Freeman v. Corzine

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 08-3268 and 08-3302
__________

ROBERT FREEMAN; JUDY FREEMAN;
WALTER HANSEL WINERY, INC.;
OLIVER WINE COMPANY, INC.;
MEYER FRIEDMAN; BEVERLY FRIEDMAN

v.

JON S. CORZINE, Governor of New Jersey;
ANNE MILGRAM, Attorney General of New Jersey;
JERRY FISCHER, Director of the New Jersey
Division of Alcoholic Beverage Control

R&R MARKETING, L.L.C.; ALLIED BEVERAGE
GROUP, L.L.C.;
FEDWAY ASSOCIATES, INC.
(Pursuant to F.R.A.P. 43(c))

Jerry Fischer, Director of the New Jersey
Division of Alcoholic Beverage Control,
Appellant in 08-3268

Robert Freeman; Judy Freeman; Walter Hansel Winery, Inc.
Meyer Freeman; Beverly Freeman,
Appellants in 08-3302

1
 _____________

Appeals from the United States District Court
for the District of New Jersey (D.C. No. 03-3140)
District Judge: Honorable Katharine S. Hayden

Argued
February 1, 2010

Before: McKEE and HARDIMAN, Circuit Judges,
and POLLAK, District Judge.*

(Filed: December 17, 2010)

James A. Tanford [ARGUED]
Indiana University
Maurer School of Law
211 South Indiana Avenue
Bloomington, IN 47405

Robert D. Epstein
Epstein Cohen Donahoe Mendes
50 South Meridian Street, Suite 505
Indianapolis, IN 46204

*
Honorable Louis H. Pollak, Senior Judge of the
United States District Court for the Eastern District of
Pennsylvania, sitting by designation.

2
Gary S. Redish
Winne, Banta, Hetherington, Basralian & Kahn P.C.
21 Main Street
Hackensack, NJ 07602
Counsel for Appellees/Cross-Appellants Robert Freeman,
et al.

Anne Milgram
Lisa Hibner Tavani [ARGUED]
Lorinda Lasus
Office of the Attorney General of New Jersey
140 East Front Street
P.O. Box 087
Trenton, NJ 08625
Counsel for Appellant/Cross-Appellee Jerry Fischer

Deborah A. Skakel [ARGUED]
Dickstein Shapiro, LLP
1633 Broadway
New York, NY 10019-6708

Carmine R. Villani, Esq.
Villani & DeLuca
703 Richmond Avenue
Point Pleasant Beach, NJ
08742-0000
Counsel for Intervenor-Appellee R&R Marketing, LLC

Ross A. Lewin [ARGUED]
Drinker Biddle & Reath LLP
105 College Road East
Princeton, NJ 08542
Counsel for Intervenor-Appellee Fedway Associates, Inc.

3
 OPINION OF THE COURT

POLLAK, District Judge

Plaintiffs – two New Jersey wine enthusiasts, a New

Jersey couple who seeks access to more Kosher wines, and a

California winery – have brought suit in the United States

District Court for the District of New Jersey against Jerry

Fischer, New Jersey’s Director of Alcoholic Beverage Control,

alleging that several aspects of New Jersey’s Alcoholic

Beverage Control Law (“ABC Law”) infringe on the dormant

Commerce Clause in violation of 42 U.S.C. § 1983.

I.

New Jersey law, like the laws of many states,

establishes a “three-tier” structure for alcohol distribution and

sales. Pursuant to that structure, alcoholic beverages are sold

by (1) suppliers and manufacturers to (2) wholesalers, who in

turn sell to (3) retailers, who then sell alcohol to consumers.

4
In Granholm v. Heald, 544 U.S. 460 (2005), the Supreme

Court reaffirmed the view expressed by five justices in North

Dakota v. United States, 495 U.S. 423 (1990), that such a

“three-tier system . . . is ‘unquestionably legitimate.’”

Granholm, 544 U.S. at 489 (citing North Dakota, 495 U.S. at

432 (plurality op.) & id. at 447 (Scalia, J., concurring in the

judgment)). The Granholm Court nevertheless cautioned that

“straightforward attempts to discriminate in favor of local

producers” of alcoholic beverages by, for instance,

“subjecting out-of-state [producers], but not local ones, to the

three-tier system,” are “contrary to the Commerce Clause and

. . . not saved by the [states’ authority to regulate alcoholic

beverages under] the Twenty-first Amendment.” Id. at 474,

489 (internal quotation marks omitted).

Plaintiffs filed this suit in 2003, contending that five

aspects of New Jersey’s laws regulating wine contravene this

nondiscrimination principle in violation of the dormant

5
Commerce Clause. The first two statutory provisions at issue

involve privileges relating to the sale of wine to consumers

and retailers that are afforded to wineries that obtain New

Jersey plenary or farm winery licenses, but not to wineries

lacking such licenses. Plenary licenses may be obtained by

producers that “grow[] and cultivat[e] grapes . . . on at least

three acres on, or adjacent to, the winery premises,” but only

if the wine “is produced, blended, fortified, or treated by the

licensee on its licensed premises situated in the State of New

Jersey.” N.J. Stat. Ann. § 33:1-10(2a). Farm winery

licenses, meanwhile, are available to wineries which produce

less than 50,000 gallons of wine per year and which, “for the

first five years of the operation of the winery,” produce wine

that is “from at least 51% grapes or fruit grown in the State”

of New Jersey. Id. § 33:1-10(2b). Holders of either type of

license (“in-state wineries”) may sell their wines “at retail to

consumers” at the winery and at “six salesrooms apart from

6
the winery premises.” Id. §§ 33:1-10(2a) & (2b).1 In-state

wineries are also permitted to sell their wines “to wholesalers

and retailers.” Id. Wineries that do not hold either a plenary

or a farm winery license (“out-of-state wineries”), by contrast,

must funnel their wines through the three-tier system by

selling to wholesalers.

