RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Heald, et al. v. Engler; et al. No. 01-2720
ELECTRONIC CITATION: 2003 FED App. 0308P (6th Cir.)
File Name: 03a0308p.06
Intervening -
Defendant-Appellee. -
UNITED STATES COURT OF APPEALS -
N
FOR THE SIXTH CIRCUIT Appeal from the United States District Court
_________________ for the Eastern District of Michigan at Detroit.
No. 00-71438—Bernard A. Friedman, District Judge.
ELEANOR HEALD ; RAY X
HEALD ; JOHN ARUNDEL; - Argued: May 7, 2003
KAREN BROWN ; RICHARD -
- No. 01-2720 Decided and Filed: August 28, 2003
BROWN ; BONNIE MCMINN; -
GREGORY STEIN ; MICHELLE > Before: GUY, BOGGS, and DAUGHTREY, Circuit
,
MORLAN; WILLIAM - Judges.
HORWATH ; MARGARET - _________________
CHRISTINA; ROBERT -
CHRISTINA; TRISHA HOPKINS; - COUNSEL
JIM HOPKINS; DOMAINE -
- ARGUED: James A. Tanford, INDIANA UNIVERSITY
ALFRED, INC.,
- SCHOOL OF LAW, Bloomington, Indiana, for Appellants.
Plaintiffs-Appellants, -
Donald S. McGehee, OFFICE OF THE ATTORNEY
- GEN ER AL, MICH IGAN LIQUOR CONTROL
v. - COMMISSION, Lansing, Michigan, Anthony S. Kogut,
- WILLINGHAM & COTÉ, East Lansing, Michigan, for
JOHN ENGLER, Governor; - Appellees. ON BRIEF: James A. Tanford, INDIANA
- UNIVERSITY SCHOOL OF LAW, Bloomington, Indiana,
JENNIFER M. GRANHOLM , - for Appellants. Irene M. Mead, OFFICE OF THE
Attorney-General; - ATTORNEY GENERAL, MICHIGAN LIQUOR CONTROL
JACQUELYN STEWART , - COMMISSION, Lansing, Michigan, Anthony S. Kogut,
Chairperson, Michigan Liquor - WILLINGHAM & COTÉ, East Lansing, Michigan, for
Control Commission, in their - Appellees. Louis R. Cohen, WILMER, CUTLER &
Official Capacities, - PICKERING, Washington, D.C., William H. Mellor, Steven
- M. Simpson, INSTITUTE FOR JUSTICE, Washington, D.C.,
Defendants-Appellees, -
Clint Bolick, INSTITUTE FOR JUSTICE, Phoenix, Arizona,
- for Amici Curiae.
MICHIGAN WINE & BEER -
WHOLESALERS ASSOCIATION , -
1
No. 01-2720 Heald, et al. v. Engler; et al. 3 4 Heald, et al. v. Engler; et al. No. 01-2720
_________________ the direct shipment of alcoholic beverages from out-of-state
wineries, while allowing in-state wineries to ship directly to
OPINION consumers, provided that the in-state wineries comply with
_________________ certain minimal regulatory requirements. The plaintiffs, who
include wine connoisseurs, wine journalists, and one small
MARTHA CRAIG DAUGHTREY, Circuit Judge. In this California winery that ships its wines to customers in other
civil rights action brought pursuant to 42 U.S.C. § 1983, the states, claim that this system is unconstitutional under the
plaintiffs raise a constitutional challenge to Michigan’s dormant Commerce Clause because it interferes with the free
alcohol distribution system, contending that state provisions flow of interstate commerce by discriminating against out-of-
differentiating between in-state and out-of-state wineries state wineries. The defendants, who include Michigan
violate the Commerce Clause.1 Those regulations prohibit officials (referred to collectively in this opinion as “the state”)
and the intervening trade association, argue in response that
Michigan’s regulatory scheme is constitutional under the
1
Similar actions have been brought challenging direct shipment bans Twenty-first Amendment to the federal constitution.
