United States Court of Appeals
For the First Circuit
No. 06-2224
WINE AND SPIRITS RETAILERS, INC., ET AL.,
Plaintiffs, Appellants,
v.
STATE OF RHODE ISLAND ET AL.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ernest C. Torres, U.S. District Judge]
Before
Lynch, Circuit Judge,
Selya, Senior Circuit Judge,
and Howard, Circuit Judge.
Evan T. Lawson, with whom Robert J. Roughsedge, Michael
Williams, and Lawson & Weitzen, LLP were on brief, for appellants.
Rebecca Tedford Partington, Deputy Chief, Civil Division,
Department of Attorney General, with whom Patrick C. Lynch,
Attorney General, was on brief, for state appellees.
Joseph S. Larisa, Jr. and Larisa Law and Consulting, LLC on
brief for intervenor-appellee.
March 20, 2007
SELYA, Senior Circuit Judge. This appeal requires us to
revisit the scene of an earlier battle. In Wine & Spirits
Retailers, Inc. v. Rhode Island, 418 F.3d 36 (1st Cir. 2005), we
affirmed the district court's denial of preliminary injunctive
relief against the enforcement of two amendments to Rhode Island's
statutory scheme governing in-state liquor sales at retail. See
R.I. Gen. Laws §§ 3-5-11, 3-5-11.1. Following further proceedings
on remand, including a full-dress bench trial, the district court,
ruling ore sponte, decided the case in favor of the defendants.
The plaintiffs again appeal. Discerning no error, we affirm the
judgment below.
I. BACKGROUND
Typically, we review factual determinations made during
a bench trial for clear error and afford plenary review to the
trier's formulation and application of the law. See Smith v. F. W.
Morse & Co., 76 F.3d 413, 420 (1st Cir. 1996); see also Fed. R.
Civ. P. 52(a). The existence of our earlier decision does not
alter this basic standard of review. In considering a prior appeal
from the grant or denial of preliminary injunctive relief, our
merits-oriented conclusions "are to be understood as statements as
to probable outcomes." Cohen v. Brown Univ., 101 F.3d 155, 169
(1st Cir. 1996).
This does not mean that, in such a situation, we must
necessarily reinvent each and every wheel. To the extent that the
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record compiled at the preliminary injunction stage was
"sufficiently developed and the facts necessary to shape the proper
legal matrix were sufficiently clear, and [if] nothing in the
record subsequently developed at trial constitutes substantially
different evidence that might undermine the validity of the prior
panel's rulings of law," those rulings may be deemed the law of the
case. Id. (citation and internal quotation marks omitted). It is
against this backdrop that we turn to the record below.
For efficiency's sake, we assume the reader's familiarity
with our earlier opinion. That said, we briefly recount the
identity of the parties. Plaintiff-appellant Wine & Spirits
Retailers, Inc. (W&S) is a Rhode Island corporation engaged in the
interstate business of franchising package stores. Plaintiff-
appellant John Haronian, a Rhode Island resident, is W&S's
principal. Following our earlier decision, these two plaintiffs
amended their complaint and enlisted three new plaintiffs, all
Rhode Island-based package stores (the Retail Stores) that had
entered into franchise agreements with W&S. The Retail Stores are
all appellants here. Each of them possesses a Class A license to
sell liquor at retail. Furthermore, each of them has operated, and
desires to operate in the future, under the trade name "Douglas
Wine & Spirits."
The principal defendants (appellees before us) are the
State of Rhode Island and Jeffrey J. Greer, in his official
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capacity as the associate director of the Rhode Island Department
of Business Regulation. We henceforth shall refer to these
defendants, collectively, as "the State." In addition, a trade
association, the United Independent Liquor Retailers of Rhode
Island, has intervened as a defendant.
In our previous decision, we described in detail the
relevant aspects of the statutory amendments challenged by the
plaintiffs. See Wine & Spirits, 418 F.3d at 42-43. Briefly
stated, those amendments, enacted in 2004, prohibit franchisees
from holding Class A liquor licenses and nullify existing franchise
agreements that conflict with that proscription. See R.I. Gen.