Plaintiffs also challenge two aspects of New Jersey’s

rules regarding the personal importation of wine. N.J. Stat. §

33:1-2(a) provides in pertinent part as follows:

Alcoholic beverages intended in good faith
solely for personal use may be transported, by
the owner thereof, in a vehicle other than that of
the holder of a transportation license, from a
point outside this State to the extent of . . . one
gallon of wine . . . within any consecutive

1
The statute also provides that “one salesroom
per county may be jointly controlled and operated by at least
two plenary or farm winery licensees for the sale of the
products of any plenary or farm winery licensee for
consumption on or off the premises.” N.J. Stat. §§ 33:1-
10(2a) & (2b). Plaintiffs do not challenge this provision on
appeal.

7
 period of 24 hours; provided, however, that
except pursuant to and within the terms of a
license or permit issued by the director, no
person shall transport into this State or receive
from without this State into this State, alcoholic
beverages where the alcoholic beverages are
transported or received from a state which
prohibits the transportation into that state of
alcoholic beverages purchased or otherwise
obtained in the State of New Jersey. If any
person or persons desire to transport alcoholic
beverages intended only for personal use in
quantities in excess of those above-mentioned,
an application may be made to the director who
may, upon being satisfied of the good faith of
the applicant, and upon payment of a fee 2 . . .
issue a special permit limited by such conditions
as the director may impose, authorizing the
transportation of alcoholic beverages in
quantities in excess of those above-mentioned.

Plaintiffs challenge both the one-gallon cap on importation

and the reciprocity provision prohibiting importation of wine

from states that bar the entry of New Jersey wine.

Finally, plaintiffs seek to invalidate New Jersey’s ban

2
While the language of the statute sets the fee at
$25, see N.J. Stat. § 33:1-2(a), defendant’s certification to the
District Court indicates that the fee is $50.

8
on direct shipments of wine from wineries to consumers via

common carrier. When plaintiffs filed suit in 2003, the ABC

Law allowed in-state, but not out-of-state, wineries to make

such shipments. However, in anticipation of Granholm,

which invalidated similar provisions of Michigan and New

York law, the New Jersey legislature rescinded this privilege,

resulting in a ban on all direct shipments of wine from

producers to New Jersey residents.

After three New Jersey wholesalers – Fedway

Associates, R&R Marketing, and Allied Beverage Group –

intervened in the District Court on behalf of the defendant, the

parties filed cross-motions for summary judgment, contesting

(1) plaintiffs’ standing to sue, and (2) the validity of the above

portions of New Jersey’s ABC Law. The District Court held

that plaintiffs met the applicable standing requirements, and

that the challenged provisions were largely constitutional.

Both sides appealed. We have jurisdiction pursuant to 28

9
U.S.C. § 1291.3

II.

“Standing implicates both constitutional requirements

and prudential concerns.” Common Cause of Pa. v.

Pennsylvania, 558 F.3d 249, 257 (3d Cir. 2009).

Constitutional standing, which should be considered “before

examining issues of prudential standing,” Joint Stock Soc’y v.

UDV N. Am., Inc., 266 F.3d 164, 175 (3d Cir. 2001), includes

three well-known elements:

“(1) an injury in fact (i.e., a concrete and
particularized invasion of a legally protected
interest); (2) causation (i.e., a fairly traceable
connection between the alleged injury in fact
and the alleged conduct of the defendant); and
(3) redressability (i.e., it is likely and not merely
speculative that the plaintiff’s injury will be
remedied by the relief plaintiff seeks in bringing
suit).”

3
28 U.S.C. § 1291 provides “[t]he courts of
appeals” with jurisdiction over, inter alia, “all final decisions
of the district courts of the United States.”

10
Common Cause of Pa., 558 F.3d at 258 (quoting Sprint

Commc’ns Co. v. APCC Servs., Inc., 128 S. Ct. 2531, 2535

(2008)). “‘The party invoking federal jurisdiction bears the

burden of establishing these elements,’” and, on summary

judgment, “the plaintiff cannot rely on mere allegations ‘but

must set forth by affidavit or other evidence specific facts’”

demonstrating that these requirements have been met. Joint

Stock Soc’y, 266 F.3d at 175 (quoting Lujan v. Defenders of

Wildlife, 504 U.S. 555, 561 (1992)) (internal quotation marks

and citation omitted).

An injury-in-fact must be “a palpable and distinct

harm” that, even if “widely shared,” “‘must affect the plaintiff

in a personal and individual way.’” Toll Bros., Inc. v. Twp. of

Readington, 555 F.3d 131, 138 (3d Cir. 2009) (quoting

Defenders of Wildlife, 555 U.S. at 560 n.1). The causation

prong then “focuses on who inflicted [the] harm.” Id. at 142.

While “[t]he plaintiff must establish that the defendant’s

11
challenged actions, not the actions of some third party, caused

the plaintiff’s injury,” “[t]his causal connection need not be as

close as the proximate causation needed to succeed on the

merits of a tort claim,” and “an indirect causal relationship

will suffice.” Id. Finally, the redressability prong “looks

forward” to determine whether “‘the injury will be redressed

by a favorable decision.’” Id. (quoting Friends of the Earth,

Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 181 (2000)).

“Redressability is not a demand for mathematical certainty,”

but it does require “a ‘substantial likelihood’” that the injury

in fact can be remedied by a judicial decision. Id. at 143

(quoting Vt. Agency of Natural Res. v. U.S. ex rel. Stevens,

529 U.S. 765, 771 (2000)).

“The requirements of prudential standing,” meanwhile,

“serve ‘to avoid deciding questions of broad social import

where no individual rights would be vindicated and to limit

access to the federal courts to those best suited to assert a

12
particular claim.’” Joint Stock Soc’y, 266 F.3d at 179

(quoting Conte Bros. Auto., Inc. v. Quaker State-Slick 50,

Inc., 165 F.3d 221, 225 (3d Cir. 1998)). Prudential standing

“require[s] that (1) a litigant assert his [or her]
own legal interests rather than those of third
parties, (2) courts refrain from adjudicating
abstract questions of wide public significance
which amount to generalized grievances, and (3)
a litigant demonstrate that her interests are
arguably within the zone of interests intended to
be protected by the statute, rule, or constitutional
provision on which the claim is based.”