in North Carolina, Virginia, Indiana, Texas, Florida and New Y ork,
amo ng other states. See, e.g., Beskind v. Easley, 325 F. 3d 306 (4th Cir. The parties filed cross-motions for summary judgment, and
2003) (affirming lower court finding that North Carolina’s statutory the district court granted the state’s motion and denied the
scheme discriminates between in-state and out-of-state wineries, violates
the Commerce Clause, and is not “saved” by the Twenty-first
plaintiffs’ motion. The plaintiffs then filed a motion to
Amendm ent); Bainbridge v. Turner, 311 F.3d 11 04, 1115 (11th Cir. reconsider, arguing that the district court should have
2002) (finding that Florida’s alcohol distribution statutes’ differentiation addressed cross-motions to strike various evidence submitted
between in-state and out-of-state wineries facially discriminates against by the two sides prior to the summary judgment decision.2
interstate commerce and remanding for further fact-finding on whether
Florid a’s statutory sc heme is “necessary to effectuate the . . . core concern
[of revenue raising] in a way that justifies treating out-of-state firms
differently from in-state firms”); Brindenbaugh v. Freeman-Wilson, 227
F.3d 848 , 851 (7th C ir. 2000) (finding that Indiana’s ban on direct meaningful evidence” showing that the state cannot “accomp lish its
shipment from out-of-state wineries is constitutional becau se Ҥ 2 of the legitimate interests without discriminating against out-of-state direct
twenty-first amendm ent empow ers Ind iana to control alcohol in ways that shippers of wine”), vacated by Bolick v. Danielson, 330 F.3d 274 (4th Cir.
it cannot control cheese”) ; Swedenbu rg v. K elly, 232 F.Supp. 2d 135 2003) (remanding for reconsideration in light of intervening chan ge in
(S.D. N.Y. 2002) (finding that New York’s ABC law’s ban on direct app licable statutes); see also Coope r v. McBe ath, 11 F .3d 5 47 (5th Cir.
shipment of out-o f-state wine is unconstitutional); Dickerson v. Bailey, 1994) (striking down Texas’s three-year durational residency and
212 F. Supp.2d 673, 695 (S.D. Tex. 2002) (finding that Texas’s ban on citizenship requireme nts for obtaining a liquor permit bec ause these
direct shipment by o ut-of-state wineries violates the dormant Commerce restrictions violated the dormant Commerce Clause and were not “saved”
Clause and noting that the state had “fail[ed] to demonstrate how a by the Twenty-first Amendment).
statutory exception for local wineries from T exas’ three-tier regulatory 2
system . . . is justified by any of the traditional core concerns of the Affidavits submitted by the plaintiffs included statements from
twenty-first amendm ent” or to show “that the core interests of taxation various oenophiles; the H ealds, who are wine critics and co nsultants;
and orderly market conditions . . . could not be effected by alternative, Dom aine Alfred, a California winery; and several other wine and alcohol
nondiscriminatory optio ns for these out-of-state wineries”), aff’d, manufacturers and distributers. Many of the affiants attested to the ir
Dickerson v. Bailey, 336 F.3d 388 (5th C ir. 200 3); Bolick v. Robe rts, 199 desire to have wine fro m out-of-state wine ries shipped directly to their
F. Supp.2d 397, 409 (E.D.Va. 20 02) (ad opting, with amendments, homes, their inability to do so, the general unavailability of certain wines
magistrate judge’s findings that Virginia’s ABC laws violated the dormant in Michigan, and the willingness of the wineries and distributors to pay
Commerce Clause and tha t the state had failed to produce “any required taxes an d ob tain necessary p ermits, if allowed to ship directly to
No. 01-2720 Heald, et al. v. Engler; et al. 5 6 Heald, et al. v. Engler; et al. No. 01-2720
The district court denied the motion to reconsider, noting that wholesalers; and wholesalers must purchase them from
it had effectively denied the cross- motions to strike as moot, licensed manufacturers. This system is similar to that used by
because it did not consider the challenged evidence in most states. See Vijay Shankar, Alcohol Direct Shipment
deciding the summary judgment motions. Laws, 85 Va. L. Rev. 353, 355 (1999).
