Family Winemakers of California v. Jenkins

United States Court of Appeals
For the First Circuit

No. 09-1169

FAMILY WINEMAKERS OF CALIFORNIA, STEPHEN J. POOR, III, M.D.,
GERALD C. LEADER,

Plaintiffs, Appellees,

v.

EDDIE J. JENKINS, in his official capacity as Chairman of the
Massachusetts Alcoholic Beverages Control Commission; ROBERT H.
CRONIN and SUSAN CORCORAN, in their official capacities as
Associate Commissioners of the Massachusetts Alcoholic Beverages
Control Commission,

Defendants, Appellants.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Rya W. Zobel, U.S. District Judge]

Before

Lynch, Chief Judge,
Stahl, Circuit Judge, and DiClerico,* District Judge.

David Hadas, Assistant Attorney General, with whom Martha
Coakley, Attorney General of the State of Massachusetts, and Thomas
A. Barnico, Assistant Attorney General, were on brief for the
appellants.
Michael D. Madigan, with whom Stephen M. Diamond and Madigan,
Dahl & Harlan, P.A., were on brief for the National Beer
Wholesalers Association, amicus curiae.
Lisa Hibner Tavani, Deputy Attorney General, with whom Anne
Milgram, Attorney General of the State of New Jersey, and Lorinda

*
Of the District of New Hampshire, sitting by designation.
Lasus, Deputy Attorney General were on brief for the states of New
Jersey, Ohio, Rhode Island, Utah, and Wyoming, amici curiae.
Evan T. Lawson, with whom Michael Williams, Lawson & Weitzen,
LLP, and Louis A. Cassis were on brief for Wine & Spirits
Wholesalers of Massachusetts, Inc., Wine & Spirits Wholesalers of
America, Inc., American Beverage Licensees, and Sazerac Company,
amici curiae.
Tracy K. Genesen, with whom Kenneth W. Starr, Micah C.E.
Osgood, Gerald J. Caruso, Susan E. Engel, and Elizabeth M. Locke
were on brief for the appellees.
Bruce L. Hay for Wine Institute, WineAmerica, Oregon
Winegrowers Association, Virginia Wineries Association, Washington
Wine Institute, Madera Vintners Association, Monterey County
Vintners and Growers Association, and Napa Valley Vintners, amici
curiae.

January 14, 2010
 LYNCH, Chief Judge. Massachusetts officials appeal from

an injunction against a 2006 Massachusetts statute establishing

differential methods by which wineries distribute wines in

Massachusetts, Mass. Gen. Laws ch. 138, § 19F. The district court

enjoined enforcement of § 19F on the ground that the law

discriminates against interstate commerce in violation of the

Commerce Clause of the United States Constitution. See Family

Winemakers of Cal. v. Jenkins, No. 1:06-cv-11682-RWZ at 17-28 (D.

Mass. Nov. 19, 2008) (order granting summary judgment).

We briefly summarize the basis for the lawsuit, the

issues presented, and our resolution of them before turning to the

supporting analysis. Section 19F only allows "small" wineries,

defined by Massachusetts as those producing 30,000 gallons or less

of grape wine a year, to obtain a "small winery shipping license."

This license allows them to sell their wines in Massachusetts in

three ways: by shipping directly to consumers, through wholesaler

distribution, and through retail distribution. All of

Massachusetts's wineries are "small" wineries. Some out-of-state

wineries also meet this definition.

Wines from "small" Massachusetts wineries compete with

wines from "large" wineries, which Massachusetts has defined as

those producing more than 30,000 gallons of grape wine annually.

These "large" wineries must choose between relying upon wholesalers

to distribute their wines in-state or applying for a "large winery

shipping license" to sell directly to Massachusetts consumers.

-3-
They cannot, by law, use both methods to sell their wines in

Massachusetts, and they cannot sell wines directly to retailers

under either option. No "large" wineries are located inside

Massachusetts.

Plaintiffs, a group of California winemakers and

Massachusetts residents, assert § 19F was designed with the

purpose, and has the effect, of advantaging Massachusetts wineries

to the detriment of those wineries that produce 98 percent of the

country's wine, in violation of the Commerce Clause. Massachusetts

defends § 19F on the basis that its law has neither a

discriminatory purpose nor a discriminatory effect. Massachusetts

has not argued in its briefs that there are no legitimate

alternative methods of regulation to serve § 19F's asserted

purposes. Massachusetts also argues that under the Twenty-first

Amendment, state laws are immunized from Commerce Clause scrutiny

unless the laws discriminate on their face.

The primary question before us is whether § 19F

unconstitutionally discriminates against interstate commerce in

-4-
light of both the Commerce Clause,1 art. I, § 8, cl. 3, and § 2 of

the Twenty-first Amendment.2

It is clear that § 2 of the Twenty-first Amendment does

not protect state alcohol laws that explicitly favor in-state over

out-of-state interests from invalidation under the Commerce Clause.

Granholm v. Heald, 544 U.S. 460, 489 (2005). But § 19F is neutral

on its face; it does not, by its terms, allow only Massachusetts

wineries to distribute their wines through a combination of direct

shipping, wholesaler distribution, and retail sales. Section 19F

instead uses a very particular gallonage cap to confer this benefit

upon "small" as opposed to "large" wineries.

We hold that § 19F violates the Commerce Clause because

the effect of its particular gallonage cap is to change the

competitive balance between in-state and out-of-state wineries in

1
The Commerce Clause vests Congress with the authority to
"regulate Commerce . . . among the several States." U.S. Const.
art. I, § 8, cl. 3. This grant of exclusive federal power carries
an implicit consequence for states' powers. When states regulate
commerce within their own borders, they cannot enact laws that
discriminate against out-of-state economic interests in favor of
in-state competitors absent congressional authorization or some
other source of constitutional authority. Or. Waste Sys., Inc. v.
Dep't of Envtl. Quality, 511 U.S. 93, 98 (1994). This aspect of
the Commerce Clause is commonly referred to as the "dormant
commerce clause" because its limitations upon states are not stated
in the text.
2
Section 2 of the Twenty-first Amendment states 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." It thereby gives states certain limited authority to
regulate the transportation, importation, and use of alcohol within
their borders notwithstanding the effects on interstate commerce.

-5-
a way that benefits Massachusetts's wineries and significantly

burdens out-of-state competitors. Massachusetts has used its

30,000 gallon grape wine cap to expand the distribution options

available to "small" wineries, including all Massachusetts

wineries, but not to similarly situated "large" wineries, all of

which are outside Massachusetts. The advantages afforded to

"small" wineries by these expanded distribution options bear little

relation to the market challenges caused by the relative sizes of

the wineries. Section 19F's statutory context, legislative

history, and other factors also yield the unavoidable conclusion

that this discrimination was purposeful. Nor does § 19F serve any

legitimate local purpose that cannot be furthered by a non-

discriminatory alternative.

We further hold that the Twenty-first Amendment cannot

save § 19F from invalidation under the Commerce Clause. Section 2

of the Twenty-first Amendment does not exempt or otherwise immunize

facially neutral but discriminatory state alcohol laws like § 19F

from scrutiny under the Commerce Clause. We affirm the grant of

injunctive relief.

I. Facts

We engage in de novo review both because the district

court entered summary judgment and because the issues presented are

ones of law. There is no disagreement on the material facts. See

Fed. R. Civ. P. 56(c); see also Sullivan v. City of Springfield,

561 F.3d 7, 14 (1st Cir. 2009).

-6-
 The ratification of the Twenty-first Amendment ended

Prohibition and gave states substantial control over the regulation

of alcoholic beverages. Most states, including Massachusetts, then

imposed a three-tier system to control the sale of alcoholic

beverages within their territories. The hallmark of the three-tier

system is a rigid, tightly regulated separation between producers,

wholesalers, and retailers of alcoholic beverages. Producers can

ordinarily sell alcoholic beverages only to licensed in-state

wholesalers. Mass. Gen. Laws ch. 138, §§ 2 and 19. Wholesalers

then must obtain licenses to sell to retailers. Id. § 18.

