Deregulation by Litigation - Efforts to Undermine State Power Under the 21st Amendment to Regulate the Importation and Distribution of Alcohol

Last Updated: July 29, 2004

Click Here to See Supreme Court Filings

Click here to view text of the 21st Amendment to the Constitution

“The Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system.” California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980). (doc: 96 KB)

“The States enjoy broad power under § 2 of the Twenty-first Amendment to regulate the importation and use of intoxicating liquor within their borders . . . Indeed, "[t]his Court's decisions ... have confirmed that the Amendment primarily created an exception to the normal operation of the Commerce Clause." . . . § 2 reserves to the States power to impose burdens on interstate commerce in intoxicating liquor that, absent the Amendment, would clearly be invalid under the Commerce Clause.” Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 712 (1984). (doc: 74 KB)

“The Court has made clear that the States have the power to control shipments of liquor during their passage through their territory and to take appropriate steps to prevent the unlawful diversion of liquor into their regulated intrastate markets . . . In the interest of promoting temperance, ensuring orderly market conditions, and raising revenue, the State has established a comprehensive system for the distribution of liquor [t]hat . . is unquestionably legitimate.” North Dakota v. U.S., 495 U.S. 423, 413-32 (1990). (doc: 160 KB)

“§ 2 of the twenty-first amendment empowers Indiana to control alcohol in ways that it cannot control cheese. . . No longer may the dormant commerce clause be read to protect interstate shipments of liquor from regulation. . . 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. No decision of the Supreme Court holds or implies that laws limited to the importation of liquor are problematic under the dormant commerce clause.” Bridenbaugh v. Freeman-Wilson, (pdf: 180 KB) 227 F.3d 848, 851-53 (7th Cir. 2000) cert. denied sub nom Bridenbaugh v. Carter, 121 S. Ct. 1672 (2001). (pdf: 146 KB)

""Presence ensures accountability. Records of sales and compliance with New York's regulatory requirements must be available for inspection by SLA officials. Violations are subject to disciplinary measures carried out in New York, including fines imposed against the bond all license holders are required to post. . . In 2000 there were over 2,100 wineries in the country, a 275% increase since 1975. Requiring New York officials to traverse the country to ensure that direct sales to consumers (no matter how small) comply with New York law would render the regulatory scheme useless." Swedenburg v. Kelly, Docket No. 02-9511, 03-7089 Con (2nd Cir, 2004).

"Under section 2, states have the authority to be proactive as well as reactive," and the state has a legitimate interest in requiring a physical presence for the purposes of "auditing company records, monitoring compliance with the ABC laws, monitoring licenses, checking tax forms for audits, etc." Swedenburg v. Kelly, Docket No. 02-9511, 03-7089 Con (2nd Cir, 2004).

"New York's regulatory regime falls squarely within the ambit of section 2's grant of authority. The statutory scheme regulates only the importation and distribution of alcohol in New York. New York's prohibition of the sale and shipment of wine by unlicensed wineries directly to New York consumers serves valid regulatory interests. The statute allows the state to monitor the distribution and sale of alcoholic beverages by permitting such distribution and sale only through state licensed entities supervised by, and accountable to, the SLA." Swedenburg v. Kelly, Docket No. 02-9511, 03-7089 Con (2nd Cir, 2004).

"Changes in marketing techniques or national consumer demand for a product do not alter the meaning of a constitutional amendment." ." Swedenburg v. Kelly, Docket No. 02-9511, 03-7089 Con (2nd Cir, 2004).