The plaintiffs now appeal both the grant of summary The plaintiffs allege that Michigan’s system discriminates
judgment and the denial of their motion to reconsider. For the against out-of-state wineries in favor of in-state wineries
reasons set out below, we conclude that the regulations in because it prevents out-of-state wineries from shipping wine
question are discriminatory in their application to out-of-state directly to Michigan consumers, which in-state wineries are
wineries, in violation of the dormant Commerce Clause, and allowed to do. As the district court correctly noted, this
cannot be justified as advancing the traditional “core distinction between in-state and out-of-state wineries can only
concerns” of the Twenty-first Amendment. We therefore be understood by reading a number of provisions in
reverse the district court’s judgment and remand the case with conjunction with each other:
directions to the district court to enter judgment in favor of
the plaintiffs. [The distinction] can be gleaned from various Michigan
Liquor Control Commission regulations, which are
PROCEDURAL AND FACTUAL BACKGROUND codified within the Michigan Administrative Code.
R436.1057 states that “[a] person shall not deliver, ship,
Michigan regulates alcohol sales under a “three-tier or transport into this state beer, wine, or spirits without
system”: consumers must purchase alcoholic beverages from a license authorizing such action. . . .” The only
licensed retailers; retailers must purchase them from licensed applicable license, an “outstate seller of wine license,”
may according to R436.1705(2)(d) be obtained by a
“manufacturer which is located outside of this state, but
consumers.
in the United States, and which produces and bottles its
Do cuments filed on behalf of the defendants included reports from own wine.” However, under R436.1719(4) the holder of
the Michigan Department of Treasury, Office of Revenue and Tax such a license may ship wine “only to a licensed
Analysis, which detailed estimates of lost tax revenue to remote sales; an wholesaler at the address of the licensed premises except
affidavit from the manager of the Manufacturers and Wholesalers Section upon written order of the commission.” In answers to
of the Licensing Division of the Michigan Liquor Control Commission
that listed all licensed “Outstate Seller of Wine” license holders; an
interrogatories, a representative of the Michigan Liquor
affidavit from the director of the Licensing Division of the Michigan Control Commission indicates that “[a]t present, there is
Liquor Control Commission averring that, of the wineries from which the no procedure whereby an out-of-state retailer or winery
plaintiffs wish to purchase wine, som e are lice nsed as out-o f-state sellers, can obtain a license or approval to deliver wine directly
and the others have not applied for such licenses; an affidavit from the to Michigan residents . . . .”
director of the Enforcement Division of the Michigan Liquor Co ntrol
Commission detailing the number of “controlled buy operations”
conducted by the C omm ission in M ichigan to identify retailers that se ll
In contrast, the Michigan Liquor Control Commission
alcohol to minors; an affidavit from an assistant in the Liquor Control indicates that the “ability to deliver wine to the consumer
Division of the Michigan Dep artment of Attorney General, detailing is available to winemakers licensed in Michigan,
controlled buy operations co nduc ted over the internet; and an (unsworn) inasmuch as under the provisions of MCL 436.1113(9)
statement by Sen. Orrin Hatch, made before the Senate Judiciary these licensees are permitted to sell at retail the wines
Committee, entitled “Interstate Alcohol Sales and the 21st Amendment.”
No. 01-2720 Heald, et al. v. Engler; et al. 7 8 Heald, et al. v. Engler; et al. No. 01-2720
they manufacture. . . . A licensed Michigan winemaker “make specific findings of fact based on the record” before
may deliver their [sic] own products to customers reaching a final decision. The plaintiffs argued that the
without an SDM [specially designated merchant] license district court’s failure to rule on the motions to strike “left the
.... record devoid of evidence supporting the court’s conclusion
that the direct shipment law furthers legitimate 21st
The plaintiffs contend that this differential treatment of in- Amendment purposes,” and that the court had applied the
state and out-of-state wineries violates the dormant incorrect legal standard in dismissing the complaint. The
Commerce Clause because it gives in-state wineries a district court denied the plaintiffs’ motion for reconsideration,
competitive advantage over out-of-state wineries. In-state saying that it had not considered the challenged evidence in
wineries can, for example, bypass the price mark-ups of a ruling on the summary judgment motions and that the
wholesaler and retailer, making in-state wines relatively motions to strike were effectively denied as moot.