Retailers, which include stores, taverns, restaurants, and bars,

must in turn obtain licenses to sell to consumers or to serve

alcohol on their premises. Id. §§ 12, 15. Recently, as to wine,

Massachusetts has adjusted the separation between these three

tiers, as we describe below.

The structure of the usual three-tier system is commonly

described as an hourglass, with wholesalers at the constriction

point. There are thousands of producers nationwide, a handful of

licensed Massachusetts wholesalers, and approximately ten thousand

licensed retailers in Massachusetts. See Commonwealth of

Massachusetts Alcoholic Beverages Control Commission, Licensing,

http://www.mass.gov/abcc/ licensing/licensing.htm.

The three-tier system has had a particularly pronounced

effect on wineries' access to the Massachusetts market. The

economic incentives created by the three-tier system, in

-7-
conjunction with the structure of the wine industry, severely

limited certain wineries' ability to sell their wines in

Massachusetts.

In 2006, the year § 19F was enacted, 5,350 registered

wineries in the United States produced a total of 646,395,818

gallons of wine, which includes both grape wine and fruit wine

production. Almost all of the country's wine production and sales

come from a small number of wineries. In 2006, the five largest

wineries in the U.S. produced approximately 70 percent of the

country's wine. The country's thirty largest wineries comprised

approximately 92 percent of the market, and each produced between

680,000 and 150 million gallons per year. The rest of the

commercial market--the 3,540 wineries which produce between one and

680,000 gallons per year--competed for 8 percent of the market

share. Finally, 1,780 wineries produced less than one gallon of

wine per year and had virtually zero percent of the market share.3

The concentration of wine production among the largest

producers is driven by another feature of the wine industry: there

are, broadly speaking, two categories of wine, high-volume,

3
These figures were derived from industry statistics
tracked by Wine Business Monthly and from data provided by the
federal Alcohol and Tobacco Tax and Trade Bureau (TTB) for 2006,
both of which are publicly available and were introduced either in
the record or by various amici. See The Top 30 Wine Companies of
2006, available at http://www.winebusiness.com/wbm/?gogetArticle
&dataID=46697; see also Gina Riekhof and Michael Sykuta, Politics,
Economics, and the Regulation of Direct Interstate Shipping in the
Wine Industry, April 2004, Working Paper No. 2003-04 at 7,
available at http://cori.missouri.edu/wps.

-8-
lower-cost wines and low-volume, higher-quality, higher-priced

boutique wines. The largest wineries produce millions of gallons

of wine per year because they have generally specialized in the

former, but not to the exclusion of the latter. Wineries smaller

than the largest producers have tended to specialize in low-volume

boutique wines, which can be produced with a relatively small

quantity of grapes and a much lower initial outlay of resources.

At least until the current recession, consumer demand for boutique

wines had grown exponentially, fueling a rise in the number of

smaller U.S. wineries (which include many wineries producing more

than 30,000 gallons annually). Fed. Trade Comm'n, Possible

Anticompetitive Barriers to E-Commerce: Wine 6 (2003), available at

http://www.ftc.gov/os/2003/07/winereport2.pdf (hereinafter FTC

Report).

Under Massachusetts's former three-tier system, all

wineries could only distribute their wines through licensed

Massachusetts wholesalers, and 75 percent of the wine sold in

Massachusetts went through five wholesalers. This gave

wholesalers, not wineries, the balance of the bargaining power.

Wholesalers do not necessarily distribute a winery's entire range

of wines; they often distribute the wines most likely to be

profitable to them, which are lower-priced, high-volume wines.

Wholesalers make profits by selling wines to retailers at a markup.

The more a wine sells out at retail, generating more requests for

restocking, the more money a wholesaler makes. Wholesalers also

-9-
face fixed costs that do not depend on the price they pay to the

winery for the wine: they bear the costs of transportation,

storage, and handling. For these reasons, wineries producing

higher-priced, low-volume wines, whatever the gallonage output of

the winery, are less profitable and less likely to attract

wholesaler distribution.

The largest wineries, as the major producers of

lower-priced, high-volume wines, have been best able to attract

wholesalers. Only the country's fifty to one hundred largest

wineries have consistently secured wholesaler representation. For

most smaller wineries of whatever gallonage, which produce mostly

boutique wines, obtaining wholesaler representation has been

difficult, if not impossible. And even if a smaller winery

obtained wholesaler representation, wholesalers were likely to

distribute only one or two of its wines, limiting Massachusetts

consumers' access to particular wines.

Wineries have heralded direct shipping as a supplemental

avenue of distribution because of its economic advantages,

especially for wineries that do not rank among the fifty to one

hundred largest producers. Direct shipping lets consumers directly

order wines from the winery, with access to their full range of

wines, not just those a wholesaler is willing to distribute.

Direct shipping also avoids added steps in the distribution chain,

eliminating wholesaler and retailer price markups. See FTC Report

at 22-23.

-10-
 Before 2005, § 19B, Massachusetts's farmer-winery

licensing law, on its face allowed only in-state wineries to obtain

licenses to combine distribution methods through wholesalers,

retailers, and direct shipping to consumers. Mass. Gen. Laws ch.

138, § 19B (2002). Five months after Granholm invalidated similar

facially discriminatory state laws, § 19B was held to be invalid

under the Commerce Clause. Stonington Vineyards v. Jenkins, No.

05-10982-JLT, slip op. at 1-2 (D. Mass. Oct. 5, 2005).

In 2006, the Massachusetts legislature enacted § 19F over

then-Governor Romney's veto. Section 19F does not distinguish on

its face between in-state and out-of-state wineries' eligibility

for direct shipping licenses, but instead distinguishes between

"small" or "large" wineries through the 30,000 gallon cap.

During floor debates, § 19F's sponsor summed up § 19F as

follows: "[W]ith the limitations that we are suggesting in the

legislation, we are really still giving an inherent advantage

indirectly to the local wineries." Likewise, the state senator

whose district included Massachusetts's then-largest winery

explained his qualified support for § 19F by stating that "the

agricultural industry here in Massachusetts is really strong and

should be preserved. And we do this . . . because we produce these

specialty goods, pick-your-own orchards and wineries." The senator

had another concern--that the winery in question, which primarily

produced fruit wine, "comes close to the 30,000 [gallon] production

limit" for "small" wineries and would likely soon exceed it because

-11-
"it's a winery that is growing . . . and certainly uses wholesalers

in other states." The senator urged modifications to § 19F because

"we should be promoting this kind of industry and not adopting

regulations, however inadvertently, that might take away the

advantage that the winery would have." The draft of § 19F was

amended shortly thereafter to exempt non-grape fruit wine

production from the 30,000 gallon cap, and that version was

enacted.4

To repeat, all wineries producing over 30,000 gallons of

wine--all of which are located outside Massachusetts--can apply for

a "large winery shipment license," which allows them to directly

sell and ship wine to consumers, but only if "the winery has not

contracted with or has not been represented by a wholesaler

licensed under section 18 for the preceding 6 months." Mass. Gen.