Oxford Assocs. v. Waste Sys. Auth. of E. Montgomery County,

271 F.3d 140, 146 (3d Cir. 2001) (quoting Davis v. Phila.

Hous. Auth., 121 F.3d 92, 96 (3d Cir. 1997)) (emphasis

omitted). Although “the zone of interests ‘test denies a right

of review if the plaintiff’s interests are so marginally related

to or inconsistent with the purposes implicit in the statute that

it cannot reasonably be assumed that Congress intended to

permit the suit,’” “‘[t]he test is not meant to be especially

demanding.’” Davis, 121 F.3d at 98 (quoting Clarke v. Secs.

13
Indus. Ass’n, 479 U.S. 388, 399-400 (1987)).

A.

We first consider whether plaintiffs Robert and Judy

Freeman have standing to sue. The Freemans describe

themselves as “wine collectors” and “home winemakers” who

travel to the west coast several times each year in order to

visit wineries. They allege that the ABC Law has prevented

them from obtaining several wines they would like to drink,

but which are unavailable in New Jersey stores. The

Freemans state that they would ideally like to receive direct

shipments from wineries, but they also assert that (1) New

Jersey law allows them to buy in-state, but not out-of-state,

wines directly from producers at wineries and storefronts, and

(2) traveling to distant wineries in order to return with small

quantities of wine is highly impracticable.

(1)

The Freemans argue that they are unable to obtain

14
wines that they desire via interstate commerce. In addressing

the same argument, the Seventh Circuit has concluded that

when “plaintiffs want to drink [wines that] are not carried by

[in-state] resellers” and are prevented from otherwise

obtaining those wines by state law, they have “establishe[d]

injury in fact.” Bridenbaugh v. Freeman-Wilson, 227 F.3d

848, 849 (7th Cir. 2000); accord Baude v. Heath, No. 05-cv-

735, 2007 WL 2479587, at *7-*8 (S.D. Ind. Aug. 29, 2007),

rev’d in part on other grounds, 538 F.3d 608 (7th Cir. 2008);

Cherry Hill Vineyards, LLC v. Hudgins, 488 F. Supp. 2d 601-

607-08 (W.D. Ky. 2006), aff’d sub nom. Cherry Hill

Vineyards, LLC v. Lilly, 553 F.3d 423 (6th Cir. 2008). We

agree. The Freemans are directly constrained by the

provisions of the ABC Law preventing the importation of (1)

more than a gallon of out-of-state wine without a special

permit, and (2) any wine from states that prohibit the

importation of New Jersey wines. Moreover, although the

15
Freemans are “not in the business of selling alcoholic

beverages and therefore could not violate” the other statutory

provisions at issue “if they tried,” Bridenbaugh, 227 F.3d at

847, “cognizable injury from unconstitutional discrimination

against interstate commerce does not stop at members of the

class against whom a State ultimately discriminates,” Gen.

Motors Corp. v. Tracy, 519 U.S. 278, 286 (1997). Rather,

“customers of that class may also be injured.” Id. As a result,

the Freemans – who allege that New Jersey law discriminates

against the out-of-state wineries of which they are customers

– have suffered an injury in fact.

The question then becomes whether the Freemans’

injury is fairly traceable to the statutes at issue. As an initial

matter, we reject defendant’s contention that the traceability

prong is not met because New Jersey’s statutory scheme does

not, in fact, offend the dormant Commerce Clause.

“‘Standing in no way depends on the merits of the plaintiff’s

16
contention that the particular conduct is illegal . . . .’” Marion

v. TDI, Inc., 591 F.3d 137, 149 (3d Cir. 2010) (quoting Warth

v. Seldin, 422 U.S. 490, 500 (1975)). The question for

purposes of the traceability prong is not whether the ABC

Law is unconstitutionally discriminatory, but rather whether,

be it even-handed and constitutional or not, it is causally

connected to plaintiffs’ injury in fact. We thus consider

whether plaintiffs have presented evidence that each of the

challenged provisions impedes their ability to purchase wine

in interstate commerce.

The first two of plaintiffs’ challenges are to provisions

of New Jersey law that effectively allow in-state wineries to

sell directly to consumers and retailers, but forbid out-of-state

wineries from engaging in sales to anyone but wholesalers.

The question as to traceability is whether these provisions

exclude wine from New Jersey that would otherwise appear

on the market, thereby limiting the number of out-of-state

17
wines that the Freemans may purchase. Cutting against the

view that the Freemans are traceably injured by their resultant

inability to purchase a wide array of out-of-state wines is the

fact that the record does not clearly establish that any out-of-

state wineries would, but for the statute, open retail sales

rooms in New Jersey. Pointing in the other direction is record

evidence that many out-of-state wineries have attempted,

without success, to interest New Jersey wholesalers in their

wines, and that other out-of-state wineries will not try either

to (1) enter the three-tier system via a wholesaler, because

doing do so would cut deeply into profits,4 or (2) obtain their

4
For example, Edward O’Keefe, Sr., the owner
of Chateau Grand Traverste, a Michigan winery, stated the
following: “Our winery does not currently have a distributor
in New Jersey. If we were to obtain a distributor, we would
be forced to give up approximately 40-50% of our profits to
the distributor. Our business model is based on both sales out
of the tasting room, use of distributors in specific states, and
direct shipment. It is our experience that direct sales to the
consumer either at the tasting room or through delivery by
common carrier is the most profitable to us.” JA 222

18
own wholesaler license, which can be prohibitively expensive.

Plaintiffs, in other words, have presented evidence that

numerous out-of-state wineries have, without success, sought

alternative ways to enter the New Jersey marketplace. We

conclude that, taken in the aggregate, this evidence suffices to

show that part of plaintiffs’ injury is traceable to New Jersey’s

choice to deny out-of-state wineries the ability to sell directly

both to retailers and to consumers.