cheaper to the consumer and allowing them to realize more
profit per bottle. In addition, the cost to an out-of-state For the reasons set out below, we reverse the district court’s
winery of the license that enables it to sell to a Michigan judgment, vacate the order granting summary judgment in the
wholesaler is $300, while a comparable Michigan winery state’s favor, and remand the case for entry of summary
must pay only a $25 license fee to qualify to ship wine judgment in favor of the plaintiffs.
directly to Michigan customers. Finally, for customers who
desire home delivery, Michigan wineries have a competitive DISCUSSION
advantage over out-of-state wineries that cannot ship directly
to customers. In response, the state argues that the The central question in this case is how the “dormant”
regulations to which an in-state winery is subject “more than Commerce Clause and the Twenty-first Amendment interact
offset, both in costs and burden, any nominal commercial to limit the ways in which a state can control alcohol sales
advantage given by the ability to deliver directly to and distribution. Article I, Section 8, Clause 3 of the United
customers” and characterizes the burden on out-of-state States Constitution grants Congress the power “[t]o regulate
wineries as “de minimis.” Commerce with foreign Nations, and among the several
States, and with the Indian Tribes . . . .” The Supreme Court
In its order granting summary judgment to the state and has long held that “this affirmative grant of authority to
denying summary judgment to the plaintiffs, the district court Congress also encompasses an implicit or ‘dormant’
held that “Michigan’s direct shipment law is a permitted limitation on the authority of the States to enact legislation
exercise of state power under § 2 of the 21st Amendment” affecting interstate commerce.” Healy v. The Beer Institute,
because it is not “mere economic protectionism.” In reaching 491 U.S. 324, 326 n.1 (1989) (citations omitted).
this conclusion, the court found that Michigan’s statutory
scheme was designed “to ensure the collection of taxes from In 1933, Congress enacted the Twenty-first Amendment,
out-of-state wine manufacturers and to reduce the risk of which repealed the 18th Amendment, thereby ending
alcohol falling into the hands of minors.” Prohibition. Section 2 of the Twenty-first Amendment
prohibits “[t]he transportation or importation into any State,
After this order had issued, the plaintiffs filed a motion to Territory or possession of the United States for delivery or
reconsider, asking the district court to rule on the motions to use therein of intoxicating liquors, in violation of the laws
strike before granting either side summary judgment and to thereof . . . .” Initially, the Supreme Court afforded the states
No. 01-2720 Heald, et al. v. Engler; et al. 9 10 Heald, et al. v. Engler; et al. No. 01-2720
nearly limitless power to regulate alcohol under the new first Amendment has continued to develop since
amendment. See, e.g., Ziffrin, Inc. v. Reeves, 308 U.S. 132, Hostetter. In Capital Cities Cable v. Crisp, 467 U.S. 691
138 (1939) (“The Twenty-first Amendment sanctions the (1984), although not a liquor importation or Commerce
right of a state to legislate concerning intoxicating liquors Clause case, the Court found that a state ban on alcohol
brought from without, unfettered by the Commerce Clause.”); advertising conflicted with regulations of the Federal
Indianapolis Brewing Co. v. Liquor Control Comm’n, 305 Communications Commission. The Court applied a
U.S. 391, 394 (1939) (“Since the Twenty-first Amendment balancing test to determine “whether the interests
. . . the right of a state to prohibit or regulate the importation implicated by a state regulation are so closely related to
of intoxicating liquor is not limited by the Commerce the powers reserved by the [Twenty-first] Amendment
Clause. . . .”); State Bd. of Equalization v. Young’s Market that the regulation may prevail, notwithstanding that its
Co., 299 U.S. 59 (1936). requirements directly conflict with express federal
policies.” Id. at 714. The Court concluded that the
The state relied on these cases in the district court, but we federal interest must prevail because the state’s banning
find that reliance disingenuous at best because, as early as the of alcohol advertising did not directly relate to the core
1960s, the Supreme Court signaled a break with this line of concerns of the Twenty-first Amendment, i.e., to exercise
reasoning. In Hostetter v. Idlewild Bon Voyage Liquor Corp., “control over whether to permit importation or sale of
377 U.S. 324, 331-32 (1964), a case involving the prohibition liquor and how to structure the liquor distribution
of liquor sales to departing international airline travelers, the system.” Id. at 715 (quotation omitted).
