Archive for April, 2011
The Commerce Clause, the CARE Act, and Clarity
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.
Karin Moore
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.
Introduction to CARE Act Series
April 5th, 2011
HR 1161 (The Community Alcohol Regulatory Effectiveness Act)—formerly known as HR 5034, is one of the most important pieces of alcohol-related legislation introduced into Congress in many years…as well as one of the most divisive. If passed, the bill would provide the states with greater authority, granted directly by Congress, to regulate the sale and distribution of alcohol, including beer, spirits and wine.
No piece of legislation, either in the various state legislatures or in Washington, has generated so much discussion (and hyperbole) within the wine industry. Because of the flood of claims, counter claims, misinformation and because of the importance of this issue to every tier, we thought it was important to get all views on the table for the industry to see, evaluate and discuss.
Over the course of the next few weeks, you will hear from people directly involved in helping pass or defeat HR 1161 as well as other industry experts. We believe that the best path to understanding the issues behind HR 1161 is to hear from those that are close to the issues.
If you oppose HR 1161, you are bound to read ideas you disagree with. The same goes for those of you who support the bill. We think that is good and this is in fact our motivation for delivering this series of guest posts by industry leaders involved in the debate over the CARE Act.
We hope that upon reading the coming posts on this issue, you will join into a discussion. Please feel free to contact me if you have any questions about the coming series of posts concerning HR 1161 or have an additional contributor you believe ought to be given the opportunity to be heard on the issue: (jeff) (at) (shipcompliant.com)
To find all posts in this series, please click here.
