civil rights action brought pursuant to 42 U.S.C. § 1983, the plaintiffs raise a constitutional challenge to Michigan’s alcohol distribution system, contending that state provisions differentiating between in-state and out-of-state wineries [1] Those regulations prohibit violate the Commerce Clause. MARTHA CRAIG DAUGHTREY, Circuit Judge. In this dormant Commerce Clause because it interferes with the free states, claim that this system is unconstitutional under the *2 include wine connoisseurs, wine journalists, and one small California winery that ships its wines to customers in other state wineries. The defendants, who include Michigan flow of interstate commerce by discriminating against out-of- officials (referred to collectively in this opinion as “the state”)
and the intervening trade association, argue in response that Michigan’s regulatory scheme is constitutional under the *3 a license authorizing such action. . . .” The only licensed retailers; retailers must purchase them from licensed applicable license, an “outstate seller of wine license,”
may according to R436.1705(2)(d) be obtained by a “manufacturer which is located outside of this state, but in the United States, and which produces and bottles its cоnsumers. own wine.” However, under R436.1719(4) the holder of Do cuments filed on behalf of the defendants included reports from such a license may ship wine “only to a licensed the Michigan Department of Treasury, Office of Revenue and Tax wholesaler at the address of the licensed premises except Analysis, which detailed estimates of lost tax revenue to remote sales; an affidavit from the manager of the Manufacturers and Wholesalers Section upon written order of the commission.” In answers to of the Licensing Division of the Michigan Liquor Control Commission interrogatories, a representative of the Michigan Liquor that listed all licensed “Outstate Seller of Wine” license holders; an Control Commission indicates that “[a]t present, there is affidavit from the director of the Licensing Division of the Michigan no procedure whereby an out-of-state retailer or winery Liquor Control Commission averring that, of the wineries from which the can obtain a license or approval to deliver wine directly plaintiffs wish to purchase wine, som e are lice nsed as out-o f-state sellers, and the others have not apрlied for such licenses; an affidavit from the to Michigan residents . . . .” director of the Enforcement Division of the Michigan Liquor Co ntrol Commission detailing the number of “controlled buy operations” In contrast, the Michigan Liquor Control Commission conducted by the C omm ission in M ichigan to identify retailers that se ll indicates that the “ability to deliver wine to the consumer alcohol to minors; an affidavit from an assistant in the Liquor Control is available to winemakers licensed in Michigan, Division of the Michigan Dep artment of Attorney General, detailing inasmuch as under the provisions of MCL 436.1113(9) controlled buy operations co nduc ted over the internet; and an (unsworn) statement by Sen. Orrin Hatch, made before the Senate Judiciary these licensees are permitted to sell at retail the wines Committee, entitled “Interstate Alcohol Sales and the 21st Amendment.” they manufacture. . . . A licensed Michigan winemaker “make specific findings of fact based on the record” before may deliver their [sic] own products to customers reaching a final decision. The plaintiffs argued that the without an SDM [specially designated merchant] license district court’s failurе to rule on the motions to strike “left the . . . . record devoid of evidence supporting the court’s conclusion that the direct shipment law furthers legitimate 21st The plaintiffs contend that this differential treatment of in- Amendment purposes,” and that the court had applied the state and out-of-state wineries violates the dormant incorrect legal standard in dismissing the complaint. The Commerce Clause because it gives in-state wineries a district court denied the plaintiffs’ motion for reconsideration, competitive advantage over out-of-state winеries. In-state saying that it had not considered the challenged evidence in wineries can, for example, bypass the price mark-ups of a ruling on the summary judgment motions and that the wholesaler and retailer, making in-state wines relatively motions to strike were effectively denied as moot. cheaper to the consumer and allowing them to realize more
profit per bottle. In addition, the cost to an out-of-state For the reasons set out below, we reverse the district court’s winery of the license that enables it to sell to a Michigan judgment, vаcate the order granting summary judgment in the wholesaler is $300, while a comparable Michigan winery state’s favor, and remand the case for entry of summary must pay only a $25 license fee to qualify to ship wine judgment in favor of the plaintiffs.