Laws ch. 138, § 19F(a). To the extent a choice is available at

all, under § 19F(a), "large" wineries can either choose to remain

4
Massachusetts tries to dismiss these statements as the
isolated and unrepresentative comments of a few legislators. But
such statements are precisely the kind of evidence the Supreme
Court has looked to in previous Commerce Clause cases challenging
a statute as discriminatory in purpose. See Minnesota v. Clover
Leaf Creamery Co., 449 U.S. 456, 465-68 (1981) (looking to a
senator's and representatives' statements during floor debates as
probative evidence of purpose); Hunt v. Wash. State Apple Adver.
Comm'n, 432 U.S. 333, 352 (1977) (pointing to a statement by a
single state commissioner as strong evidence of discriminatory
purpose).
Clearly the remarks of a single legislator are not controlling
and do not compel any conclusion that the remarks reflect
legislative intent. See Consumer Prod. Safety Comm'n v. GTE
Sylvania, Inc., 447 U.S. 102, 118 (1980). But they are evidence.

-12-
completely within the three-tier system and distribute their wines

solely through wholesalers, or they can completely opt out of the

three-tier system and sell their wines in Massachusetts exclusively

through direct shipping. They cannot do both. Wholesaler

distribution is also the only way "large" wineries can distribute

wines to retailers, including all Massachusetts restaurants and

bars. To put it differently, "large" wineries cannot distribute

directly to consumers except at the cost of giving up distribution

to retailers. By contrast, "small" wineries can simultaneously use

the traditional wholesaler distribution method, direct distribution

to retailers, and direct shipping to reach consumers.

The practical effects of the distinctions Massachusetts

has drawn are significant. In 2006, 637 U.S. wineries were "large"

under § 19F(a)'s definition. They produced between 30,001 and over

100 million gallons per year and accounted for 98 percent of all

wine produced in the United States. The thirty largest "large"

wineries represented 92 percent of the national market, while the

other 607 "large" wineries produced between 30,001 and 680,000

gallons per year, averaged slightly less than 60,000 gallons per

year, and made up approximately 6 percent of the U.S. wine

production market in 2006.

There were 4,713 "small" wineries in the United States in

2006, as the term "small" is defined by § 19F(b). Of these

wineries, 1,780--more than a third--produced less than one gallon

per year and had virtually no market share. The remaining 2,933

-13-
"small" wineries accounted for 2 percent of the total annual wine

production in the United States in 2006.5

In 2007, there were thirty-one wineries in Massachusetts,

all met § 19F(b)'s definition of "small," and approximately half of

these wineries produced fruit wine in addition to or in lieu of

traditional grape-based wines. Each produced between 200 and

24,000 gallons per year.6

II. Whether § 19F Discriminates against Interstate Commerce

The Commerce Clause prevents states from creating

protectionist barriers to interstate trade. See, e.g., Lewis v. BT

Inv. Managers, Inc., 447 U.S. 27, 35 (1980). Discrimination under

the Commerce Clause "means differential treatment of in-state and

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

burdens the latter," as opposed to state laws that "regulate[]

5
We accept these facts as true, as both parties have
agreed upon them, although important gaps appear in these
statistics. TTB counted the number of wineries in the U.S. and
their total gallonage based on the records it keeps for the purpose
of levying a federal excise tax on "wine premises." See 27 C.F.R.
§ 24.100 (2009). These statistics do not precisely line up to the
"large" and "small" categories in § 19F, because TTB's statistics
do not distinguish between wines produced from grapes versus from
other fruits. Id. at § 24.10 (defining "wine premises" as places
where wine operations occur and "wine" to include both grape wine
and other fruit wines).
6
They collectively produced 235,690 gallons of wine in
2007, though Massachusetts's statistics do not say whether this is
all wine or just grape wine. While this was well under one tenth
of one percent of U.S. annual wine production, Massachusetts's wine
industry is in its early stages and is growing rapidly. See An
Economic Snapshot of the Mass. Winery Industry, Mass. Dep't of
Agriculture, Sept. 2008, available at http://www.mass.gov/agr/
facts/wine.htm.

-14-
evenhandedly with only incidental effects on interstate commerce,"

Or. Waste Sys., 511 U.S. at 99 (internal quotation marks omitted).

Plaintiffs bear the initial burden of showing discrimination.7 See

Cherry Hill Vineyard LLC v. Baldacci, 505 F.3d 28, 33 (1st Cir.

2007) (citing Hughes v. Oklahoma, 441 U.S. 322, 336 (1979)).

If plaintiffs meet their burden, then "a discriminatory

law is virtually per se invalid . . . and will survive only if it

advances a legitimate local purpose that cannot be adequately

served by reasonable non-discriminatory alternatives."8 Dep't of

Revenue v. Davis, 128 S. Ct. 1801, 1808 (2008) (citations omitted)

(internal quotation marks omitted). The state bears the burden of

showing legitimate local purposes and the lack of non-

discriminatory alternatives, and discriminatory state laws rarely

7
While the Supreme Court has said "[a] finding that state
legislation constitutes economic protectionism may be made on the
basis of either discriminatory purpose or discriminatory effect,"
Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334, 344 n.6 (1992)
(quoting Bacchus Imps., Ltd. v. Dias, 468 U.S. 263, 270 (1984))
(alteration in original) (citation omitted) (internal quotation
marks omitted), plaintiffs argue both are present, and we agree.
8
Though this standard is stringent, it is also quite
different from a standard requiring the state to demonstrate a
"compelling state interest" that cannot be served through a non-
discriminatory alternative. We reject plaintiffs' contention that
the "compelling interest" standard applies here and is required by
Maine v. Taylor, 477 U.S. 131 (1986). Maine v. Taylor, like
subsequent Supreme Court precedents, required states to demonstrate
only that the statute "serves a legitimate local purpose" that
"could not be served as well by available non-discriminatory
means." Id. at 138.

-15-
satisfy this exacting standard.9 See Camps Newfound/Owatonna, Inc.

v. Town of Harrison, 520 U.S. 564, 581-82 (1997).

We explain in more detail the arguments being made.

Plaintiffs argue that Massachusetts's choice of 30,000 gallons as

the demarcation point between "small" and "large" wineries, along

with the production exception for fruit wine, has both a

discriminatory effect and purpose. The discriminatory effect is

because § 19F's definition of "large" wineries encompasses the

wineries which produce 98 percent of all wine in the United States,

all of which are located out-of-state and all of which are deprived

of the benefits of combining distribution methods. All wines

produced in Massachusetts, on the other hand, are from "small"

wineries that can use multiple distribution methods. Plaintiffs

also say that Section 19F is discriminatory in purpose because the

gallonage cap's particular features, along with legislators'

statements and § 19F's process of enactment, show that § 19F's true

purpose was to ensure that Massachusetts's wineries obtained

advantages over their out-of-state counterparts. Plaintiffs also

argue that Massachusetts cannot meet its burden of justifying § 19F

because the law neither advances the three-tier system nor

9
Of course, even if the challenged law regulates in-state
and out-of-state interests even-handedly, it may still violate the
Commerce Clause if "the burden imposed on [interstate] commerce is
clearly excessive in relation to the putative local benefits" under
the test first set forth in Pike. Dep't of Revenue, 128 S. Ct. at
1808 (quoting Pike v. Bruce Church Inc., 397 U.S. 137, 142 (1970))
(alteration in original) (internal quotation marks omitted).

-16-
effectively assists small wineries in ways that available non-

discriminatory alternatives could not. Finally, in the

alternative, plaintiffs contend that § 19F impermissibly burdens

interstate commerce under Pike even if it is not discriminatory.

Massachusetts counters that § 19F is not discriminatory

in effect because most "small" wineries are located out-of-state.

It says this proves that § 19F disproportionately benefits out-of-

state, not in-state, wineries, especially since there are far more

"small" § 19F(b) wineries in the country than "large" § 19F(a)

ones. Massachusetts argues that § 19F is not discriminatory in

purpose because its aim is to level the economic playing field for

all "small" wineries irrespective of where they are located, and

the district court erroneously looked to comments by individual

legislators, lobbyists, and intermediate steps in § 19F's process

of enactment to find discriminatory purpose.10 Finally,

Massachusetts says that § 19F poses no undue burden on interstate

commerce under Pike and any such burden is surpassed by the local

benefits of greater competition and consumer choice.