Plaintiffs have also presented evidence that they would

return from their winery trips with more wine if New Jersey

law so allowed. Accordingly, part of their inability to buy

certain wines may be traced to the transportation restrictions

in the ABC Law.5 And there is little question that the

(O’Keefe affidavit ¶¶ 9-13) (numbering omitted).
5
Defendant and intervenors attempt to resist this
conclusion by arguing that the state has never enforced the
transportation restrictions when individuals import wine
intended for personal use. We reject this argument, because

19
Freemans’ injury partially traces to the direct shipment ban.

They have attempted to order wine shipments from at least

five out-of-state wineries, each of which has refused to make

the shipments. Plaintiffs have also presented evidence, both

drawn from their own experience and in the form of a Federal

Trade Commission report, that a sizeable number of wineries

sell their wine exclusively via direct shipment. Taken

together, this evidence is more than adequate to demonstrate

that there is a “fairly traceable connection between the alleged

injury in fact and” the direct shipment ban. Toll Bros., 555

F.3d at 142 (internal quotation marks omitted).

The same evidence that demonstrates causation

defendant has not presented any official, binding assurance
that the statute will not be enforced as written. Moreover, we
note that the ABC Law has been repeatedly amended by the
legislature without any alteration of the transportation
restrictions, a fact which suggests that, whatever defendant’s
current practice regarding the statute, the New Jersey
legislature intends for it to be enforced.

20
suffices, in this case, to demonstrate redressability: Removing

the restrictions placed by the ABC Law on consumers and

out-of-state wineries would, on this record, lead to greater

availability of a greater number of wines that plaintiffs wish

to purchase.6

(2)

The Freemans also have prudential standing to challenge

the statutory provisions at issue. While defendant argues that

the Freemans, who knew plaintiffs’ counsel in this case before

it was filed, are thereby without a personal stake in its outcome,

there is no evidence that the Freemans’ œnophilia, upon which

6
Intervenors argue that the redressability prong is
not met as to the direct shipment ban because all wineries are
prohibited from making direct shipments, meaning that
invalidating the ban would necessarily entail the creation of
new rights. But assuming that plaintiffs are correct in their
argument that the direct shipment ban disproportionately
affects out-of-state wineries, striking down the ban would do
no more than vindicate the well-recognized rule that state
laws may not discriminatorily favor intrastate commerce over
interstate commerce.

21
their standing is grounded, is anything but sincere, or that they

are actually attempting to litigate an interest held by their

attorneys. Similarly, there is no indication that the Freemans

have come to court with a generalized grievance; their injury as

wine enthusiasts who wish to purchase certain wines is a highly

particularized one.

The remaining question as to the Freemans, then, is

whether or not they fall within the “zone of interests” protected

by the dormant Commerce Clause. Insofar as the regulations

“directly affect[]” the Freemans as individuals “participating in

commerce,” they have standing to redress “their dormant

Commerce Clause right to access interstate markets.” Oxford

Assocs., 271 F.3d at 148. The Freemans may accordingly

proceed with their challenge to the importation restrictions,

which directly regulate their participation in interstate

commerce.

The other provisions, by contrast, directly regulate

22
producers, not consumers,7 and we have not previously

addressed the issue of whether dormant Commerce Clause

plaintiffs have prudential standing when they are not directly

regulated by the statute at issue. See id. at 148 n.4 (reserving

this question). We now hold that such plaintiffs can come

within the zone of interests if their "ability to freely contract

with out-of-state companies was directly infringed by local

regulation." Id. at 149 (Barry, J., dissenting). We adopt this

rule because such plaintiffs seek to vindicate interests related to

the protection of interstate commerce. In particular, plaintiffs

who seek to protect “the right as a consumer to purchase . . .

services across State boundaries” assert interests closely related

to the purposes of the dormant Commerce Clause. Huish

Detergents, Inc. v. Warren County, 214 F.3d 707, 711 (6th Cir.

7
It is arguable that consumers are also directly
regulated by the direct shipment ban, but we will assume,
arguendo, that they are not.

23
2000). See also, Oehrleins, Ben Oehrleins & Sons & Daughter

v. Hennepin County, 115 F.3d 1372, 1381 (8th Cir. 1997)

(suggesting that standing is appropriate where plaintiffs “s[eek]

to protect their own rights to purchase goods or do business

across state borders”). By contrast, plaintiffs are without

prudential standing if their interest is unrelated to the asserted

“barrier to interstate commerce.” On the Green Apartments

L.L.C. v. City of Tacoma, 241 F.3d 1235 (9th Cir. 2001)

(internal quotation marks omitted). For instance, plaintiffs who

“allege only that a party with whom they contract is subject to

an undue burden on its ability to freely participate in interstate

commerce” are not within the zone of interests protected by the

dormant Commerce Clause. Oxford Associates, 271 F.3d at 149

(Barry, J., dissenting). Neither are plaintiffs whose interest is

merely one in avoiding a passed-on fee or cost. See Individuals

for Responsible Gov’t, Inc. v. Washoe County, 110 F.3d 699,

703 (9th Cir. 1997); Oehrleins, 115 F.3d at 1380; see also, e.g.

24
City of Los Angeles v. County of Kern, 581 F.3d 841, 848 (9th

Cir. 2009) (“As the name implies, the zone of interest test turns

on the interest sought to be protected, not the harm suffered by

the plaintiff.”).

In challenging the prohibitions on direct sales by out-of-

state wineries and the direct shipment ban, the Freemans present

themselves as in-state consumers wishing to access out-of-state

products. Their interest in overturning these features of New

Jersey law therefore dovetails with the commerce-protective

purpose of the dormant Commerce Clause. The Freemans

accordingly satisfy the zone-of-interest test as to all of the

challenged provisions of the ABC Law.

B.