Laws § 3-5-11.1. Rhode Island had barred chain-store organizations
from holding Class A liquor licenses since 1933, and the Rhode
Island General Assembly accomplished the broader prohibition, in
part, by expanding the chain-store definition to encompass
franchise-type arrangements. See id. § 3-5-11(b).
There is another facet to this case (not mentioned in the
earlier appeal). That facet involves the plaintiffs' challenge to
a related statutory provision, not part of the 2004 amendment
cycle, that imposes an in-state residency requirement for
prospective liquor licensees. See id. § 3-5-10.
In the court below, the plaintiffs attacked the statutory
scheme on several fronts. As stated, the district court
nonetheless denied preliminary injunctive relief. See Wine &
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Spirits, 418 F.3d at 42. Later, the court conducted a bench trial
and — for reasons described later in this opinion — repulsed each
and all of the plaintiffs' initiatives.
This timely appeal followed. For ease in analysis, we
divide the plaintiffs' assignments of error into three groups.
II. THE FIRST AMENDMENT CLAIMS
The First Amendment applies to the several states by
operation of the Fourteenth Amendment. See 44 Liquormart, Inc. v.
Rhode Island, 517 U.S. 484, 489 n.1 (1996). Here, the plaintiffs
press two First Amendment claims, each of which charges abridgment
of speech. No arguments pertaining to freedom of association have
been briefed, and any such arguments are, therefore, waived. See
United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
In essence, the plaintiffs assert that (i) the
prohibition against participation in joint advertisements, R.I.
Gen. Laws § 3-5-11(b)(1)(iii),1 and (ii) the prohibition against
the use of a trade name associated with a chain-store organization,
see id. § 3-5-11(b)(1)(vi), violate the First Amendment. In our
earlier decision, we acknowledged that "commercial speech,
including truthful liquor advertising, is entitled to a measure of
1
The plaintiffs to some extent also challenge the restrictions
on coordinated marketing, see R.I. Gen. Laws § 3-5-11(b)(1)(iv),
and the restrictions on agreed pricing, see id. § 3-5-11(b)(1)(v).
Because these provisions are similar in character to the joint
advertising ban and because the plaintiffs lavish most of their
attention on the latter, we use section 3-5-11(b)(1)(iii) as an
exemplar.
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protection under the First Amendment." Wine & Spirits, 418 F.3d at
48. As to W&S and Haronian, however, we determined that the
"provision of advertising and [trade name] licensing services is
not speech that proposes a commercial transaction and therefore
does not constitute commercial speech." Id. at 49 (citing Bd. of
Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 482 (1989)). By
the same token, the provision of such services is not protected as
symbolic speech. Id. (citing United States v. O'Brien, 391 U.S.
367, 376-77 (1968)). Since the plaintiffs have advanced no new
arguments on this front, there is no reason to revisit those
conclusions.
That does not end this aspect of the matter because, in
our earlier decision, we left open the question of whether the
restrictions on joint advertising and shared trade names might
infringe the First Amendment rights of a franchisee holding a Class
A liquor license — a claim that neither W&S nor Haronian had
standing to pursue. See id. at 48-50. Given the emergence of the
Retail Stores as parties plaintiff — they appear to have been
joined for precisely this purpose — we must now examine the merits
of these contentions.
A. Joint Advertising.
With respect to joint advertising, the Retail Stores
contend that section 3-5-11(b)(1)(iii) does not prohibit agreements
about prices and products but, rather, prohibits the advertisements
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themselves. Building on this foundation, they suggest that, at its
core, the prohibition "bans speech as a means of addressing
underlying conduct." Appellants' Br. at 44. To support this
extravagant claim, the Retail Stores point to evidence adduced at
trial regarding joint advertisements that make no reference to
agreed-upon prices or common products.