We explain below our reasons for rejecting

Massachusetts's arguments. Because we hold that § 19F

discriminates against interstate commerce, it is unnecessary for us

to decide whether § 19F would also violate the Commerce Clause

10
Massachusetts further asserted, but only at oral
argument, that there are no other feasible means of giving small
wineries a limited exemption from the three-tier system than
through § 19F.

-17-
under Pike. See C & A Carbone, Inc. v. Town of Clarkstown, 511

U.S. 383, 390 (1994).

A. Section 19F is Discriminatory in Effect

A state law is discriminatory in effect when, in

practice, it affects similarly situated entities in a market by

imposing disproportionate burdens on out-of-state interests and

conferring advantages upon in-state interests. Or. Waste Sys., 511

U.S. at 99 (defining discrimination); see also Gen. Motors Corp. v.

Tracy, 519 U.S. 278, 298 (1997) ("[A]ny notion of discrimination

assumes a comparison of substantially similar entities.") (footnote

omitted).

One such form of discrimination is plainly when "the

effect of a state regulation is to cause local goods to constitute

a larger share, and goods with an out-of-state source to constitute

a smaller share, of the total sales in the market." Exxon Corp. v.

Governor of Maryland, 437 U.S. 117, 126 n.16 (1978). State laws

that alter conditions of competition to favor in-state interests

over out-of-state competitors in a market have long been subject to

invalidation. See, e.g., Hunt, 432 U.S. at 350-51; Polar Ice Cream

& Creamery Co. v. Andrews, 375 U.S. 361, 376-77 (1964); Baldwin v.

G.A.F. Seelig, Inc., 294 U.S. 511, 519 (1935); see also Baldacci,

505 F.3d at 36 (explaining the doctrine); Houlton Citizens'

Coalition v. Town of Houlton, 175 F.3d 178, 188-89 (1st Cir. 1999)

(same).

-18-
 Plaintiffs must present evidence as to why the law

discriminates in practice. See Baldacci, 505 F.3d at 36-37.11

Here, the totality of the evidence introduced by plaintiffs

demonstrates that § 19F's preferential treatment of "small"

wineries that produce 30,000 gallons or less of grape wine is

discriminatory. Its effect is to significantly alter the terms of

competition between in-state and out-of-state wineries to the

detriment of the out-of-state wineries that produce 98 percent of

the country's wine.

Section 19F confers a clear competitive advantage to

"small" wineries, which include all Massachusetts's wineries, and

creates a comparative disadvantage for "large" wineries, none of

which are in Massachusetts. "Small" wineries that obtain a

§ 19F(b) license can use direct shipping to consumers, retailer

distribution, and wholesaler distribution simultaneously.

Combining these distribution methods allows "small" wineries to

sell their full range of wines at maximum efficiency because they

serve complementary markets. "Small" wineries that produce

higher-volume wines can continue distributing those wines through

wholesaler relationships. They can obtain new markets for all

11
Baldacci only addressed the kind of showing required when
a statute is challenged as discriminatory in effect but is
concededly non-discriminatory in purpose. 505 F.3d at 36. We did
not address whether a lesser showing might suffice when a law is
allegedly discriminatory in both effect and purpose. We do not
reach this question because even under the standard in Baldacci,
plaintiffs have shown § 19F is discriminatory in effect.

-19-
their wines by distributing their wines directly to retailers,

including individual bars, restaurants, and stores. They can also

use direct shipping to offer their full range of wines directly to

Massachusetts consumers, resulting in greater overall sales.

Combining these methods also lowers "small" wineries'

distribution costs because they can choose which method or

combination of methods will be most cost-effective for a particular

wine. As the parties' briefs highlight, this produces important

synergies. "Small" wineries' use of retail distribution increases

brand recognition and makes wholesaler distribution more likely.

Direct shipping can similarly increase consumer demand for a

particular wine, increasing the prospects for further retail sales

and wholesaler distribution.

Not surprisingly, Massachusetts's wineries have taken

advantage of these benefits. Twenty-seven of Massachusetts's

thirty-one wineries have obtained "small" winery licenses; in

contrast, only twenty-six of the 2,933 out-of-state "small"

wineries producing more than a gallon per year have done so.12

Massachusetts's wineries have also benefitted from their access to

multiple distribution channels in practice. In 2007, the first

12
It is true, as Massachusetts argues, that in 2006, 4,713
wineries qualified as "small" under § 19F(b). But more than a
third of these wineries produced less than a gallon of wine a year
and cannot really be considered part of the interstate wine market.
Moreover, many "small" out-of-state wineries likely distribute
virtually all of their wine through in-person sales or to their
home-state markets.

-20-
year § 19F was in effect, Massachusetts's wineries distributed 29

percent of their annual production through wholesalers and 71

percent through retail outlets, including direct shipping. See An

Economic Snapshot of the Massachusetts Winery Industry.

The 637 out-of-state wineries that qualified as "large"

under § 19F(a) in 2006 do not get these advantages and must instead

choose between direct shipping and wholesaler distribution. Under

§ 19F(a), whether a "large" winery chooses wholesaler distribution

or direct shipping, its choice carries a significant loss of

potential profits, since using a single method results in a

comparative loss of consumer sales. "Large" wineries also face

comparatively greater distribution costs because they cannot always

distribute a given wine through the most cost-effective method.

And they cannot take advantage of the synergies that increase the

net amount of demand for wines when multiple distribution methods

are used together. These amount to considerable competitive

disadvantages in an industry that Massachusetts's own evidence

characterizes as one with indisputably slim profit margins and a

highly competitive market.

Moreover, contrary to Massachusetts's assertions, § 19F

does not level the playing field for all wineries unable to obtain

consistent wholesaler distribution under the three-tier system.

Section 19F's demarcation line between "small" and "large" wineries

instead creates an especially acute competitive disadvantage for

the wineries that are defined as "large" under § 19F(a) but which

-21-
in practice face the same difficulties in distributing most of

their wines as the "small" § 19F(b) wineries. Massachusetts's own

evidence shows that only the largest 50 to 100 wineries can

distribute most of their wines through wholesalers under the three-

tier system. The remaining 537 or so "large" wineries each produce

between 30,001 and 680,000 gallons per year of a mix of mass-market

and boutique wines. In 2006, their percentage of the market share

for wine production far exceeded that of § 19F(b) "small" wineries.

These smaller "large" wineries lose the most under the

§ 19F regime. Unlike the largest of the "large" wineries, which

can distribute the vast majority of their wines through existing

wholesale distribution, these smaller "large" wineries can only

distribute a handful of their higher-volume wines through

wholesalers. If they choose direct shipping, however, they are

forced to terminate their existing wholesaler relationships, which

also means that they lose all access to retailers in Massachusetts.

Since this is a crucial way for a winery to build consumer

awareness for the brand in Massachusetts, its unavailability means

that these wineries are not able to compete on the same footing as

§ 19F(b) "small" wineries. Importantly, these are also the

wineries that would otherwise be most competitive in the market for

boutique wines: their size affords them otherwise considerable

advantages in terms of marketing, volume, transportation, and brand

recognition.

-22-
 The ultimate effect of § 19F is to artificially limit the

playing field in this market in a way that enables Massachusetts's

wineries to gain market share against their out-of-state

competitors. Section 19F(b)'s choice of a 30,000 gallon grape wine

production cap helps Massachusetts wineries to improve their

position in the market. At the same time, § 19F(a) burdens all the

larger out-of-state competitors and impedes their ability to

effectively use their natural advantages.13

Massachusetts argues that there can be no discrimination

because the favored "small" winery group created by § 19F(b) is

almost entirely comprised of out-of-state wineries. Massachusetts

claims this means that whatever the burden on out-of-state wineries

under § 19F(a), § 19F(b) does not create an in-state benefit, since

Massachusetts's "small" wineries are made no better off than their

out-of-state counterparts. Without evidence of in-state benefits,

Massachusetts concludes, the Supreme Court's decision in Exxon

dictates that we find no discriminatory effect.