“[T]he presence of one plaintiff with standing is

sufficient to satisfy that requirement.” Forum for Academic &

Institutional Rights v. Rumsfeld, 390 F.3d 219, 228 n.7 (3d Cir.

2004) (citing Bowsher v. Synar, 478 U.S. 714, 721 (1986)),

25
rev’d on other grounds, 547 U.S. 47 (2006). Accordingly,

having concluded that the Freemans possess both constitutional

and prudential standing to raise all of the claims at issue, we do

not consider the standing of the other plaintiffs.

III.

“The dormant Commerce Clause ‘prohibits the states

from imposing restrictions that benefit in-state economic

interests at out-of-state interests’ expense, thus reinforcing the

principle of the unitary national market.’” Am. Trucking Ass’ns

v. Whitman, 437 F.3d 313, 318 (3d Cir. 2006) (quoting

Cloverland-Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd.,

298 F.3d 201, 210 (3d Cir. 2002)) (internal quotation marks

omitted). The clause “therefore prohibits a state from impeding

free market forces to shield in-state businesses from out-of-state

competition.” Id.

Any statute that “discriminates against interstate

commerce on its face or in effect” is thus “subject to heightened

26
scrutiny.” Id. at 319. “The party challenging the statute has the

burden of proving” that the statute is discriminatory,

Cloverland-Green Spring-Dairies, Inc. v. Pa. Milk Mktg. Bd.,

462 F.3d 249, 261 (3d Cir. 2006) (“Cloverland II”), but if the

plaintiff meets that burden, “the State must demonstrate (1) that

the statute serves a legitimate local interest, and (2) that this

purpose could not be served as well by available non-

discriminatory means,” Am. Trucking Ass’ns, 437 F.3d at 319.

If the plaintiff does not meet its burden of showing that the

statute is discriminatory, we instead use “the balancing test set

forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), to

determine whether the burdens on interstate commerce

substantially outweigh[] the putative local benefits.” Cloverland

II, 462 F.3d at 258.

Historically, courts have struggled with the question of

to what extent the dormant Commerce Clause applies in the

context of alcoholic beverage restrictions, given the broad

27
regulatory authority granted to states by section 2 of the Twenty-

First Amendment.8 In Granholm, however, the Supreme Court

reiterated that dormant Commerce Clause principles apply in the

context of regulations on the shipment of wine. In fact, in the

Court’s view, it is “essential to the foundations of the Union”

that “in all but the narrowest circumstances, state laws violate

the Commerce Clause if they mandate ‘differential treatment of

in-state and out-of-state economic interests that benefits the

former and burdens the latter.’” Granholm, 544 U.S. at 472

(quoting Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality of Or.,

511 U.S. 93, 99 (1994)). Thus, the Court held that “Section 2

does not allow States to regulate the direct shipment of wine on

terms that discriminate in favor of in-state producers,” id. at 476,

8
Section 2 of the Twenty-First Amendment
provides that “[t]he transportation or importation into any
State, Territory, or possession of the United States for
delivery or use therein of intoxicating liquors, in violation of
the laws thereof, is hereby prohibited.”

28
and that “straightforward attempts to discriminate in favor of

local producers” are “not saved by the Twenty-first

Amendment,” id. at 489. As a result, unless the state “show[s]

that ‘the discrimination is demonstrably justified,’” statutes

regulating alcohol that discriminate against interstate commerce

must be invalidated. Id. at 492 (quoting Chem. Waste Mgmt.,

Inc. v. Hunt, 504 U.S. 334, 344 (1992)). The Granholm Court,

however, also held that “the three-tier system itself is

‘unquestionably legitimate,’” and that “[s]tate policies are

protected under the Twenty-first Amendment when they treat

liquor produced out of state the same as its domestic

equivalent.” Id. at 489 (quoting North Dakota, 495 U.S. at 432).

A.

We first consider plaintiffs’ challenges to the statutory

provisions allowing only in-state wineries to sell directly to

retailers and consumers.

(1)

29
 In Granholm, the Supreme Court clarified that “[t]he

mere fact of nonresidence should not foreclose a producer in

one State from access to markets in other States.” 544 U.S. at

472. In particular, when “all out-of-state wine, but not all in-

state wine, [must] pass through an in-state wholesaler and

retailer before reaching consumers,” “[t]he discriminatory

character of a system is obvious.” Id. at 473-74. Thus, direct

and indirect methods “of subjecting out-of-state wineries, but

not local ones, to the three-tier system” contravene the

dormant Commerce Clause. Id. at 474.

The ABC Law violates this rule by allowing in-state,

but not out-of-state, wineries to sell directly to consumers. In-

state wineries are thereby allowed to skip the first two tiers –

wholesalers and retailers – while out-of-state wineries must

involve both of these tiers in order for their wine to reach

consumers. Accordingly, these aspects of the ABC Law are

subject to strict scrutiny as discriminatory on their face.

30
 Defendant and intervenors raise three arguments to the

contrary, none of which is persuasive. First, defendant argues

that, because each location at which an in-state winery sells

wine is considered to be a part of the winery premises, all sales

are technically “on-premises” – meaning that the law is non-

discriminatory, because, by definition, only New Jersey wineries

have premises in New Jersey. This transparent attempt at

obfuscation is, however, squarely at odds with the statutory

language allowing in-state wineries to sell wines “in six

salesrooms apart from the winery premises.” N.J. Stat. §§ 33:1-

10(2a) & (2b) (emphasis supplied).

Second, defendant and intervenors asseverate that the law

is non-discriminatory because out-of-state wineries may sell

directly to consumers on their own premises in their home states.

This argument misconceives the demands of the dormant

Commerce Clause. The dormant Commerce Clause does not

protect the rights of all wineries to engage in the same form of

31
commerce; it prohibits states from treating in-state-wineries

differently from out-of-state wineries. See, e.g., Granholm, 544

U.S. at 472. Because this regulation mandates differential

treatment, it is discriminatory, even if the wineries are, in some

sense, competing on an equal footing.