This argument lacks force. Section 3-5-11(b)(1)(iii)
forbids a licensee's "[p]articipation in a coordinated or common
advertisement." This prohibition does not target speech; each
individual liquor licensee remains at liberty to disseminate
information about its prices and products to other retail stores
and to the public at large. See Wine & Spirits, 418 F.3d at 47
(making a similar point with respect to W&S's provision of business
advice). Seen in that light, the statute is at a far remove from
the legislation at issue in 44 Liquormart, which completely banned
the advertising of prices. See 517 U.S. at 516. The statute at
issue here merely proscribes conduct — the launching of
advertisements resulting from pre-agreed commercial strategies.
Such a ban is not a ban on commercial speech. See Wine & Spirits,
418 F.3d at 49. The fact that it is possible to design
advertisements violative of the ban that do not mention specific
prices or products does not prove that the statute is concerned
with speech as opposed to conduct.
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We add, moreover, that even if the joint advertising
prohibition could be said to touch upon commercial speech under
other circumstances, it would not implicate any protected interest
possessed by the Retail Stores. Acting in concert to implement an
advertising plan no more proposes a commercial transaction than
does the provision of advertising services by W&S — a practice that
we have found not protected under the First Amendment. See id.
And, finally, the conduct in question is not so inherently
expressive as to warrant First Amendment protection under the
O'Brien doctrine. See Rumsfeld v. Forum for Acad. & Inst. Rights,
Inc., 126 S. Ct. 1297, 1310 (2006) (FAIR); see also O'Brien, 391
U.S. at 376-77. In these circumstances, any restriction of speech
would be purely incidental to the regulation of conduct. And as
the Supreme Court recently reminded us:
[I]t has never been deemed an abridgement of
freedom of speech or press to make a course of
conduct illegal merely because the conduct was
in part initiated, evidenced, or carried out
by means of language, either spoken, written,
or printed.
FAIR, 126 S. Ct. at 1308 (quoting Giboney v. Empire Storage & Ice
Co., 336 U.S. 490, 502 (1949)).
Taking a somewhat different tack, the plaintiffs suggest
that the Rhode Island statute is flawed because other commercial
entities are not forbidden from advertising jointly. That
suggestion attempts to invoke the precept that, even in the
commercial milieu, "decisions that select among speakers conveying
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virtually identical messages are in serious tension with the
principles undergirding the First Amendment." Greater New Orleans
Broad. Ass'n v. United States, 527 U.S. 173, 193-94 (1999). The
precept, though sound, is inapposite here.
The Supreme Court has emphasized the importance of
context in evaluating claims that legislation abridges First
Amendment rights. See Edenfield v. Fane, 507 U.S. 761, 774 (1993);
see also Glickman v. Wileman Bros. & Elliott, Inc., 521 U.S. 457,
469 (1997). In line with that emphasis, the precept upon which the
Retail Stores rely cannot be construed to divest the states of
their ability to devise specific rules for businesses in different
fields, that is, for businesses that are not similarly situated.
See, e.g., Edenfield, 507 U.S. at 774 (stressing the importance, in
evaluating the constitutionality of commercial speech regulations,
of distinctions between different professions); cf. 37712, Inc. v.
Ohio Dep't of Liquor Control, 113 F.3d 614, 620-23 (6th Cir. 1997)
(rejecting due process and equal protection challenges because
holders of different licenses were not similarly situated). This
is merely a reflection of the time-honored tenet that, within wide
limits, courts must defer to state legislative classifications
constructed to further legitimate economic objectives. See 37712,
Inc., 113 F.3d at 622.
So it is here. A trial court's findings of fact, made in
connection with one legal theory, may often be treated as fungible
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in connection with another. See, e.g., Societe Des Produits Nestle
v. Casa Helvetia, Inc., 982 F.2d 633, 642 (1st Cir. 1992). That
principle applies in this case; although the lower court addressed
the "classification" argument in equal protection terms, its
findings of fact are readily transferable to the precincts
patrolled by the First Amendment.
The district court found as a matter of fact that the
Retail Stores had failed to demonstrate that they and those other
entities to which they alluded were similarly situated. This
finding is not clearly erroneous (indeed, it appears to be
unassailable). Consequently, we reject the plaintiffs' disparate
treatment claim.