Court observed:
In subsequent cases, the Supreme Court has continued to
To draw a conclusion from this line of decisions [Ziffrin, analyze challenges to state alcohol laws by determining how
Young’s Market, etc.] that the Twenty-first Amendment closely related the law in question is to the “core concerns” of
has somehow operated to ‘repeal’ the Commerce Clause the Twenty-first Amendment. Shortly after Capital Cities
wherever regulation of intoxicating liquors is concerned was decided, the Court issued Bacchus Imports v. Dias, 468
would, however, be an absurd oversimplification. If the U.S. 263 (1984), in which out-of-state wholesalers challenged
Commerce Clause had been pro tanto ‘repealed,’ then a Hawaii excise tax exemption for certain locally produced
Congress would be left with no regulatory power over alcoholic beverages. The state argued that the statute
interstate or foreign commerce in intoxicating liquor. advanced legitimate state interests, that it imposed no patent
Such a conclusion would be patently bizarre and is discrimination against interstate trade, and that the effect on
demonstrably incorrect. . . . interstate commerce was minimal. Id. at 270. The Court
rejected these defenses, finding that “the legislation
Both the Twenty-first Amendment and the Commerce constitutes ‘economic protectionism’ in every sense of the
Clause are parts of the same Constitution. Like other phrase,” id. at 272, and noting that “one thing is certain: The
provisions of the Constitution, each must be considered central purpose of the [21st Amendment] was not to empower
in the light of the other, and in the context of the issues States to favor local liquor industries by erecting barriers to
and interests at stake in any concrete case. competition.” Id. at 276. Instead, the Court considered
“whether the principles underlying the [Twenty-first]
The Supreme Court’s approach to cases involving the Amendment are sufficiently implicated by the [tax
intersection of the Commerce Clause and the Twenty- exemption] to outweigh the Commerce Clause principles that
No. 01-2720 Heald, et al. v. Engler; et al. 11 12 Heald, et al. v. Engler; et al. No. 01-2720
would otherwise be offended.” Id. at 275. In Bacchus, the commerce . . . invokes the strictest scrutiny of any purported
state did not contest that the law’s purpose was “to promote legitimate local purpose and of the absence of
a local industry,” so the Court did not have to engage in the nondiscriminatory alternatives”). Likewise, the language in
normal Commerce Clause analysis of whether the law was North Dakota to the effect that the states have “virtually
sufficiently closely related to the promotion of lawful complete control” over the importation and sale of liquor,
interests to vitiate its discriminatory effect. Instead, it found although heavily emphasized by the district court in this case,
that the law discriminated against interstate commerce in has little value in a case requiring a Commerce Clause
violation of the Commerce Clause and was therefore analysis. Because North Dakota did not involve
unconstitutional. interpretation of the Commerce Clause, we reject the
implication that a state’s “virtually complete control” over
Since Bacchus, the Supreme Court has been less than liquor regulation enables it to discriminate against out-of-state
prolific in construing the content of the Twenty-first interests in favor of in-state interests. Bacchus simply forbids
Amendment’s “core concerns,” addressing the definition of such an analysis.
“core concerns” only once – and then only in a plurality
opinion. In North Dakota v. United States, 495 U.S. 423 Given this background, we cannot endorse the district
(1990), the Court had before it an intergovernmental court’s characterization of the regulation in this case as a
immunity case, rather than a Commerce Clause challenge. At constitutionally benign product of the state’s three-tier system
issue was whether North Dakota’s reporting and labeling and, thus, “a proper exercise of [Michigan’s Twenty-first
requirements were constitutional, despite interfering with Amendment] authority, despite the fact that such a system
contrary federal interests in selling liquor to military places a minor burden on interstate commerce.” Instead, we
personnel. The Court upheld the statute, finding that the state invoke Justice Scalia’s view, expressed in an opinion
regulations “fall within the core of the State’s power under concurring in the Supreme Court majority’s decision striking
the Twenty-first Amendment” because they were enacted down a state price-affirmation statute, in which he explained
“[i]n the interest of promoting temperance, ensuring orderly that:
market conditions, and raising revenue . . . .” Id. at 432.