Finally, intervenors argue that Cherry Hill Vineyard, LLC

v. Baldacci, 505 F.3d 28 (1st Cir. 2007), which upheld

privileges given by Maine to small wineries against a Commerce

Clause challenge, should persuade us to uphold the direct-sale

provisions of the ABC Law. The statute in Baldacci, however,

made “[f]arm winery licenses . . . available on equal terms to in-

state and out-of-state vineyards alike.” Id. at 36. In fact, the

Baldacci court explained that this aspect of the Maine law was

what protected it from the charge that it “explicitly

discriminate[s] against interstate commerce.” Id. Because New

Jersey allows only in-state wineries to sell directly to consumers,

precisely this

32
equal-handedness is absent from the direct-sales provisions of

the ABC Law. Baldacci supports our view that the direct-sale

provisions of the ABC Law are facially discriminatory.9

(2)

New Jersey law also authorizes in-state wineries to

bypass wholesalers and sell directly to retailers. This privilege

again allows in-state, but not out-of-state, wineries to

circumvent portions of the three-tier system. As a result, it, too,

is facially discriminatory against interstate commerce.

Contrary to the District Court’s conclusion, the

discriminatory character of these provisions would not be cured

by allowing out-of-state wineries to become licensed

9
The District Court partially upheld the direct-
sale provisions on the ground that out-of-state wineries could
obtain wholesaler licenses that would allow them to sell wine
directly to consumers. Both plaintiffs and defendant argue
that this interpretation of the ABC Law is flawed, and we
agree. In keeping with the three-tier structure, wholesale
licenses only allow the licensee to sell “to wholesalers and
retailers,” not to consumers. N.J. Stat. §§ 33:1-11(2a) & (2b).

33
wholesalers.10 Assuming, arguendo, that an out-of-state winery

may, under New Jersey law, eliminate the use of third-party

wholesalers by purchasing such a license, any winery purchasing

a wholesale license would nevertheless, unlike in-state

producers, be forced to proceed through each of the tiers of the

three-tier system. Moreover, a wholesaling license comes at a

higher cost than a winery license, and with a different bundle of

privileges – many of which a winery seeking only to sell its own

products to retailers would not use. In short, this path is simply

an “indirect way of subjecting out-of-state wineries . . . to the

three-tier system,” Granholm, 544 U.S. at 474, and the

10
While upholding the provisions allowing in-
state-wineries, but not out-of-state wineries, to sell directly to
retailers, the District Court invalidated New Jersey’s fee
schedule for retail and wholesale licenses on the ground that
wholesale licenses – the only type available to out-of-state
wineries – are more expensive. In light of our conclusion that
the relevant portions of the statute (§§ 33:1-10(2a) and (2b))
are not saved by the ability of out-of-state wineries to obtain
wholesale licenses, we need not reach this issue.

34
provisions allowing in-state, but not out-of-state, wineries to sell

directly to retailers without using a wholesaler are therefore

discriminatory.

(3)

Neither defendant nor intervenors attempts to save the

provisions of the ABC Law allowing in-state wineries to make

direct sales to consumers and retailers by arguing that they are

necessary to serve some legitimate local purpose. Accordingly,

we hold that these portions of the ABC Law violate the dormant

Commerce Clause.

B.

As discussed above, N.J. Stat. Ann. § 33:1-2(a) caps the

importation of out-of-state wine for personal use at one gallon

unless the importing individual secures a special permit. Absent

such a permit, the statute also bans the importation of any

alcoholic beverages from states that refuse to allow individuals

to enter with alcohol from New Jersey. Plaintiffs again argue

35
that these provisions facially discriminate against interstate

commerce.

(1)

No party contends that the one-gallon cap on the

importation of out-of-state wine is facially non-discriminatory,

and that provision does, in fact, treat in-state and out-of-state

wine differently in a way that harms interstate commerce.

Specifically, the requirements that any individual seeking to

enter New Jersey with a greater amount of wine (1) apply for a

special permit, and (2) pay a fee for the permit, directly burden

interstate, but not intrastate, commerce. Moreover, since New

Jersey wineries are currently able to sell unlimited quantities of

wine to residents, this provision operates to limit the amount of

out-of-state, but not in-state, wine that may circumvent the

three-tier system. Accordingly, this provision is also subject to

36
strict scrutiny.11

Defendant nevertheless argues that the permit

requirement serves local purposes that would not be as well

served by non-discriminatory legislation. In particular, Fischer

adopts the District Court’s conclusion that “the . . . special

permit serves as a registration mechanism, providing the state

the authority to keep track of on-premises interstate sales for the

purposes of taxation and, to a much lesser extent, to prohibit

illegal activity.” Freeman v. Fischer, 563 F. Supp. 2d 493, 504

(D.N.J. 2008). But the District Court, which apparently raised

these issues sua sponte, cites to no evidence in the record for

this proposition. Neither does Fischer, and our independent

11
Our holding in this regard is not contrary to the
Fourth Circuit’s analysis in Brooks v. Vassar, 462 F.3d 341
(4th Cir. 2006). The Fourth Circuit did not address the
Brooks plaintiffs’ argument that Virginia’s similar one-gallon
importation limit was unconstitutional, instead holding that
the issue was rendered moot by the Virginia legislature’s
decision to prevent in-state wineries from making direct sales
to consumers. See id. at 349-50.

37
review of the record has not uncovered any evidence to support

the notion that the permit serves local interests in tracking sales

and squelching illegal activity. This absence of evidence is

dispositive, because “[t]he burden is on the State to show that

the discrimination is demonstrably justified,” and we may

“uph[o]ld state regulations that discriminate against interstate

commerce only after finding, based on concrete record evidence,

that a state’s nondiscriminatory alternatives will prove

unworkable.” Granholm, 544 U.S. at 492-93 (emphases

supplied and omitted and internal quotation marks omitted).

