our series on the CARE Act of 2011.

I would like to thank ShipCompliant for allowing me to offer a few thoughts about H.R. 1161.

“Constitutional Head Fakes” or Fake Constitutional Objections?

The debate over H.R. 1161, The Community Alcohol Regulatory Effectiveness (CARE) Act, has taken some odd detours, but perhaps none so odd, or disturbing, as the specious claim that H.R. 1161 is “unconstitutional.”

Frankly, I was disappointed to see the Wine Institute and other groups’ recent paid advertisements claiming that the “CARE Act is unconstitutional” and that it “violates the Commerce Clause.” Did their lawyers approve those statements? The claim may make for a pithy sound bite for lobbying purposes but, like most of the opposition to the bill, it is just plain wrong (see for example the related “the CARE Act bans direct shipping” falsehoods being spread by opponents). If enacted, H.R. 1161 would clearly be constitutional and, in fact, follows an approach that the Supreme Court has previously and repeatedly endorsed.

Readers of this blog are by now familiar with Article 1, Section 8 of the Constitution, commonly known as the Commerce Clause, which authorizes Congress to regulate Commerce among the several states. A dormant Commerce Clause was later recognized by the Supreme Court so as to prevent state trade barriers. At its heart, an issue subject to the dormant Commerce Clause is not created by the Constitution but rather it is created by congressional inactivity or silence. The claim by opponents of CARE that the law puts up “barriers” against the dormant Commerce Clause is not just unfounded, but incoherent.

Congress regularly passes a whole host of legislation under the Commerce Clause power. Federal law regulating commerce fills volumes of the United States Code. The pending health care debate is a high profile (and contentious) example of the exercise of the Commerce Clause power by Congress. Congress has regulated air bags, clean air and many other matters through the exercise of its Article 1, section 8 powers. Generally, unless Congress has spoken, states are not to erect so-called “trade barriers.” However, Congress has acted to clarify the application of dormant Commerce Clause issues on other subjects in the past. For example, one subject many readers are familiar with is state regulation of insurance. In 1945, Congress passed the McCarran-Ferguson Act which specifically authorizes states to regulate insurance and insulates such state regulation from challenge under the dormant Commerce Clause. Congress has the power to do this. (Again, the question of whether they should is a separate issue.) In addressing the power of Congress to pass a law that removes dormant Commerce Clause scrutiny in this manner, the Supreme Court has noted:

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.” If Congress ordains that the States may freely regulate an aspect of interstate commerce, any action taken by a State within the scope of the congressional authorization is rendered invulnerable to Commerce Clause challenge.

Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 U.S. 648, 652-53, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981)

As recently as 2005, in reaction to nuisance lawsuits against the states similar to the alcohol litigation, Congress passed a law clarifying state rights to regulate hunting and fishing licensing. In bill language that tracks the language of H.R. 1161, Congress addressed the issue of the dormant Commerce Clause as related to state hunting and fishing regulation. In a subsequent challenge to this new federal clarification, the 10th Circuit said:

The essential element of a successful dormant Commerce Clause claim is congressional inaction, so when Congress does act, the dormancy ends, thus leaving the courts obliged to follow congressional will. Such is the case here.

Schutz v. Thorne, 415 F.3d 1128, 1132 (10th Cir. 2005)

Just as the hunting and fishing language was passed to clarify the parameters of state powers and end burdensome litigation against the states, so too the CARE Act recognizes that states must be empowered to regulate the unique product of alcohol free from endless dormant Commerce Clause lawsuits.

Congress cannot dictate to courts how to interpret the U.S. Constitution such as the 21st Amendment. Only the courts can interpret the Constitution. However, Congress does have its Article 1 powers to shape the scope of the Commerce Clause as H.R. 1161 does. Congress could even overturn the Granholm decision if it wanted to, but the language of H.R. 1161 does not. Instead the legislation tries to strike a balance.

Contrary to the critics’ claims, the Care Act is not inconsistent with the dormant Commerce Clause. Instead, it is impossible for congressional legislation to contradict the dormant Commerce Clause because that doctrine is simply a directive on how to interpret congressional silence, and its force is automatically dispelled if Congress speaks directly and affirmatively that it intends to allow the States to regulate. That is why I believe that the claim that the CARE Act puts up “barricades” against the dormant Commerce Clause is not just unfounded, but also incoherent.

The power to determine what is and what is not “dormant” rests with Congress, Congress has done this very thing in the past, most recently in 2005, and H.R. 1161 is of the same heritage of these previous clarifications of Congressional intent. In H.R. 1161, Congress is simply clarifying the Commerce Clause relationship to state alcohol laws as it has done in other matters. H.R. 1161 is clearly constitutional. It does not violate the dormant Commerce Clause.