directly to Michigan customers. Finally, for customers who DISCUSSION
desire home delivery, Michigan wineries have a competitive advantage over out-of-state wineries that cannot ship directly The central question in this case is how the “dormant” to customers. In response, the state argues that the Commerce Clause and the Twenty-first Amendment interact regulations to which an in-state winery is subject “more than to limit the ways in which a state can control alcohol sales offset, both in costs and burden, any nominal commercial and distribution. Article I, Section 8, Clause 3 of the United advantage given by the ability to deliver directly to States Constitution grants Congress the power “[t]o regulate customers” and characterizes the burden on out-of-state Commerce with foreign Nations, and among the several wineries as “de minimis.” States, and with the Indian Tribes . . . .” The Supreme Court has long held that “this affirmative grant of authority to
In its order granting summary judgment to the state and
Congress also encompasses an implicit or ‘dormant’
denying summary judgment to the plaintiffs, the district court
limitation on the authority of the States to enact legislation
held that “Michigan’s direct shipment law is a permitted
affecting interstate commerce.”
Healy v. The Beer Institute
exercise of state power under § 2 of the 21st Amendment”
After this order had issued, the plaintiffs filed a motion to
use therein of intoxicating liquors, in violation of the laws
reconsider, asking the district court to rule on the motions to
thereof . . . .” Initially, the Supreme Court afforded the states
strike before granting either side summary judgment and to
nearly limitless power to regulate alcohol under the new
first Amеndment has continued to develop since
amendment.
Ziffrin, Inc. v. Reeves
,
policies.”
Id.
at 714. The Court concluded that the
The state relied on these cases in the district court, but we
federal interest must prevail because the state’s banning
find that reliance disingenuous at best because, as early as the
of alcohol advertising did not directly relate to the core
1960s, the Supreme Court signaled a break with this line of
concerns of the Twenty-first Amendment,
i.e.,
to exercise
reasoning. In
Hostetter v. Idlewild Bon Voyage Liquor Corp.
“control over whether to permit importation or sale of
Court observed:
In subsequent cases, the Supreme Court has continued to To draw a conclusion from this line of decisions [ Ziffrin analyze challenges to state alcohol laws by determining how Young’s Market , etc.] that the Twenty-first Amendment closely related the law in question is to the “core concerns” of has somehow operated to ‘repeal’ the Commerce Clause the Twenty-first Amendment. Shortly after Capital Cities wherever regulation of intoxicating liquors is concerned was decided, the Court issued Bacchus Imports v. Dias would, howеver, be an absurd oversimplification. If the U.S. 263 (1984), in which out-of-state wholesalers challenged Commerce Clause had been pro tanto ‘repealed,’ then a Hawaii excise tax exemption for certain locally produced Congress would be left with no regulatory power over alcoholic beverages. The state argued that the statute interstate or foreign commerce in intoxicating liquor. advanced legitimate state interests, that it imposed no patent Such a conclusion would be patently bizarre and is discrimination against interstate trade, and that the effect on demonstrably incorrect. . . . interstate commerce was minimal. at 270. The Court rejected these defenses, finding that “the legislation Both the Twenty-first Amendment and the Commerce constitutes ‘economic protectionism’ in every sense of the Clause are parts of the same Constitution. Like other phrase,” id. at 272, and noting that “one thing is certain: The provisions of the Constitution, each must be considered central purpose of the [21st Amendment] was not to empower in the light of the other, and in the context of the issues States to favor local liquor industries by erecting barriers to and interests at stake in any concrete case. competition.” at 276. Instead, the Court considered “whether the principles underlying the [Twenty-first] The Supreme Court’s approach to cases involving the Amendment are sufficiently implicated by the [tax intersection of the Commerce Clause and the Twenty- exemption] to outweigh the Commerce Clause principles that *5 No. 01-2720 Heald, et al. v. Engler; et al. 12 Heald, et al. v. Engler; et al. No. 01-2720 would otherwise be offended.” at 275. In Bacchus , the commerce . . . invokes the strictest scrutiny of any purported state did not contest that the law’s purpose wаs “to promote legitimate local purpose and of the absence of a local industry,” so the Court did not have to engage in the nondiscriminatory alternatives”). Likewise, the language in normal Commerce Clause analysis of whether the law was North Dakota to the effect that the states have “virtually sufficiently closely related to the promotion of lawful complete control” over the importation and sale of liquor, interests to vitiate its discriminatory effect. Instead, it found although heavily emphasized by the district court in this case, that the law discriminated against interstate commerce in has little value in a case requiring a Commerce Clause violation of the Commerce Clause and was therefore analysis. Because North Dakota did not involve unconstitutional. interpretation of the Commerce Clause, we reject the
implication that a state’s “virtually complete control” over Since Bacchus , the Supreme Court has been less than liquor regulation enables it to discriminate against out-of-state prolific in construing the content of the Twenty-first interests in favor of in-state interests. Bacchus simply forbids Amendment’s “cоre concerns,” addressing the definition of such an analysis. “core concerns” only once – and then only in a plurality
opinion. In North Dakota v. United States , 495 U.S. 423 Given this background, we cannot endorse the district (1990), the Court had before it an intergovernmental court’s characterization of the regulation in this case as a immunity case, rather than a Commerce Clause challenge. At constitutionally benign product of the state’s three-tier system issue was whether North Dakota’s reporting and labeling and, thus, “a proper exercise of [Michigan’s Twenty-first requirements were constitutional, despite intеrfering with Amendment] authority, despite the fact that such a system contrary federal interests in selling liquor to military places a minor burden on interstate commerce.” Instead, we personnel. The Court upheld the statute, finding that the state invoke Justice Scalia’s view, expressed in an opinion regulations “fall within the core of the State’s power under concurring in the Supreme Court majority’s decision striking the Twenty-first Amendment” because they were enacted down a state price-affirmation statute, in which he explained “[i]n the interest of promoting temperаnce, ensuring orderly that:
market conditions, and raising revenue . . . .” at 432.
[The law’s] invalidity is fully established by its facial But, because North Dakota did not involve a Commerce discrimination against interstate commerce . . . . This is Clause challenge, the analysis in the plurality opinion cannot so despite the fact that the law regulates the sale of be taken to control the analysis in this case. That is, we do alcoholic beverages, since its discriminatory character not interpret the “in the interest of” language to mean that a eliminates the immunity afforded by the Twenty-first state need only be motivated by the “core concerns” of the Amendment.
Twenty-first Amendment
to shield
its
laws from
Healy v. Beer Institute
,
constitutional scrutiny. Under a Commerсe Clause analysis, concurring) (citations omitted). facially discriminatory laws are still subject to strict scrutiny, meaning that the state must demonstrate that no reasonable The proper approach in this case, then, is to apply the nondiscriminatory alternatives are available to advance the traditional dormant Commerce Clause analysis and, if the same legitimate goals. Hughes v. Oklahoma provisions are unconstitutional under the Commerce Clause, U.S. 322, 336-7 (1979) (finding that, “[a]t a minimum,” a to determine whether the state has shown that it has no statute that “on its face discriminаtes against interstate reasonable nondiscriminatory means of advancing the “core McNeilus Truck & Mfg., Inc. v. Ohio ex rel. Montgomery concerns” of the Twenty-first Amendment. F.3d 429, 442 (6th Cir. 2000) (quotations omitted).
In reviewing challenges brought under the Commerce
As we indicated in
McNeilus
, the proper starting point for
Clause, the Supreme Court has long held that statutes that
dormant Commerce Clause analysis is to determine whether,
facially discriminate are “virtually
per se
” invalid, citing as a
in fact, the state provision “directly, in effect, or in purpose
clear example “a law that overtly blocks the flow of interstate
treats in-state and out-of-state interests differently . . . .”