The District Court’s unsupported assertion does not “satisf[y]

this exacting standard,” id. at 493, and we accordingly hold that

the permit requirement violates the dormant Commerce Clause.

(2)

The reciprocity provision of § 33:1-2(a) also facially

discriminates against interstate commerce. As with the permit

fee, the reciprocity requirement prevents certain wine – in this

38
case, wine from specified jurisdictions – from entering the state

outside the strictures of the three-tier system, while local

winemakers are free to sell as much wine as they can directly to

New Jersey residents. Moreover, as the Supreme Court has

noted, reciprocity provisions like New Jersey’s “risk[]

generating the trade rivalries and animosities, the alliances and

exclusivity, that the Constitution and, in particular, the

Commerce Clause were designed to avoid.” Granholm, 544

U.S. at 473.

The District Court nonetheless held that the reciprocity

provision is constitutional because defendant interprets it not to

apply to wine imported for personal use. “When considering a

facial challenge to a state law, ‘a federal court must, of course,

consider any limiting construction that a state court or

enforcement agency has proffered.’” Brown v. City of

Pittsburgh, 586 F.3d 263, 274 (3d Cir. 2009) (quoting Vill. of

Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S.

39
489, 494 n.5 (1982)). But we will only adopt a proffered

limiting construction when the statute is actually “susceptible to

a construction that avoids constitutional difficulties.” Brown,

586 F.3d at 275. In this case, defendant’s narrowing

interpretation is contrary to the plain meaning of the statute.

The statute provides in part that

[a]lcoholic beverages intended in good faith
solely for personal use may be transported, by the
owner thereof . . . from a point outside this State
to the extent of . . . one gallon of wine . . . within
any consecutive period of 24 hours; provided,
however, that except pursuant to and within the
terms of a license or permit issued by the director,
no person shall transport into this State or receive
from without this State into this State, alcoholic
beverages where the alcoholic beverages are
transported or received from a state which
prohibits the transportation into that state of
alcoholic beverages purchased or otherwise
obtained in the State of New Jersey.

N.J. Stat. § 33:1-2(a). The reciprocity provision is thus a

prohibitory exception from the rule delineating the quantities of

alcohol that may otherwise be imported for personal use. As a

40
result, the provision cannot be read to contain an exception

allowing importation for personal use, because to imply that

exception would read the reciprocity clause out of the statute

entirely. We therefore reject defendant’s limiting interpretation

and subject the reciprocity provision to strict scrutiny.

As with the provisions regarding sales to consumers and

retailers, no party has provided us with any argument that the

reciprocity provision is necessary to effectuate some legitimate

local interest. We thus hold it unconstitutional as violative of

the dormant Commerce Clause.

C.

Finally, plaintiffs seek to invalidate New Jersey’s ban on

direct shipments of wine from any winery, whether in-state or

out-of-state, to consumers.12 While plaintiffs concede that this

12
In their reply brief, plaintiffs argue that the ban
only applies to out-of-state wineries, because N.J. Stat. §
33:1-28 provides that “[l]icensees . . . may transport alcoholic
beverages in their own vehicles, solely, however, for their

41
ban is not facially discriminatory, they argue that it is

discriminatory in effect. To prevail on this argument, plaintiffs

must “show that the challenged state statute has extraterritorial

own respective business in connection with and as defined in
their respective licenses, without possessing a transportation
license.” New Jersey winery licenses, however, do not allow
the licensees to transport wine to consumers. As discussed
above, the plenary winery license permits sales to consumers
only “on the licensed premises of the winery for consumption
on or off the premises” and “in six salesrooms apart from the
winery premises for consumption on or off the premises.” Id.
§ 33:1-10(2a). The language of the farm winery provision is
slightly different; it allows sales “at retail to consumers for
consumption on or off the licensed premises” and “in six
salesrooms apart from the winery premises for consumption
on or off the premises.” Id. § 33:1-10(2b). Plaintiffs argue
that the first of these phrases allows the shipment of wine to
consumers – essentially reading “on or off the premises” to
apply to the location of the sale, not the location of the
consumption. But that reading ignores the parallel use of “on
or off the premises” to apply to consumption in both the
plenary license provision and the salesroom portion of the
farm winery license language. Moreover, if a farm winery
could sell “at retail to consumers” anywhere, the separate
language allowing sales at six salesrooms across the state
would be surplusage. Accordingly, although the language of
the farm and plenary winery license provisions differs
slightly, we interpret the two types of licenses as providing
identical privileges concerning direct sales to consumers.

42
effects that adversely affect economic production (and hence

interstate commerce) in other states, thereby forcing ‘producers

or consumers in other States [to] surrender whatever competitive

advantages they may possess.’” Cloverland II, 462 F.3d at 261

(quoting Brown-Forman Distillers Corp. v. N.Y. State Liquor

Auth., 476 U.S. 573, 580 (1986)).

In their attempt to meet this burden, plaintiffs note that

some wineries sell their goods only by direct shipment. But the

choice by certain producers to conduct sales only by direct

shipment is irrelevant to the constitutionality of the ABC Law,

because the Commerce Clause does not place New Jersey under

an obligation to cater to the preferred marketing practices of out-

of-state businesses. See A.S. Goldmen & Co. v. N.J. Bureau of

Secs., 163 F.3d 780, 787 (3d Cir. 1999) (holding that “questions

of the market’s ‘structure’ and its ‘method of operation’ are

quite simply beyond the concern of the Commerce Clause”)

(quoting Exxon Corp. v. Governor of Md., 437 U.S. 117, 127-28

43
(1978)).

Plaintiffs also contend that the direct shipment ban

disproportionately affects out-of-state wineries because those

producers must funnel all of their wine through the three-tier

system. But, assuming that this requirement disadvantages out-

of-state producers, it is not an effect of the direct-shipment ban

– which even-handedly forces all wine sales out of one channel

and into other available channels – but by the features of the

ABC Law invalidated above, which allow New Jersey wineries

to circumvent the three-tier system. This argument therefore

also fails to demonstrate that the direct shipment ban is

discriminatory in effect.