Despite a wealth of Supreme Court and appellate court opinions upholding a State's right under the 21st Amendment to control the importation and distribution of alcohol, lawsuits have been filed over the past several years in twelve different States challenging alcohol regulatory systems prohibiting the unlicensed interstate direct shipment of alcohol to consumers (if you wish to learn the latest developments in each of those cases, and/or to obtain documents (pleadings, briefs, opinions, etc.) filed in those cases, simply click on the desired link below):

Arizona
Florida
Indiana
Michigan
New Jersey
New York
North Carolina
Ohio
Rhode Island
Texas
Virginia
Washington

The proponents of these lawsuits decry direct shipping bans - especially where in-State licensed wineries are permitted to ship directly - and claim violations of the “dormant” Commerce Clause. Should the Supreme Court ultimately accept this notion, it could severely damage the ability of a State to regulate the distribution of alcohol as it deems appropriate for the protection of its citizenry - especially minors, and to efficiently collect excise and sales tax revenue.

Although the district and appellate court opinions rendered thus far have varied from case to case, and while it will probably take the Supreme Court to finally resolve the issues raised in the direct shipping litigation, the following points can be stated with certainty:

1. The three-tiered system has been upheld as unquestionably legitimate. Though often attacked by the plaintiffs, no court in any action has yet questioned the integrity and constitutionality of the three-tier system, a system noted by Justice Scalia in the North Dakota decision as "unquestionably legitimate."

2. No state ban on direct shipments - standing alone - has been challenged or questioned. The only cases that plaintiffs have brought have involved states where the legislature has determined to enact legislation allowing either in-state wineries or wineries in reciprocal states to ship to consumers. And in those cases, even where the courts have disagreed with allowing in-state direct shipping - the courts have often pointed out that simply banning direct shipping outright is an entirely constitutional and legitimate practice.

3. Every Court of Appeals has accepted that there are three core purposes under the 21st Amendment as approved by the Supreme Court. This is not a minor point. The plaintiffs in these cases have continually argued that there is only one core purpose under the 21st Amendment to which a state may address its concerns - temperance. By making this argument, the plaintiffs are attempting to restrict the types of actions a state may take only to those that further their interest in temperance. However, the courts of appeal have all agreed that the Supreme Court unequivocally supports three core purposes - temperance, ensuring orderly market conditions and raising revenue. As such, the powers of the state under the 21st Amendment have been found to be markedly broader than the plaintiffs have alleged.

4. Wholesalers are vilified as the result of the enactment of laws designed to benefit wineries, but those wineries who benefit from those laws are now in jeopardy as a result of the actions of their out-of-state brethren - not from the actions of wholesalers. During the direct shipping litigation battle, wholesalers have taken a position supporting state prerogatives under the 21st Amendment as a matter of principle. For instance, wholesalers oppose reciprocal or other forms of direct shipping laws as bad policy, but support a state's right to enact them.

The current battle is predicated solely on the enactment of laws designed to support wineries, not wholesalers. In-state direct shipment laws obviously do not enrich wholesalers since they allow wineries to circumvent wholesalers in the state. Those who seek to vilify wholesalers conveniently forget that wholesalers are in the business of identifying quality wine and marketing those products nationally - and that in this battle wholesalers are supporting laws which do not benefit them, and in fact serve to diminish their profits. With more and more wineries faced with losing their in-state privileges through the actions of their out-of-state winery "friends," perhaps it might be wise to consider who is doing the actual damage to the future of the small winery.

Early on, WSWA recognized the threat to State powers engendered by these lawsuits and has been at the forefront of the direct shipping battle. In addition to providing the courts with a comprehensive history of alcohol regulation in this country and a scholarly analysis of 21st Amendment jurisprudence through the filings of our amicus brief, WSWA monitors the status of the cases throughout the country and maintains a library of pleadings and rulings which anyone can easily access and download from our web site (available in PDF format on the website- I also have many in Word format, available upon request). WSWA also provides regular email bulletins to State regulators and law enforcement officials, industry members, industry media representatives, and others interested in the ongoing litigation, keeping them apprised of the most recent filings, decisions, and scheduling in the cases. If you would like to receive these bulletins, simply email me at: craig.wolf@wswa.org and request inclusion in my email list. Please provide your full contact information.