Id.
commerce at a State’s borders.”
Philadelphia v. New Jersey
If a court finds that the statute does discriminate, then the
be met.”
Id.
In other words, laws that facially discriminate
Where the statute regulates evenhandedly to effectuate a
are normally invalid, unless they advance “a legitimate local
legitimate local public interest, and its effects on
purpose that cannot be adequately served by reasonable
interstate commerce are only incidental, it will be upheld
nondiscriminatory alternatives.”
New Energy Co. of Ind. v.
unless the burden imposed on such commerce is clearly
Limbach
,
[T]he extent of the burden that will be tolerated will of Here, it is clear that the Michigan statutory and regulatory course depend on the nature of the local interest scheme treats out-of-state and in-state wineries differently, involved, and on whether it could be promoted as well with the effect of benefitting the in-statе wineries and with a lesser impact on interstate activities. burdening those from out of state. As discussed above,
Michigan wineries enjoy both greater access to consumers
quoting Pike v. Bruce Church, Inc.
,
When a state statute directly regulates or discriminates
the Michigan market altogether if unable to obtain a
against interstate commerce, or when its effect is to favor
wholesaler. The Fourth Circuit reached a similar conclusion
in-state economic interests over out-of-state interests,
in a case considering North Carolina’s alcohol distribution
[the Supreme Court has] generally struck down the
system, which is nearly identical to Michigan’s. In
Beskind
statute without further inquiry. When, however, a statute
v. Easley
,
intersection of the Twenty-first Amendment and the
We conclude, based on the evidence in the record, that
Commerce Clause, such as
Bacchus
.
defendants have not shown that the Michigan scheme’s
discrimination between in-state and out-of-state wineries
Nor do we find persuasive the district court’s reliance on
furthers any of the concerns listed above, much less that no
three additional cases. One,
House of York, Ltd. v. Ring
reasonable non-discriminatory means exists to satisfy these
F. Supp. 530 (S.D.N.Y. 1970), is a district court opinion that
concerns. This is so even if, taking the evidеnce in the light
pre-dates
Bacchus
. The second,
Bainbridge v. Bush
, 148 F.
most favorable to defendants, we assume that all of the
Supp.2d 1306 (M.D.Fla. 2001), has subsequently been
evidence they submitted was admissible. It is important to
reversed.
Bainbridge v. Turner
,
the Michigan Legislature has chosen this particular regulatory
For example,
Bridenbaugh
did not involve any out-of-state
scheme to further what are legitimate objectives. The proper
wineries as plaintiffs, and it thus addressed only whether the
inquiry, detailed above, is whether it “advances a legitimate
Indiana statute discriminated against customers who wanted
local purpose that cannot be adequately served by reasonable
to have out-of-state wine shipped directly to them.
nondiscriminatory alternatives.”
New Energy Co. of Ind. v.
Furthermore, it appears the Indiana statutes differ from the
Limbach
,
system and be subjected to taxation.” Bridenbaugh , 227 F.3d CONCLUSION at 853. Michigan, on the other hand, effectively exempts in- For the reasons set out above, we REVERSE the judgment
state wineries from the three-tier system, an exemption it does of the district court granting summary judgment to the not extend to out-of-state wineries. Finally, in contrast to this defendants and REMAND the case for entry of judgment in case, the Bridenbaugh plaintiffs were “concerned only with favor of the plaintiffs. direct shipments from out-of-state sellers who lack and do not
want Indiana permits.” at 854. By contrast, the plaintiffs
in this case are willing to acquire Michigan permits and pay
taxes on wines shipped; they simply want to be eligible for
such permits on the same basis as in-state wineries. For all of
these reasons, we do not find the opinion in Bridenbaugh
persuasive.
The district court in this case was correct in finding that the
Michigan alcohol distribution system discriminates between
in-state and out-of-state interests to the extent that in-state
wineries may obtain licenses to ship wine directly to
consumers, but out-of-state wineries may not and are instead
required to go through the more costly three-tier system.