Massachusetts's argument ignores the effect of its

statute. Section 19F(b)'s benefit to eligible "small" out-of-state

wineries cannot be viewed separately from the much greater

disadvantages that § 19F(a) imposes on out-of-state wineries.

13
Our decision in Baldacci is consistent with this
conclusion. That case involved a challenge to a Maine law that
allowed wineries to sell to consumers only in face-to-face
transactions. 505 F.3d at 30-31. That challenge failed because
plaintiffs did not introduce any evidence that the law benefitted
Maine vineyards or harmed out-of-state wineries. Id. at 38.

-23-
Massachusetts's wineries uniquely receive a net competitive gain

under § 19F, while the law impairs out-of-state wineries'

competitive position. It deprives "large" wineries--and especially

those "large" wineries that have trouble obtaining wholesale

distribution--of the competitive advantages of specialization and

higher-volume production. These disadvantages exceed the benefits

that out-of-state "small" wineries receive.

Exxon does not support Massachusetts's argument. Exxon

held that a law that restricts a market consisting entirely of out-

of-state interests is not discriminatory because there is no local

market to benefit. 437 U.S. at 125-26. Exxon is not apposite

where, as here, there is an in-state market and the law operates to

its competitive benefit. Massachusetts cannot apply Exxon only to

"large" wineries as distinct from "small" wineries; the wine market

is a single although differentiated market, and § 19F's two

provisions operate on that market together.

Likewise, the fact that § 19F(b) benefits both in-state

and some out-of-state "small" wineries does not prove that § 19F is

non-discriminatory. We have previously rejected the notion that "a

favored group must be entirely in-state for a law to have a

discriminatory effect on commerce," reasoning that when a law

burdened a group whose members were entirely out-of-state and

benefitted a class whose members were largely but not wholly

located in-state, it was still impermissibly discriminatory in

-24-
effect.14 See Walgreen Co. v. Rullan, 405 F.3d 50, 59 (1st Cir.

2005).

B. Section 19F is Discriminatory in Purpose

We further hold that § 19F conferred a competitive

advantage upon Massachusetts wineries by design.

In Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30 (1st

Cir. 2005), we discussed the methodology for determining

legislative purpose when a state statute is allegedly motivated by

an intent to discriminate against interstate commerce. Under that

methodology, we look to "the statute as a whole," id. at 37,

including statutory text, context, and legislative history, but we

also consider whether the statute was "closely tailored to achieve

the legislative purpose" the state asserted.15 Id. at 38.

14
Nor do we find the reasoning of the two district court
cases that have upheld other states' gallonage caps to be
persuasive. See Black Star Farms, LLC v. Oliver, 544 F. Supp. 2d
913 (D. Ariz. 2008); Cherry Hill Vineyards, LLC v. Hudgins, 488 F.
Supp. 2d 601 (W.D. Ky. 2006).
15
Other courts have invalidated state statutes as motivated
by a discriminatory intent after examining an even wider range of
sources. Some have done so based on the test for discriminatory
purpose used in the Equal Protection context, which looks for a
history or pattern of discrimination. See, e.g., S.D. Farm Bureau,
Inc. v. Hazeltine, 340 F.3d 583, 593-96 (8th Cir. 2003); Waste
Mgmt. Holdings, Inc. v. Gilmore, 252 F.3d 316, 336 (4th Cir. 2001);
see also McNeilus Truck and Mfg., Inc. v. Ohio ex rel. Montgomery,
226 F.3d 429, 443 (6th Cir. 2000) (invalidating a statute as
discriminatory in both purpose and effect). We need not adopt a
broader view of the sources probative of legislative intent to find
that § 19F is discriminatory in purpose. Nor need we consider
whether an Equal Protection analysis is apposite in the Commerce
Clause context. Even under our narrower methodology in Alliance of
Auto. Mfrs., § 19F is discriminatory in purpose.

-25-
 That § 19F discriminates against out-of-state wineries in

its effects strengthens the inference that the statute was

discriminatory by design. "'[L]ess deference to . . . legislative

judgment is due . . . where the local regulation bears

disproportionately on out-of-state residents and businesses.'" Id.

at 39 (second and third alterations in original) (quoting Kassel v.

Consol. Freightways Corp., 450 U.S. 662, 675-76 (1981) (plurality

opinion)); see also D. H. Regan, The Supreme Court and State

Protectionism: Making Sense of the Dormant Commerce Clause, 84

Mich. L. Rev. 1091, 1144-47, 1206-45 (1986) (suggesting that the

Commerce Clause is particularly concerned with deliberate

discrimination, and that previous Supreme Court cases invalidating

state statutes involved discriminatory effects in combination with,

and as evidence of, discriminatory purpose); K.M. Sullivan & G.

Gunther, Constitutional Law 206 (16th ed. 2007).

As to statutory context, § 19F is a new addition to a

provision that covers an array of alcohol licensing rules.16 While

§ 19 generally includes licensing rules for producers that are

typical of the three-tier system, § 19F is one of a number of

16
Section 19F is unlike the law at issue in Alliance of
Auto. Mfrs., which we described as a fully integrated part of an
"intricately constructed law" that had been on the books for three
decades. 430 F.3d at 37-38.
Moreover, when, as here, a state statute is both
discriminatory in effect and in purpose, it is clearly
discriminatory within the meaning of the Commerce Clause, and we
need not address whether evidence of a legislative intent to
discriminate would suffice on its own. Cf. Alliance of Auto.
Mfrs., 430 F.3d at 36 n.3.

-26-
recently appended subsections that sets out special exceptions to

that system for particular entities. See, e.g., Mass. Gen. Laws.

ch. 138, § 19C (farmer-brewery licenses); id. § 19D (pub-brewery

licenses); § 19E (farmer-distillery licenses). Many of these

subsections were enacted for the express purpose of assisting

Massachusetts's domestic industries, including but not limited to

§ 19B, § 19F's facially discriminatory and unconstitutional

predecessor.17 Though § 19F contains no stated statutory purpose,

its placement in a licensing law that grants exceptions to the

three-tier system for the predominant purpose of benefitting local

industry is pertinent evidence of discriminatory intent. Based on

statements made by various Massachusetts legislators, it is also

clear that Massachusetts intended to benefit its local wine

industry, and that it did so in particular ways whose effects on

out-of-state wineries could easily be foreseen.

The gap between Massachusetts's professed neutrality and

§ 19F's practical effects also underscores the conclusion of

discriminatory purpose. See Hunt, 432 U.S. at 352 (observing that

the disparity between a law's asserted ends and its means was

"somewhat suspect" and evidenced a likely discriminatory purpose).

Massachusetts has asserted various purposes behind § 19F:

17
See id. § 19B(a) (farmer-winery licenses were created
"[f]or the purpose of encouraging the development of domestic
vineyards"); id. § 19C(a) (farmer-brewery licenses exist "[f]or the
purpose of encouraging the development of domestic farms"); id.
§ 19E(a) (farmer-distillery licenses are issued "[f]or the purpose
of encouraging the development of domestic farms").

-27-
to facilitate direct shipment, to further the three-tier system, to

make all small wineries, irrespective of their location, better

able to compete, and to thereby provide Massachusetts consumers

with greater choice. The 30,000 gallon cap and the fruit wine

exception, Massachusetts claimed at oral argument, reflected the

legislature's rational assessment of the kind of wineries that

needed special assistance because they were suffering from the

limitations of the three-tier system. But these general aims stand

in stark contrast to § 19F's specific and highly irregular

features.