Finally, plaintiffs contend that many consumers cannot,

or will not, undertake to travel to distant locations to purchase

wine. Even if true, this fact, standing alone, does not

demonstrate that the direct shipment ban harms interstate

commerce by privileging in-state producers at the expense of

44
out-of-state wineries. And while several types of evidence

could show such an effect, plaintiffs have failed to present any

competent evidence that the ban burdens interstate commerce.

The Federal Trade Commission report on which they rely,13

though critical of direct shipment bans, is silent as to the effects

of New Jersey law. Plaintiffs also have not produced any other

evidence that so much as “a single penny of losses” incurred by

any out-of-state producer is “attributable to the allegedly

discriminatory” ban. Baldacci, 505 F.3d at 37. Further,

although the ban might be unconstitutional in its effects if it led

to more New Jersey wines, and fewer out-of-state wines, being

sold in New Jersey, the record reflects that less than 1% of wine

sold in New Jersey is grown in New Jersey – a fact that gives

rise to the inference that no displacement of out-of-state wines

13
The Report, “Possible Anticompetitive Barriers
to E-Commerce: Wine,” is available at
http://www.ftc.gov/os/2003/07/winereport2.pdf (last visited
July 15, 2010).

45
has occurred. Plaintiffs have also failed to present evidence that

(1) “consumers substitute wines purchased directly from [in-

state] vineyards for wines that they otherwise would have

purchased from out-of-state producers,” or, in fact, that (2)

anyone besides the Freemans purchases “any wines at all . . .

directly from [in-state] vineyards.” Id. at 36. Nor do “plaintiffs

. . . adduce[ any] evidence that would in any way undermine the

plausible impression that” New Jersey “consumers (like

imbibers everywhere) view trips to a winery as a distinct

experience incommensurate with – and therefore, unlikely to be

replaced by – a trip to either a mailbox or a retail liquor store.”

Id. at 37. In short, the record contains no evidence that New

Jersey’s direct shipment ban harms interstate commerce in favor

of intrastate commerce.

In fact, the gravamen of plaintiffs’ argument is not that

non-New Jersey wines are excluded from the market, but rather

that a subset of those wines, which are produced by small

46
wineries that do not have much volume or perhaps capital,

would only be able to enter the New Jersey market via direct

shipping, which is prohibited. But, as with wineries that deliver

exclusively by mail order, the fact that consumers cannot obtain

a subset of out-of-state wines because of the otherwise-neutral

structure of the market and the business plans of the wineries in

question does not render New Jersey’s direct-shipment ban

constitutionally infirm. See A.S. Goldmen & Co., 163 F.3d at

787. And because plaintiffs bear the burden on this issue, “the

mere fact that a statutory regime has a discriminatory potential

is not enough to trigger strict scrutiny.” Baldacci, 505 F.3d at

37; see also Ass’d Indus. of Mo. v. Lohman, 511 U.S. 641, 654

(1994) (noting that the Supreme Court has “never deemed a

hypothetical possibility of favoritism to constitute discrimination

that transgresses constitutional commands”). We accordingly

hold that plaintiffs have not met their burden of demonstrating

that the direct shipment ban discriminates against interstate

47
commerce in violation of the dormant Commerce Clause.14

Because plaintiffs do not argue in the alternative that the

direct shipping ban fails the balancing test of Pike v. Bruce

Church, Inc., 397 U.S. 137 (1970), we reject their challenge to

the direct shipping ban and affirm the District Court’s opinion

insofar as it held that ban to be constitutional.

IV.

Having determined that the provisions of the ABC Law

(1) allowing in-state wineries to sell directly to consumers and

retailers, and (2) limiting the importation of out-of-state wine

14
We note that the Sixth Circuit, in Cherry Hill
Vineyards, LLC v. Lilly, 553 F.3d 423 (6th Cir. 2008), struck
down, on an arguably similar record, a Kentucky statutory
provision permitting individuals to receive direct shipments
from small wineries if the consumer had ordered the wine
while physically present at the winery. The Lilly court’s
holding, however, rested on the conclusion that “small
Kentucky wineries benefit[ted] from less competition from
out-of-state wineries” “[b]ecause of the economic and
logistical barriers caused by the in-person requirement.” Id. at
433. No such requirement is present in New Jersey law, and
Lilly is therefore distinguishable.

48
intended for personal consumption into New Jersey violate the

dormant Commerce Clause, we turn to the issue of the proper

remedy. The invalid statutory provisions are constitutionally

underinclusive, in that their provision of privileges to in-state

wineries alone renders them invalid. This deficiency can be

remedied in one of two ways – either by “declar[ing the

offending provisions] a nullity and order[ing] that [their]

benefits not extend to the class that the legislature intended to

benefit, or [by] extend[ing] the coverage of the statute to include

those who are aggrieved by the exclusion.” Heckler v.

Matthews, 465 U.S. 728, 738 (1984). In this case, neither the

parties nor the District Court has expressly considered the

choice between extension and nullification. For this reason, and

because the choice between extension and nullification is

“within the constitutional competence of a federal district

court,” id. at 739 n.5, we will remand to the District Court for a

determination of the appropriate remedy. See also, e.g., SEC v.

49
Graystone Nash, Inc., 25 F.3d 187, 194 (3d Cir. 1994)

(suggesting remand “[w]hen significant factors” were not

previously “weighed in” choosing a remedy).

V.

For the foregoing reasons, we (1) affirm the District

Court’s determination that the Freemans have standing to sue,

(2) vacate the District Court’s invalidation of New Jersey’s fee

schedule for retail and wholesale licenses, (3) reverse the

District Court’s determination that the direct sales and

importation provisions of New Jersey law comport with the

dictates of the dormant Commerce Clause, (4) affirm the District

Court’s conclusion that New Jersey’s ban on direct shipments of

wine is constitutional, and (5) remand for a determination of the

proper remedy.

50