Protecting States’ Rights to Pass Legitimate Alcohol Regulations

Will the above explanation on constitutionality end the attacks on the bill? Probably not, as muddying the waters and confusing people is a very effective opposition technique. The CARE Act would protect a state’s right to pass legitimate alcohol regulations. Although the thought of actually competing in a state-regulated industry may frustrate the business plans of some opponents, the plain language of the 21st Amendment provides for exactly that.

Everyone in this country benefits from alcohol regulations. Every person may have parts of the system he or she would change but, on balance, the American system works for the public and for industry. The tremendous excitement, choice and variety in the beer category is something NBWA members are very proud to be a part of developing in a responsible way, reflective of the public’s interest in effective regulation. The merits of the great American system are apparent when we look around the world and see the results of other alcohol regulatory systems. On issues such as public health, we need only look at the situation in the United Kingdom to understand the concerns over the failure to have a strongly regulated system. The daily public health concerns in the United Kingdom are very real and continuous as well as the concern over continued counterfeiting in other parts of the world. We are talking about alcohol here. Not shoes, not books, not the other examples used to justify no regulation of alcohol. The public’s interest in an orderly market and the appropriate control of a product whose characteristics are intoxicating are well served by state regulation. And it has also been good for the industry. Just last week, the Los Angeles Times noted the struggles of small Mexican brewers trying to compete in their own country due to the lack of effective alcohol regulation. No offense to ShipCompliant and its readers, but the debate about the CARE Act is much bigger and more important than the issue of direct shipping. I would urge all who are concerned about the public interest and a healthy alcohol marketplace to acknowledge the larger issues at play.

The CARE Act would help states defend a wide variety of laws that have been challenged, including physical presence requirements for retailers and differential treatment for small alcohol producers. A default position of wide latitude for state alcohol regulation is important for the state to pursue a variety of public policy goals and pass regulations needed to protect consumers and the public. The current litigation status only will lead to states abandoning their powers to protect the public interest. The CARE Act would help states preserve some of these powers by helping them defend against dormant Commerce Clause challenges.

So What Is Your Intent?

How did we get in this predicament? Why was CARE introduced? Why amend the Wilson Act? To answer that, another quick history lesson is needed. (A great summary is contained in Professor Stephen Diamond’s testimony to Congress last year. It is the best explanation, and I strongly recommend you read it to fully understand how we got where we are.)

Congress passed the Wilson Act in 1890, the Webb-Kenyon Act in 1913, the 21st Amendment in 1933 and re-passed the Webb-Kenyon Act in 1935. The clear intent of all these enactments was to empower states to effectively regulate alcohol. However, this intent and complex congressional history was overlooked or minimized by the Supreme Court in Granholm. The Granholm court focused almost exclusively on the Wilson Act, passed in 1890, and either ignored or misinterpreted the subsequent enactments in 1913 and 1935 of the Webb-Kenyon Act. This tortured legislative history lead to the states’ arguments in Granholm being diminished and placed in an impossible position to defend. The Court’s myopic focus on the Wilson Act and the related holding has led subsequent courts to expand Granholm. The CARE Act addresses this situation by clarifying congressional intent as to the authority of states to regulate alcohol.

As Wendell Lee correctly notes, H.R. 1161 does not overturn any laws or overturn any previous cases (contrary to some opponents’ claim that the CARE Act “would overturn Granholm”). The CARE Act must address that curious Wilson Act oddity in the Granholm opinion or risk a future court saying that Congress agreed with the backward reasoning of Granholm and elevating the Wilson Act over the CARE Act. As the critics note, the CARE Act would not overturn Granholm, but the Wilson Act language is needed to prevent the déjà vu moment of the CARE Act being ignored because of what the Supreme Court said in Granholm.

The General Counsel of Wine Institute expresses a misguided concern, however, that the CARE Act would “imprison” Granholm and be misinterpreted by the courts. It is not “imprisoning” a judicial decision to take the Supreme Court at its word. These fears and concerns are not well founded. The Act simply respects the balance that Granholm itself struck and made clear that states will be able to maintain their three-tier systems. The opponents’ analysis completely ignores Granholm’s ruling that the “three-tier system itself is ‘unquestionably legitimate.’” And I would suspect all the lawyers should agree with Judge Calebresi’s concurring opinion in Boyle about the current status of the law. He is not pro or anti-CARE Act. He is just a learned, neutral observer. He notes the present state of 21st Amendment law “can leave state legislatures and lower federal courts with no firm understanding of what the law actually is… we are all too frequently left to try to guess at the currently applicable rule from the Court’s evolving jurisprudence.” Congress can try to address Judge Calebresi’s concern, at least as to the Commerce Clause. This is freedom, not imprisonment.