B. Shared Trade Names.
The remaining prong of the plaintiffs' First Amendment
challenge involves the statutory restriction on the use of shared
trade names. See R.I. Gen. Laws § 3-5-11(b)(1)(vi) (prohibiting
Class A licensees from using "[a]ny term or name identified as a
chain or common entity"). The Retail Stores assert a
constitutional right to do business under the Douglas name, which
they believe "conveys a positive message to potential consumers."
Appellants' Br. at 42.
It cannot be gainsaid that the use of a trade name
implicates the user's commercial speech rights. See Friedman v.
Rogers, 440 U.S. 1, 11 (1979). This brings front and center the
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familiar four-part test for whether a regulation of commercial
speech is constitutionally permissible. See, e.g., Thompson v. W.
States Med. Ctr., 535 U.S. 357, 367 (2002) (citing Cent. Hudson Gas
& Elec. Corp. v. Pub. Serv. Comm'n, 447 U.S. 557, 566 (1980)); El
Día, Inc. v. P.R. Dep't of Consumer Affairs, 413 F.3d 110, 113 &
n.5 (1st Cir. 2005).
It is not always necessary, however, to deal with each of
the test's four parts. In framing the inquiry, the threshold
question is whether "the commercial speech concerns unlawful
activity or is misleading." W. States Med. Ctr., 535 U.S. at 367.
If so, the inquiry ends there: "the speech is not protected by the
First Amendment." Id.; see Fla. Bar v. Went For It, Inc., 515 U.S.
618, 623-24 (1995); Edenfield, 507 U.S. at 768. The Retail Stores
are unable to cross this threshold.
In a case that antedated Central Hudson, the Supreme
Court held that the First Amendment posed no obstacle to state
regulation of trade names when "a significant possibility" existed
that such names would "be used to mislead the public." Friedman,
440 U.S. at 13, 15. In that instance, the plaintiffs challenged a
total ban on the use of trade names in the practice of optometry.
While mulling the challenge, the Court took stock of the myriad
possibilities for deception and concluded that the ban related to
"conduct the State rationally may wish to discourage." Id. at 13.
With that framework in place, the Court upheld the restriction,
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explaining that it had only an incidental effect on the commercial
speech rights of optometrists (who remained free to advertise their
prices, products, and services under their own names). Id. at 15-
16.
Since its decision in Friedman, the Court has made a
doctrinal refinement, distinguishing in the professional services
context between commercial speech that is inherently or actually
misleading and commercial speech that is only potentially
misleading. See, e.g., Ibanez v. Fla. Dep't of Bus. & Prof'l Reg.,
Bd. of Accountancy, 512 U.S. 136, 144-46 (1994); In re R. M. J.,
455 U.S. 191, 203 (1982); see also Am. Acad. of Pain Mgmt. v.
Joseph, 353 F.3d 1099, 1106-07 (9th Cir. 2004). Under the doctrine
as refined, advertising that is actually misleading "may be
prohibited entirely." In re R. M. J., 455 U.S. at 203.
Contrastingly, a state "may not place an absolute prohibition on
certain types of potentially misleading information . . . if the
information also may be presented in a way that is not deceptive."
Id. We need not (and do not) decide the issue, but we note that
recent decisions have applied this dichotomy beyond the
professional services context. See, e.g., Pearson v. Shalala, 164
F.3d 650, 655 (D.C. Cir. 1999).
In the case at hand, the plaintiffs argue that the State
has not shown that the use of a shared trade name by independent
package stores is misleading and that, in all events, there is no
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evidence of consumer confusion. While certain elements of this
argument are irreproachable — a governmental entity attempting to
enforce a restriction on commercial speech has the burden of
justifying the restriction, W. States Med. Ctr., 535 U.S. at 373,
and courts will not sustain restrictions resting either on a dearth
of evidence of deception or on unsupported assertions, see Ibanez,
512 U.S. at 145, 148-49; El Día, 413 F.3d at 116 — the argument as
a whole does not survive scrutiny.