The wine industry and federal law have developed

definitions of "small," "medium," and "large" wineries in order to

describe the way the industry produces and distributes wines and,

in the case of federal law, to offer "small" wineries regulatory

benefits. These definitions do not, of course, bind states to

particular regulatory choices. But their lack of correlation to

§ 19F belies Massachusetts's claim that § 19F's features reflected

an objective choice to remedy the purported competitive

disadvantage faced uniquely by wineries producing 30,000 gallons or

less of grape wine. That is particularly true given that this

gallonage cap counts wineries as "small" even if they produce more

than 30,000 gallons of wine when fruit wine production is counted.

See Kassel, 450 U.S. at 675-78 (questioning the legitimacy of the

Iowa legislature's motives in enacting a statute that banned

vehicles longer than 55 feet from using Iowa roads, when all other

-28-
states in the West and Midwest had a 65-foot limit and the Iowa

statute had a number of significant and irregular exceptions);

Hunt, 432 U.S. at 350-52 (finding a North Carolina apple-labeling

law discriminatory in effect and, impliedly, in purpose when its

requirements prevented Washington from using its apple-grading and

labeling system, which had become the industry standard).

According to uncontested evidence in the record, the wine

industry considers wineries that produce 120,000 gallons per year

or less "small." "Medium" wineries produce between 120,000 and

600,000 gallons annually, and "large" wineries produce more than

600,000 gallons per year. The industry apparently does not

differentiate between wineries that produce fruit as opposed to

grape wine; relative size is the critical factor. The Federal

Trade Commission largely adopted these definitions when it surveyed

conditions of competition in the wine industry. See FTC Report at

6.

Nor, according to testimony from industry figures, does

Massachusetts's 30,000 gallon demarcation point between "small" and

"large" wineries correspond to the ability of the winery to obtain

wholesaler representation. To the contrary, this choice prevents

out-of-state, smaller "large" wineries from competing on equal

terms with Massachusetts's "small" wineries even though these

wineries faced similar difficulties in obtaining wholesaler

distribution under the three-tier system.

-29-
 Massachusetts's claim at oral argument that its

definition of "small" wineries targets those wineries in need of

competitive assistance also diverges considerably from the

definitions the federal government and other states have developed

for this same broad purpose. As we have said, there is no

relationship to those wineries who are able or unable to obtain

wholesalers. Beyond that, as a matter of federal tax policy,

wineries producing 250,000 gallons or less of any type of wine, and

not merely wineries that produce less than 30,000 gallons of grape

wine per year, are deemed "small wineries" in need of competitive

assistance in the form of a substantial tax break. See Alcohol &

Tobacco Tax & Trade Bureau, Dep't of the Treasury, TTB Compliance

Seminar for Bonded Wine Premises 73-74 (2008), available at

http://www.ttb.gov/pdf/compliance-seminar.pdf (hereinafter TTB

Compliance Seminar).18 No other state has defined a "small" wine

producer and attached the same consequences to this definition as

Massachusetts has.19 And no other state counts gallonage by

18
The tax code provision defines "small" wineries as those
under 250,000 gallons annually and provides the greatest incentives
for wineries that produce under 150,000 gallons annually. See 26
U.S.C. § 5041(c)(1)-(2); 27 C.F.R. § 24.278(a) (2008); TTB
Compliance Seminar at 70-71. The federal tax code also measures
"wine" production by counting wines produced from various fruits,
not just grape wine. See 27 C.F.R. § 24.10.
19
Arizona, Kentucky, Ohio, and Indiana have limited access
to direct shipping to "small" or "farm" wineries. See Ariz. Rev.
Stat. Ann. § 4-205.04(C); Ky. Rev. Stat. Ann. § 243.155,
invalidated in part by Cherry Hill Vineyards, LLC v. Lilly, 553
F.3d 423 (6th Cir. 2008); Ohio Rev. Code Ann. § 4303.232(A)(1);
Ind. Code 7.1-3-12-4, 7.1-3-12-5(a). Other states provide other

-30-
excluding all fruit wine production; "wine" in these other states

means wines made from any fruit or other agricultural product. See

Ariz. Rev. Stat. Ann. § 4-101(36); Ark. Code Ann. § 3-5-202(4);

Fla. Stat. § 564.01; Ky. Rev. Stat. Ann. § 241.010(55); Ind. Code

7.1-1-3-49; Ohio Rev. Code Ann. § 4301.01(3). Section 19F's

definition of a "small" winery does not even correspond to the way

Massachusetts previously classified wineries by size for the

purpose of calculating a licensing fee.20

Section 19F's unusual regulatory features do track one

thing precisely: the unique attributes of Massachusetts's own wine

industry.21 All of Massachusetts's thirty-one wineries are eligible

regulatory benefits to such wineries. See, e.g., Ark. Code Ann.
§ 3-5-1602(c)(1)(E); Fla. Stat. § 599.004. Though most of these
states define "small" wineries with reference to the number of
gallons they produce annually, no other state considers 30,000
gallons a significant figure. See Ariz. Rev. Stat. Ann. § 4-
205.04(C); Ark. Code Ann. §§ 3-5-1601, 3-5-1602(c)(1)(E); Fla.
Stat. § 599.004; Ky. Rev. Stat. Ann. § 241.010(46); Ohio Rev. Code
Ann. § 4303.232(A)(1).
20
Section 19B, § 19F's unconstitutional predecessor,
included a subsection that calculated license fees based on a
winery's annual gallonage. Wineries in lower-gallonage categories
paid lower fees. Mass. Gen. Laws ch. 138, § 19B(l). Wineries were
divided into categories of 5,000 gallons or less per year; 5,000 to
20,000 gallons; 20,000 to 100,000 gallons; 100,000 to 200,000
gallons; 200,000 to 1,000,000 gallons; and more than 1,000,000
gallons per year. Id. These categories were based on total annual
gallonage and did not consider whether the wine came from grapes or
other fruits. Id.; id. § 19B(m).
21
To be clear, we do not hold that when an industry and the
federal government have developed a standard definition in the
field of alcohol regulation, a state must follow that definition
or have its law deemed suspect. Cf. North Dakota v. United States,
495 U.S. 423, 430-33 (1990). It is the totality of the evidence of
discriminatory purpose and discriminatory effect that leads us to

-31-
for "small" winery licenses. All fall neatly within the 30,000

gallon cap, producing between 200 gallons and 24,000 gallons

annually. And the record demonstrates--and Massachusetts does not

contest--that legislators were well aware of these figures.

The fact that this gallonage cap excludes wines made from

fruits other than grapes, no matter how many gallons a winery

produces per year, is particularly probative. In past years,

Massachusetts's largest winery produced more than 30,000 gallons of

wine annually because between half and three-quarters of its

production came from apple wines. The main effect of the fruit

wine exception was to guarantee that this winery, like all other

Massachusetts wineries, could take advantage of § 19F(b)'s

beneficial distribution rules for "small" wineries. Massachusetts

has offered no other explanation for the fruit wine exception, and

there is no obvious reason why it would serve § 19F's ostensible

purposes. This exception, like similar, facially neutral statutory

exemptions apparently motivated by a desire to shield in-state

interests, "weaken[s] the presumption in favor of the validity of

the [general provision], because [it] undermine[s] the assumption

that the State's own political processes will act as a check on

local regulations that unduly burden interstate commerce." Raymond

Motor Transp., Inc. v. Rice, 434 U.S. 429, 447 (1978).

conclude that § 19F discriminates against interstate commerce.