What the district court did not do was undertake the necessary
analysis that follows from such a finding. Instead, it
concluded that Michigan’s system “cannot be characterized
as ‘mere economic protectionism,’” because the system
furthers the “core concerns” of the Twenty-first Amendment.
The district court’s observation that “[t]he Michigan
Notes
[1]
Twenty-first Amendment to the federal constitution.
Similar actions have been brought challenging direct shipment bans
in North Carolina, Virginia, Indiana, Texas, Florida and New Y ork,
The parties filed cross-motions for summary judgment, and
amo ng other states.
See Beskind v. Easley
,
[2]
between in-state and out-of-state wineries facially discriminates against
interstate commerce and remanding for further fact-finding on whether
Florid a’s statutory sc heme is “necessary to effectuate the . . . core concern
[of revenue raising] in a way that justifies treating out-of-state firms
differently from in-state firms”);
Brindenbaugh v. Freeman-Wilson
meaningful evidence” showing that the state cannot “accomp lish its
F.3d 848 , 851 (7th C ir. 2000) (finding that Indiana’s ban on direct
legitimate interests without discriminating against out-of-state direct
shipment from out-of-state wineries is constitutional becau se Ҥ 2 of the
shippers of wine”),
vacated by Bolick v. Danielson
,
[2] system . . . is justified by any of the traditional core concerns of the Affidavits submitted by the plaintiffs included statements from twenty-first amendm ent” or to show “that the core interests of taxation various oenophiles; the H ealds, who are wine critics and co nsultants; and orderly market conditions . . . could not be effected by аlternative, Dom aine Alfred, a California winery; and several other wine and alcohol nondiscriminatory optio ns for these out-of-state wineries”), aff’d manufacturers and distributers. Many of the affiants attested to their Dickerson v. Bailey , 336 F.3d 388 (5th C ir. 200 3); Bolick v. Robe rts desire to have wine fro m out-of-state wine ries shipped directly to their F. Supp.2d 397, 409 (E.D.Va. 20 02) (ad opting, with amendments, homes, their inability to do so, the general unavailability of certain wines magistrate judge’s findings that Virginia’s ABC laws violated the dormant in Michigan, and the willingness of the wineries and distributors to pay Commerce Clause and tha t the state had failed to produce “any required taxes an d ob tain necessary p ermits, if allowed to ship directly to The district court denied the motion to reconsider, noting that wholesalers; and wholesalers must purchase them from it had effectively denied the cross- motions to strike as moot, licensed manufacturers. This system is similar to that used by because it did not consider the challenged evidence in most states. Vijay Shankar, Alcohol Direct Shipment deciding the summary judgment motions. Laws , 85 Va. L. Rev. 353, 355 (1999). The plaintiffs now appeal both the grant of summary The plaintiffs allege that Michigan’s system discriminates judgment and the denial of their motion to reconsider. For the against out-of-state wineries in favor of in-state wineries reasons set out below, we conclude that the regulations in because it prevents out-of-state wineries from shipping wine question are discriminatory in their application to out-of-state directly to Michigan consumers, which in-state wineries are wineries, in violation of the dormant Commerce Clause, and allowed to do. As the district court correctly noted, this cannot be justified as advancing the traditional “core distinction between in-state and out-of-state wineries can only conсerns” of the Twenty-first Amendment. We therefore be understood by reading a number of provisions in reverse the district court’s judgment and remand the case with conjunction with each other: directions to the district court to enter judgment in favor of [The distinction] can be gleaned from various Michigan the plaintiffs. Liquor Control Commission regulations, which are PROCEDURAL AND FACTUAL BACKGROUND codified within the Michigan Administrative Code. R436.1057 states that “[a] person shall not deliver, ship, Michigan regulates alcohol sales under a “three-tier or transport into this state beer, wine, or spirits without system”: consumers must purchase alcoholic beverages from