Even assuming, for argument's sake, that the Ibanez
dichotomy applies here, the State's concern about the misleading
nature of chain-associated trade names, when used by independent
package stores, is readily supportable. The district court, in its
preliminary injunction ruling, refused to enjoin the enforcement of
the "no franchise" provisions contained in the statutory scheme but
temporarily blocked the enforcement of the prohibition against the
use of a shared trade name. See Wine & Spirits, 418 F.3d at 44.
In conformity with those rulings, the Retail Stores relinquished
their franchise agreements and claimed, from that point forward, to
be acting as independent businesses. They nonetheless continued to
use the Douglas name. Although we subsequently allowed the
injunction against enforcement of the "trade name" restriction to
lapse, see id., the Retail Stores apparently persisted in using a
shared trade name.
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At trial, the district court, as the finder of the facts,
examined the Retail Stores' actual use of the shared trade name
during the period when they professed to be operating
independently. It determined that each of the former franchisees
had simply appended the name of the municipality in which its shop
was located to the Douglas name. The court received evidence that
newspaper advertisements purportedly placed by individual stores on
a rotating basis featured the Douglas name in large letters and
bold font, while reporting the store's location information in much
smaller print that was "far less likely to be noticed by the
reader"; that participating stores prominently displayed exact
replicas of these advertisements and offered for sale the same
products (both advertised and non-advertised) for the same prices;
and that the Retail Stores continued to receive suggested store
layouts and employee dress codes from W&S. Citing this evidence,
the court found as a fact that the Retail Stores' shared use of the
Douglas name "conveys and, obviously, is intended to convey to
consumers the impression that all of the stores are part of a
single entity and operate in concert." Given the Retail Stores'
assurances that they had been operating independently from and
after the effective date of the 2004 amendments, the court
concluded that the impression conveyed by the use of the shared
trade name was "untrue and, therefore, misleading."
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These findings are not clearly erroneous (indeed, the
plaintiffs do not contest them). They graphically illustrate why
the use of a shared trade name in the retail liquor market by
supposedly independent package stores poses an area of legitimate
concern for a state that has abolished franchise and chain-store
arrangements in that market. The findings, therefore, comprise a
showing sufficient to underpin the restriction enacted by the Rhode
Island General Assembly.
The Retail Stores counter that the State should, at most,
be able to require the placement of qualifying language (say,
"independently owned and operated") in connection with independent
retailers' use of a shared trade name. That is whistling past the
graveyard: as a general matter, the law imposes no requirement that
a regulation of commercial speech constitute the least restrictive
means of accomplishing the State's legitimate goal. See Lorillard
Tobacco Co. v. Reilly, 533 U.S. 525, 556 (2001); Passions Video,
Inc. v. Nixon, 458 F.3d 837, 843 (8th Cir. 2006). At any rate, the
record here contains nothing that would compel — or even support —
a conclusion that such a disclaimer would be an effective means of
avoiding deception.
That ends this chapter of the tale. As the district
court supportably found, the Retail Stores' actual usage of the
shared trade name tends, in a misleading fashion, to identify the
users as part of a chain or entity under common control. For that
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reason, the restriction imposed by the State is constitutionally
permissible.2
III. THE COMMERCE CLAUSE CLAIMS
The Constitution grants to Congress the power "[t]o
regulate Commerce . . . among the several States." U.S. Const.
art. I, § 8, cl. 3. Within this grant of power, what has come to
be known as the dormant commerce clause prohibits "protectionist
state regulation designed to benefit in-state economic interests by
burdening out-of-state competitors." Grant's Dairy—Me., LLC v.
Comm'r of Me. Dep't of Agric., Food & Rural Res., 232 F.3d 8, 18
(1st Cir. 2000). State regulation of the sale of alcoholic
beverages is, however, unique; while such regulation is subject to
the nondiscrimination principles of the dormant commerce clause,
the Twenty-first Amendment confers upon the several states wide-
ranging control over the structure of local liquor distribution
systems. See Granholm v. Heald, 544 U.S. 460, 487-89 (2005).