-32-
 We conclude that § 19F altered the competitive balance to

favor Massachusetts's wineries and disfavor out-of-state

competition by design.22

C. Lack of Legitimate Local Purpose and Availability
of Reasonable Non-Discriminatory Alternatives

Because plaintiffs have shown that § 19F discriminates

against interstate commerce, Massachusetts bears the heavy burden

of showing that the statute is nonetheless constitutional because

it serves a legitimate local purpose that cannot be attained

through reasonable non-discriminatory alternatives. Dep't of

Revenue, 128 S. Ct. at 1808. The state can only carry this burden

by presenting "concrete record evidence," and not "sweeping

assertion[s]" or "mere speculation," to substantiate its claims

that the discriminatory aspects of its challenged policy are

necessary to achieve its asserted objectives. Granholm, 544 U.S.

at 492-93; see also Chem. Waste Mgmt., 504 U.S. at 342.

Massachusetts has not even attempted to do so here.23 Because the

22
This conclusion is not dependent on the many statements
of discriminatory purpose by lobbyists and the intermediate steps
in the legislative process the district court relied upon in its
opinion.
23
The state did not brief this point. It was only in
response to questioning at oral argument that Massachusetts
characterized § 19F as the only feasible means the state has to
serve the local purposes of benefitting small wineries, supporting
the three-tier system, and increasing consumer choice. This
argument is untimely and likely waived. It is also not supported
by anything in the record. Several amici try to fill the gap, but
amici may not make up for waiver by a party. See United States v.
Sturm, Ruger & Co., Inc., 84 F.3d 1, 6 (1st Cir. 1996).

-33-
constitutionality of a state statute is involved, we nonetheless

consider the issue.

The record shows that at least one viable non-

discriminatory alternative existed when § 19F was under

consideration: the Model Direct Shipment Bill, which the National

Conference of State Legislatures adopted in 1997. The Model Bill

does not define "small" or "large" wineries or regulate access to

licenses depending on winery size. As an alternative to § 19F,

then-Governor Romney proposed a version of the Model Bill which

would have allowed all wineries to ship directly to consumers, sell

to retailers, and distribute through wholesalers. But the state

legislature rejected this proposal and overrode his veto.

Plaintiffs argue that this alternative would have helped

small wineries without undercutting the three-tier system because

it included limitations on the total volume wineries could ship to

consumers. Whatever the merits of this proposal, Massachusetts has

never claimed it would be unworkable. Under similar circumstances,

the Supreme Court has, as a rule, struck down the discriminatory

state law in question. See Granholm, 544 U.S. at 491-92; Camps

Newfound/Owatonna, 520 U.S. at 582 n.16.

III. Whether the Twenty-first Amendment Immunizes Facially
Neutral Alcohol Statutes from Commerce Clause Scrutiny

We now consider whether, as Massachusetts asserts, the

Twenty-first Amendment protects § 19F from invalidation,

-34-
notwithstanding the fact that it discriminates against interstate

commerce in purpose and effect.

Whether the Twenty-first Amendment granted states the

authority to enact even facially neutral but discriminatory alcohol

laws that would otherwise violate the Commerce Clause was not

decided by Granholm and the answer is not readily apparent from the

text of the Amendment. Granholm holds the interpretation of this

amendment instead turns on historical context. Section 2 of the

Twenty-first Amendment granted the states the authority to regulate

liquor only to the extent that they had done so before Prohibition

under two federal laws: the Wilson Act of 189024 and the Webb-Kenyon

Act of 1913.25 See Granholm, 544 U.S. at 484.

The Supreme Court held in Granholm that through these

Acts, Congress gave the states newfound powers to regulate alcohol

that came within their borders, even if it had traveled in

24
The Wilson Act stated "[t]hat all . . . intoxicating
liquors . . . transported into any State . . . for use,
consumption, sale or storage therein, shall upon arrival in such
State . . . be subject to the operation and effect of the laws of
such State . . . enacted in the exercise of its police powers, to
the same extent and in the same manner as though such liquids or
liquors had been produced in such State . . . and shall not be
exempt therefrom by reason of being introduced therein in original
packages or otherwise." 27 U.S.C. § 121.
25
The Webb-Kenyon Act provided that "[t]he shipment or
transportation . . . of any . . . intoxicating liquor of any kind
from one State . . . into any other State . . . which said . . .
intoxicating liquor is intended, by any person interested therein,
to be received, possessed, sold, or in any manner used, either in
the original package or otherwise, in violation of any law of such
State. . . is prohibited.” 27 U.S.C. § 122.

-35-
interstate commerce. The Wilson Act did this by allowing states to

restrict or prohibit the sale of out-of-state alcohol "to the same

extent and in the same manner" as alcohol that was produced in-

state. 544 U.S. at 478 (quoting 27 U.S.C. § 121) (internal

quotation marks omitted). The Webb-Kenyon Act expanded states'

regulatory authority by expressly authorizing states to regulate

alcohol that traveled in interstate commerce even if it was being

shipped solely for consumers' personal use. Id. at 481-84. These

Acts did not, however, exempt states from the Commerce Clause's

existing prohibitions on state laws that discriminated against out-

of-state goods and favored local interests. Id. at 484-85.

The precise question in Granholm was what effect, if any,

the Twenty-first Amendment has upon facially discriminatory state

alcohol laws that would otherwise be subject to invalidation under

the Commerce Clause. 544 U.S. at 471. The question of whether the

Twenty-first Amendment protects facially neutral laws like § 19F

was not before the Court.

Massachusetts now contends that the Twenty-first

Amendment protects facially neutral laws from invalidation under

the Commerce Clause, even if they discriminate in purpose or

effect, because it says such laws are distinguishable from facially

discriminatory laws for the purposes of the Twenty-first Amendment.

In the alternative, Massachusetts asserted at oral argument that

-36-
the Twenty-first Amendment should lessen Commerce Clause scrutiny

of such laws to mere rational basis review.26

We reject these arguments. Based on our analysis of

historical sources, we conclude that the Wilson and Webb-Kenyon

Acts did not protect facially neutral state liquor laws from

invalidation under the Commerce Clause if they were

discriminatory.27 To hold otherwise, we would have to find that

these Acts not only recognized the difference between facially

discriminatory and facially neutral but discriminatory state laws,

but also affirmatively intended to protect the latter and not the

former. All evidence points to the contrary.

By the time the Wilson Act became law in 1890, it was

well established that under the Commerce Clause, facially neutral

26
The states of New Jersey, Ohio, Rhode Island, and
Wyoming, as amici, do not join Massachusetts's argument that there
is no Commerce Clause scrutiny if the statute is facially neutral.
They do support the contention that § 19F is not discriminatory in
effect or purpose. They argue in general terms that it cannot be
irrational for a legislature to make distinctions based on winery
size. It does not, of course, follow that the precise distinction
drawn cannot have a discriminatory effect. These states also make
the parade of horribles-style argument that a state's loss of
control over the alcoholic beverage market "can lead to illegal
activity, including shipment to underage individuals, the sale of
adulterated products, and the possibility of organized crime
involvement in disguised internet schemes." Massachusetts has not
advanced any of these theories, and it is difficult to see the
claimed causal relationship.
27
Because we hold that § 19F discriminates in effect and in
purpose in violation of the Commerce Clause, see supra Part II, we
do not decide whether, as Massachusetts argues, the Twenty-first
Amendment nonetheless immunizes non-discriminatory laws that impose
an undue burden on interstate commerce under Pike.

-37-
state statutes that had a discriminatory effect on out-of-state

interests constituted impermissible discrimination, just as

facially discriminatory state laws did.

The Supreme Court had decided two major discriminatory

effects Commerce Clause cases just before the Wilson Act passed.