[The law’s] invalidity is fully established by its facial
But, because North Dakota did not involve a Commerce discrimination against interstate commerce . . . . This is
Clause challenge, the analysis in the plurality opinion cannot so despite the fact that the law regulates the sale of
be taken to control the analysis in this case. That is, we do alcoholic beverages, since its discriminatory character
not interpret the “in the interest of” language to mean that a eliminates the immunity afforded by the Twenty-first
state need only be motivated by the “core concerns” of the Amendment.
Twenty-first Amendment to shield its laws from
constitutional scrutiny. Under a Commerce Clause analysis, Healy v. Beer Institute, 491 U.S. 324, 344 (1989) (Scalia, J.,
facially discriminatory laws are still subject to strict scrutiny, concurring) (citations omitted).
meaning that the state must demonstrate that no reasonable
nondiscriminatory alternatives are available to advance the The proper approach in this case, then, is to apply the
same legitimate goals. See, e.g., Hughes v. Oklahoma, 441 traditional dormant Commerce Clause analysis and, if the
U.S. 322, 336-7 (1979) (finding that, “[a]t a minimum,” a provisions are unconstitutional under the Commerce Clause,
statute that “on its face discriminates against interstate to determine whether the state has shown that it has no
No. 01-2720 Heald, et al. v. Engler; et al. 13 14 Heald, et al. v. Engler; et al. No. 01-2720
reasonable nondiscriminatory means of advancing the “core McNeilus Truck & Mfg., Inc. v. Ohio ex rel. Montgomery, 226
concerns” of the Twenty-first Amendment. F.3d 429, 442 (6th Cir. 2000) (quotations omitted).
In reviewing challenges brought under the Commerce As we indicated in McNeilus, the proper starting point for
Clause, the Supreme Court has long held that statutes that dormant Commerce Clause analysis is to determine whether,
facially discriminate are “virtually per se” invalid, citing as a in fact, the state provision “directly, in effect, or in purpose
clear example “a law that overtly blocks the flow of interstate treats in-state and out-of-state interests differently . . . .” Id.
commerce at a State’s borders.” Philadelphia v. New Jersey, If a court finds that the statute does discriminate, then the
437 U.S. 617, 624 (1978). However, a lower level of scrutiny issue becomes, applying “rigorous scrutiny [,] . . . whether the
is applied when a statute does not discriminate on its face: statute serves a legitimate state interest that cannot otherwise
be met.” Id. In other words, laws that facially discriminate
Where the statute regulates evenhandedly to effectuate a are normally invalid, unless they advance “a legitimate local
legitimate local public interest, and its effects on purpose that cannot be adequately served by reasonable
interstate commerce are only incidental, it will be upheld nondiscriminatory alternatives.” New Energy Co. of Ind. v.
unless the burden imposed on such commerce is clearly Limbach, 486 U.S. 269, 278 (1988) (citations omitted).
excessive in relation to the putative local benefits. . . .
[T]he extent of the burden that will be tolerated will of Here, it is clear that the Michigan statutory and regulatory
course depend on the nature of the local interest scheme treats out-of-state and in-state wineries differently,
involved, and on whether it could be promoted as well with the effect of benefitting the in-state wineries and
with a lesser impact on interstate activities. burdening those from out of state. As discussed above,
Michigan wineries enjoy both greater access to consumers
Id., quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142 who wish to have wine delivered to their homes, and greater
(1970). Moreover, we have recognized the following test for profit through their exemption from the three-tier system.