2
None of the three appellate decisions bruited by the Retail
Stores casts doubt upon this conclusion. In two of them, the
restricted speech was neither misleading nor related to unlawful
activity. See Bad Frog Brewery, Inc. v. N.Y. State Liquor Auth.,
134 F.3d 87, 98 (2d Cir. 1998); Sambo's Rests., Inc. v. City of Ann
Arbor, 663 F.2d 686, 694 (6th Cir. 1981). In the third, the Fifth
Circuit, adjudicating an "as applied" challenge, found the use of
the trade names at issue to be not misleading in view of the
plaintiff's sophisticated consumer base and distinctive labeling
method. See Piazza's Seafood World, LLC v. Odom, 448 F.3d 744, 753
(5th Cir. 2006). This decision has little bearing on the issues
before us.
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Notwithstanding this constitutionally sanctioned zone of
control, the plaintiffs charge that Rhode Island's liquor
distribution regime violates the dormant commerce clause. This
charge, which was not addressed in our earlier decision, has two
facets — one narrowly focused and the other more global. In a
rifle-shot attack, the plaintiffs allege that, by limiting Class A
licenses to Rhode Island residents, R.I. Gen. Laws § 3-5-10
discriminates on its face against out-of-state residents. In a
broader fusillade, they allege variously that the statutory scheme
discriminates in both purpose and effect, legislates
extraterritorially, and unduly burdens the free flow of interstate
commerce.
A statute that discriminates on its face against
interstate commerce, whether in purpose or effect, demands
heightened scrutiny. See Alliance of Auto. Mfrs. v. Gwadosky, 430
F.3d 30, 35 (1st Cir. 2005). Under this rigorous form of review,
a statute is invalid unless it furthers a legitimate local
objective that cannot be served by reasonable non-discriminatory
means. See Or. Waste Sys., Inc. v. Dep't of Envtl. Quality, 511
U.S. 93, 99-101 (1994). Relatedly, the Supreme Court has explained
that legislation purporting to regulate commerce that occurs wholly
beyond a state's borders "is invalid regardless of whether the
statute's extraterritorial reach was intended by the legislature."
Healy v. Beer Inst., 491 U.S. 324, 336 (1989); see Pharm. Research
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& Mfrs. of Am. v. Concannon, 249 F.3d 66, 79 (1st Cir. 2001), aff'd
sub nom. Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644
(2003).
A statute that "regulates evenhandedly and has only
incidental effects on interstate commerce engenders a lower level
of scrutiny." Alliance of Auto. Mfrs., 430 F.3d at 35 (citation
and internal quotation marks omitted). In those circumstances,
courts employ the balancing test limned in Pike v. Bruce Church,
Inc., 397 U.S. 137 (1970). That test is straightforward: assuming
that the statute operates evenhandedly to achieve a legitimate
local interest and that its effects on interstate commerce are
incidental, it will stand "unless the burden imposed on
[interstate] commerce is clearly excessive in relation to the
putative local benefits." Id. at 142.
With these jurisprudential building blocks in place, we
turn to the concerns identified by the plaintiffs.
A. Residency Requirements.
The plaintiffs' first line of attack is directed at
section 3-5-10. A liquor-license residency requirement has been in
force in Rhode Island since 1933 (albeit with modifications over
time). With exceptions not relevant here, the current version of
the Rhode Island law provides that Class A package store licenses
are to be issued "only to . . . residents of this state." R.I.
Gen. Laws § 3-5-10(a)(1). Relatedly, no such license "shall be
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issued to [a] corporation unless each officer, director or
stockholder is a suitable person to hold a license." Id. § 3-5-
10(b)(1).3
These requirements, the plaintiffs contend, violate the
dormant commerce clause because they discriminate on their face
against out-of-state residents. The district court did not reach
the merits of this contention. Rather, the court ruled that the
plaintiffs lacked standing to contest the residency requirements.