In Robbins v. Taxing Dist. of Shelby County, 120 U.S. 489 (1887),

the Court had invalidated a facially neutral state tax on

"drummers," individuals who "drummed up" sales by displaying

samples, because, inter alia, the tax disproportionately

disadvantaged out-of-state merchants and manufacturers. Id. at

490-91, 497-98. And in Minnesota v. Barber, 136 U.S. 313 (1890),

the Supreme Court had invalidated a Minnesota statute that required

in-state inspection of all meat before it could be sold within the

state. Id. at 326. Its reasoning cut broadly: "Although this

statute is not avowedly or in its terms directed against the

bringing into Minnesota of the products of other states," this was

the statute's "necessary effect." Id.

In a separate line of cases, the Supreme Court had also

indicated that a state's asserted rationale for a statute would be

viewed with skepticism if other evidence, including the statute's

effects, pointed strongly to a discriminatory purpose. "[I]f the

State, under the guise of exerting its police powers, should make

such exclusion or prohibition applicable solely to articles, of

that kind, that may be produced or manufactured in other States,"

the Court stated as early as 1879, "the courts would find no

-38-
difficulty in holding such legislation to be in conflict with the

Constitution of the United States." Guy v. City of Baltimore, 100

U.S. 434, 443 (1879); see also Austin v. Tennessee, 179 U.S. 343,

349-50 (1900) (suggesting that ostensibly neutral laws that were

intentionally applied in a discriminatory manner were invalid in

the Commerce Clause context).

When drafting the Wilson and Webb-Kenyon Acts, Congress

was presumably aware that these types of facially neutral but

discriminatory state laws were subject to invalidation under the

Commerce Clause. See Edelman v. Lynchburg Coll., 535 U.S. 106, 117

n.13 (2002); see also N. Star Steel Co. v. Thomas, 515 U.S. 29, 34

(1995). Yet Congress made no reference to the notion that the

Wilson and Webb-Kenyon Acts would permit states to enact liquor

laws with a discriminatory effect or motive. Although "Congress

may authorize the States to engage in regulation that the Commerce

Clause would otherwise forbid," courts can "exempt[] state statutes

from the implied limitations of the Clause only when the

congressional direction to do so has been unmistakably clear."

Maine v. Taylor, 477 U.S. 131, 138-39 (1986) (internal quotation

marks omitted). The Wilson and Webb-Kenyon Acts do evince an

unmistakably clear intention to permit states to regulate alcohol

which traveled in interstate commerce the same way as they

-39-
regulated in-state alcohol.28 But the two Acts cannot be construed

to authorize anything more.

Supreme Court decisions and legal scholarship of the era

confirm this interpretation. Scott v. Donald, 165 U.S. 58 (1897),

involved a challenge to a state law that gave the state liquor

commissioner control over all state sales of alcohol and included

two other provisions that explicitly disfavored out-of-state

manufacturers. Id. at 92. The Court compared the facts to other

Commerce Clause cases, including various discriminatory effects

cases involving goods other than alcohol, implying that alcohol

regulation was not a unique category for the purposes of the non-

discrimination rule. Id. at 93-99. The Court's ultimate holding

was that "[the Wilson Act] was not intended to confer upon any

state the power to discriminate injuriously against the products of

other states." While states, under the Wilson Act, could enact

laws to "forbid entirely the manufacture and sale of intoxicating

liquors," they "cannot . . . establish a system which, in effect,

28
It is clear that the Wilson and Webb-Kenyon Acts were
designed to advance the temperance movement's objectives by letting
states restrict or even prohibit the sale of alcohol within their
borders. See A. A. Bruce, The Wilson Act and the Constitution, 21
Green Bag 211, 215-16 (1909); L. Rogers, Interstate Commerce in
Intoxicating Liquors Before the Webb-Kenyon Act, 4 Va. L. Rev. 288,
293-300 (1917). The rule that state laws had to regulate in-state
and out-of-state interests even-handedly was no impediment to the
kind of laws the temperance movement pushed states to enact. See
R. F. Hamm, Shaping the Eighteenth Amendment: Temperance Reform,
Legal Culture, & the Polity, 1880-1920 188-89, 197-202 (1995).

-40-
discriminates between interstate and domestic commerce." Id. at

100.

Contemporaneous treatises on liquor law likewise

concluded that the Wilson Act did not immunize any kind of

discriminatory state law from scrutiny under the non-discrimination

rule.29

Against this background, we hold that the Twenty-first

Amendment does not exempt facially neutral state alcohol laws with

discriminatory effects from the non-discrimination rule of the

Commerce Clause. Nor, of course, are such laws exempt when they

also discriminate by design.

We also reject Massachusetts's alternate contention that

the Twenty-first Amendment lessens the degree of Commerce Clause

scrutiny for facially neutral but discriminatory state alcohol laws

to mere rational basis review. The Supreme Court implicitly

rejected this argument in Granholm when it applied the usual,

searching degree of scrutiny to invalidate the facially

discriminatory laws at issue. 544 U.S. at 489-90. And there is

29
See H. C. Black, A Treatise on the Laws Regulating the
Manufacture and Sale of Intoxicating Liquors § 44, at 55-56 (1892)
(noting the invalidity of state laws that involve "a tax imposed
upon an occupation, which necessarily discriminates against the
introduction and sale of products from another state" in its
effect); H. Joyce, The Law Relating to Intoxicating Liquors § 54,
at 67-69 (1910) (suggesting that the "special rule" embodied in the
Wilson Act was only to enable states to regulate alcohol in
interstate commerce). The Webb-Kenyon Act did not alter this
outcome, nor was it meant to do so. All it did was to enable
states to regulate alcohol shipped into a state for consumers'
personal use. See Granholm, 544 U.S. at 482-83.

-41-
nothing in the text, legislative history, or contemporaneous

understandings of the Wilson or Webb-Kenyon Acts that supports

Massachusetts's argument, let alone yields an unambiguous

indication of congressional intent to reduce Commerce Clause

scrutiny. In the absence of such evidence, Massachusetts's

interpretation of the Twenty-first Amendment fails.

Finally, we need not address whether § 19F could escape

invalidation on the ground that, despite its discriminatory effect

and design, the "core purposes" of the Twenty-first Amendment "are

sufficiently implicated . . . to outweigh the Commerce Clause

principles that would otherwise be offended." Bacchus, 468 U.S. at

275. Those purposes include "promoting temperance, ensuring

orderly market conditions, and raising revenue." North Dakota, 495

U.S. at 432. Massachusetts does not present any argument as to why

§ 19F serves any of these purposes.30 In any event, it is unclear

that this balancing test survives Granholm.31

30
In its argument that § 19F would pass muster under Pike,
Massachusetts identifies two interests § 19F serves: "the promotion
of competition and consumer choice." The state also mentions its
three-tier system as a local benefit, without analyzing whether
§ 19F, which relaxes the system, can be justified on this ground.
Massachusetts does not make the argument, made by the amici
Wine and Spirits Wholesalers, that the state's three-tier system
"prevent[s] a deluge of alcoholic beverages [from] descending
chaotically on consumers from many different sources" and that the
scheme is necessary to prevent the evils of the tied house. Amici
admit that the limits embodied in § 19F have the effect of
protecting in-state wholesalers from competition.
31
See Brooks v. Vassar, 462 F.3d 341, 351 (4th Cir. 2006)
(suggesting, over a dissent, that Granholm narrowed this inquiry
but did not eliminate it); see also M. K. Ohlhausen and G. L. Luib,

-42-
 IV.

We affirm the judgment of the district court.

So ordered.

Moving Sideways: Post-Granholm Developments in Wine Direct Shipping
and Their Implications for Competition, 75 Antitrust L.J. 505,
528-29 (2008) (noting that Granholm left it "unclear whether there
are any circumstances under which the Twenty-first Amendment can
'save' such regulation from judicial condemnation" under the
Commerce Clause).

-43-