determining whether state economic regulations violate the Out-of-state wineries, on the other hand, must participate in
dormant Commerce Clause: the costly three-tier system, to their economic detriment and,
although this is not clear from the record, may be shut out of
When a state statute directly regulates or discriminates the Michigan market altogether if unable to obtain a
against interstate commerce, or when its effect is to favor wholesaler. The Fourth Circuit reached a similar conclusion
in-state economic interests over out-of-state interests, in a case considering North Carolina’s alcohol distribution
[the Supreme Court has] generally struck down the system, which is nearly identical to Michigan’s. In Beskind
statute without further inquiry. When, however, a statute v. Easley, 325 F.3d 506 (4th Cir. 2003), the court found that
has only indirect effects on interstate commerce and North Carolina’s alcohol distribution laws, which
regulates evenhandedly, [the Supreme Court has] discriminate against out-of-state wineries in favor of in-state
examined whether the State’s interest is legitimate and wineries, are unconstitutional unless “the State can show that
whether the burden on interstate commerce clearly it advances a legitimate local purpose that cannot be
exceeds the local benefits. In either situation the critical adequately served by reasonable nondiscriminatory
consideration is the overall effect of the statute on both alternatives.” Id. at 515 (internal quotations and citations
local and interstate activity. omitted).
No. 01-2720 Heald, et al. v. Engler; et al. 15 16 Heald, et al. v. Engler; et al. No. 01-2720
Having determined that the provision is facially The district court correctly recognized that state liquor laws
discriminatory, we now turn to the question of whether the are not completely immune from Commerce Clause
regulatory scheme is nevertheless constitutional because it challenges, but it placed too much reliance on Supreme Court
“fall[s] within the core of the State’s power under the precedent that has specifically upheld the three-tier
Twenty-first Amendment,” having been enacted “in the distribution system, quoting North Dakota v. United States,
interest of promoting temperance, ensuring orderly market 495 U.S. at 431, for the proposition that the states have
conditions, and raising revenue,” North Dakota v. United “virtually complete control” over the importation and sale of
States, 495 U.S. 423, 432 (1990), and because these interests liquor. As we noted above, however, North Dakota involved
“cannot be adequately served by reasonable a Supremacy Clause challenge and did not implicate the
nondiscriminatory alternatives.” New Energy Co. of Ind. v. Commerce Clause. It therefore cannot be relied on in this
Limbach, 486 U.S. 269, 278 (1988) (citations omitted). case in light of Supreme Court cases that do discuss the
intersection of the Twenty-first Amendment and the
We conclude, based on the evidence in the record, that Commerce Clause, such as Bacchus.
defendants have not shown that the Michigan scheme’s
discrimination between in-state and out-of-state wineries Nor do we find persuasive the district court’s reliance on
furthers any of the concerns listed above, much less that no three additional cases. One, House of York, Ltd. v. Ring, 322
reasonable non-discriminatory means exists to satisfy these F. Supp. 530 (S.D.N.Y. 1970), is a district court opinion that
concerns. This is so even if, taking the evidence in the light pre-dates Bacchus. The second, Bainbridge v. Bush, 148 F.
most favorable to defendants, we assume that all of the Supp.2d 1306 (M.D.Fla. 2001), has subsequently been
evidence they submitted was admissible. It is important to reversed. See Bainbridge v. Turner, 311 F.3d 1104 (11th Cir.