It based this ruling on its findings (i) that the Retail Stores
were Rhode Island entities, each of which already possessed a Class
A license; (ii) that W&S, a Rhode Island corporation, had never
expressed an interest in obtaining a license; and (iii) that
Haronian, also a Rhode Islander, had displayed a similar
indifference to acquiring a Class A license. Given these facts,
the plaintiffs had failed to demonstrate any injury in fact
stemming from section 3-5-10's residency requirements. See Lujan
v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (describing
3
In a different provision, the statute states that
"[r]etailer's licenses may, however, be issued to corporations
incorporated in any other of the United States which are authorized
by the secretary of state to transact business in this state."
R.I. Gen. Laws § 3-5-10(a)(1). Despite this provision, the parties
have stipulated that "all Class A licenses must be held by Rhode
Island residents or Rhode Island corporations." Given the
plaintiffs' lack of standing, see text infra, we need not resolve
the seeming contradiction between the quoted provision and the
parties' stipulation.
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the requirements for Article III standing); Pagán v. Calderón, 448
F.3d 16, 26-27 (1st Cir. 2006) (similar).
On appeal, the plaintiffs do not challenge the district
court's findings of fact. They do, however, argue that as a legal
matter the district court took too crabbed a view of standing.
They urge us to apply the doctrine that, under the dormant commerce
clause, "cognizable injury is not restricted to those members of
the affected class against whom states . . . ultimately
discriminate." Houlton Citizens' Coal. v. Town of Houlton, 175
F.3d 178, 183 (1st Cir. 1999) (citing Gen. Motors Corp. v. Tracy,
519 U.S. 278, 286 (1997)). The plaintiffs insist that this
doctrine enables them to challenge a law that violates the dormant
commerce clause even though the law's harmful effects on them are
only indirect.
We have no quarrel with the abstract statements of law
set forth in Houlton. But context is all-important, and those
statements are of no help to the plaintiffs in the circumstances of
this case. Here, significantly, the plaintiffs have failed to show
any cognizable harm, direct or indirect, attributable to the
residency requirements of section 3-5-10. We explain briefly.
The injuries of which the plaintiffs complain arise in
consequence of Rhode Island's ban on franchise and chain-store
arrangements, not in consequence of the residency requirements per
se. After all, the plaintiffs are all Rhode Island residents and,
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if favoritism exists, none of them could conceivably have suffered
any cognizable harm as a result of it. This deficiency
distinguishes the plaintiffs' case from cases like Houlton in which
claimants have succeeded in making out the rudiments of standing.
See, e.g., Gen. Motors, 519 U.S. at 286-87; Bacchus Imports, Ltd.
v. Dias, 468 U.S. 263, 267 (1984); Alliance of Auto. Mfrs., 430
F.3d at 37; Houlton Citizens' Coal., 175 F.3d at 183.
Consequently, we uphold the district court's determination that the
plaintiffs lack standing to challenge the residency requirements
for Class A liquor licensees.
B. Overall Statutory Scheme.
Taking aim at R.I. Gen. Laws §§ 3-5-11 and 3-5-11.1, the
plaintiffs mount a ferocious attack on the State's prohibition
against franchise and chain-store arrangements in the retail liquor
industry. Their argument runs along the following lines. In
determining whether an entity is a chain-store organization (and,
thus, forbidden from obtaining a Class A liquor license), the
statutory scheme continues to count "chains in which one or more
stores are located outside of the state." See id. § 3-5-11(a).
That aspect of the statute, when combined with the 2004 ban on
franchise-type arrangements, creates (or so the plaintiffs tell us)
a regime designed to achieve economic protectionism by advantaging
independently owned Rhode Island liquor stores. So viewed, the
plaintiffs continue, the statutory scheme discriminates in both
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purpose and effect, legislates extra-territorially, and unduly
burdens the free flow of interstate commerce.
The State takes a diametrically opposite position. It
asserts that the statutory scheme applies uniformly across the
board, barring chain-store organizations and franchise entities,
regardless of whether they are based in Rhode Island, from owning
package stores. It adds that the evidence adduced at trial
revealed no burden on interstate commerce, let alone a
discriminatory effect.