The last fortress of opposition must lie then in the fears of the definition of “intent” and what is allowed or not allowed by H.R. 1161. With emotions so highly charged, it is the facts that must carry the day.

The CARE Act codifies the Supreme Court proscription against facial or intentional discrimination against producers. It does not change this holding of Granholm. So, what is lost from the critics’ perspective then? States requiring alcohol sellers to make sure they are selling only to those over 21 years old? Why can’t states use all the tools they have to make sure only those of legal drinking age are getting alcohol? Can states pass alcohol laws that treat big businesses differently than small businesses? There are numerous state and federal laws that do this. Is this only a bad thing with alcohol businesses? Or is it some unstated concern that future plaintiffs who want to weaken state control will lose an ability to launch an “effects” dormant Commerce Clause challenge to state laws? H.R. 1161 does insulate state alcohol laws from a “discrimination in effect” challenge, but as Professor Donald Regan of Michigan has noted, the Supreme Court has never overturned a state law purely because of perceived discriminatory effects. There has always been a concomitant finding either of facial or intentional discrimination. Again, no real loss to the goals of opponents by losing effects or is there some other unstated agenda?

Mr. Lee admits H.R. 1161 does not overturn Granholm but is uncomfortable because he feels fenced in despite explicit statutory protection. Despite the protections of Granholm and the language of the CARE Act, he wants more (whatever “more” is). What “more” really means is “less” – less state regulatory authority, less certainty for states operating under their powers to regulate alcohol, less regulation of alcoholic products despite the intoxicating characteristics of the products. This search by opponents of state alcohol regulation for “more” is why the CARE Act is needed to draw the line at Granholm to prevent its further expansion.

Concluding Thoughts

The CARE Act is constitutional. Although it could have, it does not overturn Granholm. It protects states’ rights to pass legitimate alcohol regulation which is broader than the narrow issue of direct shipping. Congress can and has done this type of legislation in the past when state rights were being impacted by federal court rulings. In the wake of 27 states being hauled into federal court since Granholm, the CARE Act strikes a balance. It balances a respect for the Supreme Court holding in Granholm about producer discrimination, yet provides certainty for states’ rights to regulate alcohol, including unquestionably legitimate three-tier systems. Providing clearer direction for all states and stakeholders on the intersection of the Commerce Clause and state powers should be welcomed by all, not fought. For more information please visit www.thecareact.org.

Paul Pisano is Senior VP and General Counsel for NBWA where he has worked since 2006.

4 Comments

  1. An awful lot of smoke and mirrors, big words and big talk.

    The real truth is the National Beer Wholesalers Association wrote the CARE Act with the support of the Wine and Spirits Wholesalers Association. The smoke and mirrors are intended to conceal the fact that the NBWA and WSWA are attempting to take TOTAL control of alcohol distribution within the United States. Only the wholesalers benefit from this bill, not the state governments and certainly not the consumers.

  2. Arguments about the CARE Act's constitutionality are an attempt at misdirection. The real issue here isn't whether it is constitutional, it's whether it is good policy. Both sides in a political fight are inclined to use hyperbole and sensational claims because it gets the public's attention. The hyperbole used by the proponents of the CARE Act is that it will protect against the DEregulation of the industry. This hides their fear of what has really been occurring since Granholm; the REregulation of the industry on terms that reduces their influence, yet still protects the public interest while fostering legal consumer access.

  3. The article is a prime example of the conflict between big company intersts and entrepeneurs. A lawyer representing large distributor interests clouding commercial gain interests of his distributor employers with claims of their public interest and welfare. In fact, alcohol is already well controlled by Federal and State regulations to the extent needed to protect public intersts. I concur that the way the act is written the benefit is not to the consumers, but the distributor interests.

  4. Paul Pisano no matter what you say it will always look as though you're putting this law up to line your own pockets …. please don't treat the public as so naive to think the NBWA are doing this for any reason of public health or state regulation it's embarassing and very sad…. the fact that one group can get a law the exclusively favors them over their customers should be illegal and congrese men who took contributions from NBWA should be prohibited from voting on the law so if it is truely constitutional and is fair it should have no problem in passing with those who's pockets weren't lined

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