keep in mind that the relevant inquiry is not whether 2002) (holding that the state must show that an alcohol-
Michigan’s three-tier system as a whole promotes the goals distribution statute that discriminates between in-state and
of “temperance, ensuring an orderly market, and raising out-of-state wineries furthers core concerns of the Twenty-
revenue,” but whether the discriminatory scheme challenged first Amendment in order to survive a Commerce Clause
in this case – the direct-shipment ban for out-of-state wineries challenge). The third, Bridenbaugh v. Freeman-Wilson, 227
– does so. See, e.g., Beskind, 325 F.3d at 517 (“The question F.3d 848 (7th Cir. 2000), is the sole federal court of appeals
is not whether North Carolina can advance its regulatory decision to find that analogous direct shipment laws are
purpose by imposing fewer burdens on in-state wineries than constitutional under the Twenty-first Amendment. However,
out-of-state wineries . . . . Rather, the question is whether Bridenbaugh is distinguishable on its facts, and it has been
discriminating in favor of in-state wineries . . . serves a criticized by several federal courts for its failure to engage in
Twenty-first Amendment interest.”). Obviously, the state the requisite dormant Commerce Clause analysis. See, e.g.,
bears the burden of justifying a discriminatory statute, and Bolick v. Roberts, 199 F. Supp.2d 397, 408 (E.D. Va. 2002)
“the standards for such justification are high.” New Energy (finding Brindenbaugh “improperly decided because it does
Co., 486 U.S. at 278; see also Cooper v. McBeath, 11 F.3d not rely on the established dormant Commerce Clause
547, 553 (5th Cir. 1994) (describing the burden of proof faced analysis”); Dickerson v. Bailey, 212 F. Supp.2d 673, 682
by the state as “towering”); Hughes v. Oklahoma, 441 U.S. (S.D. Tex. 2002) (observing that in its “concentration on
322, 337 (1979) (“[F]acial discrimination by itself may be a Indiana’s three-tiered scheme . . . [the court] did not discuss
fatal defect. . . . [A]t a minimum [it] invokes the strictest the last forty years of Supreme Court jurisprudence relating
scrutiny.”). to balancing and harmonizing the dormant commerce clause
No. 01-2720 Heald, et al. v. Engler; et al. 17 18 Heald, et al. v. Engler; et al. No. 01-2720
and §2 of the twenty-first Amendment”), aff’d, Dickerson v. Legislature has chosen this path to ensure the collection of
Bailey, 336 F.3d 388 (5th Cir. 2003) (finding that taxes from out-of-state wine manufacturers and to reduce the
Brindenbaugh was factually distinguishable from that case); risk of alcohol falling into the hands of minors” and its
Bainbridge v. Turner, 311 F.3d 1104, 1114 n.15 (11th Cir. conclusion that “the 21st Amendment gives it the power to do
2002) (commenting that the court “disagree[s] with the so,” without more, do not constitute strict scrutiny, as
analytical framework used in [Bridenbaugh]”). required by Supreme Court precedent. It is not enough that
the Michigan Legislature has chosen this particular regulatory
For example, Bridenbaugh did not involve any out-of-state scheme to further what are legitimate objectives. The proper
wineries as plaintiffs, and it thus addressed only whether the inquiry, detailed above, is whether it “advances a legitimate
Indiana statute discriminated against customers who wanted local purpose that cannot be adequately served by reasonable
to have out-of-state wine shipped directly to them. nondiscriminatory alternatives.” New Energy Co. of Ind. v.
Furthermore, it appears the Indiana statutes differ from the Limbach, 486 U.S. 269, 278 (1988). We find no evidence on
provisions at issue here, as the court found that “Indiana this record that it does.
insists that every drop of liquor pass through its three-tiered
system and be subjected to taxation.” Bridenbaugh, 227 F.3d CONCLUSION
at 853. Michigan, on the other hand, effectively exempts in-
state wineries from the three-tier system, an exemption it does For the reasons set out above, we REVERSE the judgment
not extend to out-of-state wineries. Finally, in contrast to this of the district court granting summary judgment to the
case, the Bridenbaugh plaintiffs were “concerned only with defendants and REMAND the case for entry of judgment in
direct shipments from out-of-state sellers who lack and do not favor of the plaintiffs.
want Indiana permits.” Id. at 854. By contrast, the plaintiffs
in this case are willing to acquire Michigan permits and pay
taxes on wines shipped; they simply want to be eligible for
such permits on the same basis as in-state wineries. For all of
these reasons, we do not find the opinion in Bridenbaugh
persuasive.
The district court in this case was correct in finding that the
Michigan alcohol distribution system discriminates between
in-state and out-of-state interests to the extent that in-state
wineries may obtain licenses to ship wine directly to
consumers, but out-of-state wineries may not and are instead
required to go through the more costly three-tier system.
What the district court did not do was undertake the necessary
analysis that follows from such a finding. Instead, it
concluded that Michigan’s system “cannot be characterized
as ‘mere economic protectionism,’” because the system
furthers the “core concerns” of the Twenty-first Amendment.
The district court’s observation that “[t]he Michigan