We begin with purpose. Parties challenging the validity
of a state statute on "purpose" grounds must show that the statute
was prompted by a discriminatory purpose. See Hughes v. Oklahoma,
441 U.S. 322, 336 (1979); Alliance of Auto. Mfrs., 430 F.3d at 37.
Here, the plaintiffs maintain that their effort finds sustenance in
two places in the record. First, they identify what they term an
admission by the State that the 2004 amendments were not enacted to
promote temperance. Second, they point to two actions by lawyers
representing the defendants (actions which, in the plaintiffs'
view, make pellucid that the legislature's sole purpose was to keep
the retail liquor industry from being dominated by a few mega-
players wielding nationwide market power). Based on these isolated
snippets, the plaintiffs urge us to hold that the real goal of the
statutory scheme is economic protectionism.
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The district court declined to make that quantum leap,
and so do we. The words of a legislative body itself, written or
spoken contemporaneously with the passage of a statute, are usually
the most authoritative guide to legislative purpose. See, e.g.,
Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 463 n.7, 471
n.15 (1981); Houlton Citizens' Coal., 175 F.3d at 191. The purpose
of the 2004 amendments, as articulated in the statute itself, is to
"promote the effective and reasonable control and regulation of the
Rhode Island alcoholic beverage industry and to help the consumer
by protecting their choices and ensuring equitable pricing." R.I.
Gen. Laws § 3-5-11.1(a). To put this statement of purpose into
perspective, it should be recalled that the prohibitions against
franchise and chain-store arrangements in the retail liquor
industry are part of Title 3 of the Rhode Island General Laws.
Title 3's stated purpose is the "promotion of temperance and for
the reasonable control of the traffic in alcoholic beverages." Id.
§ 3-1-5. The plaintiffs have not proffered any convincing reason
for doubting these formal statements of legislative purpose.
To be sure, the plaintiffs try. The centerpiece of their
effort is the State's so-called admission that the 2004 amendments
were not intended to promote temperance. That brazen claim relies
on the State's answer to an interrogatory, which clarified that the
State was not planning to argue in the district court that the
amendments had actually reduced the consumption of alcoholic
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beverages. We are hard-pressed to see how that interrogatory
answer, which merely narrowed the field as to the issues that the
State was planning to emphasize at trial, in any way vitiates the
General Assembly's clear statements of overall legislative purpose.
The remainder of the plaintiffs' evidentiary cache
consists of two statements of counsel. The first is a comment by
counsel for the intervenor-defendant — a trade association, not a
state agency — about the need to count out-of-state entities in the
chain-store calculus lest a "giant, behemoth, nationwide liquor
retailer . . . quickly dominate the entire market with [its]
nationwide market power, thereby completely undermining in one fell
swoop the purpose of the law, which is to treat all Class A license
holders equally." The second is an offer of proof tendered by an
attorney for the State in connection with a rebuffed exhibit, which
was designed to supply background for the General Assembly's
decision to structure the retail liquor industry without any chain-
store "entity controlling the business in a number of different
locations." To say that these statements override — or even weaken
— the legislature's formal statements of purpose would be to
elevate hope over reason.
What we have said to this point fully answers the
plaintiffs' questions about the General Assembly's intent. On this
record, we have no choice but to reject the construct that
enactment of the overall statutory scheme was driven by a
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discriminatory purpose. See generally Fireside Nissan, Inc. v.
Fanning, 30 F.3d 206, 218 (1st Cir. 1994) (finding protection of
consumers against perceived "harmful franchising practices" to be
a legitimate legislative objective).
The plaintiffs' claim of discriminatory effect is equally
unavailing. Here, too, the plaintiffs must carry the devoir of
persuasion. See Alliance of Auto. Mfrs., 430 F.3d at 40. After a
full trial, the district court found no compelling evidence of
discriminatory effect. Because that finding is not clearly
erroneous, it commands our respect. See Fed. R. Civ. P. 52(a).
The plaintiffs' principal rejoinder rests on an overly
expansive reading of our decision in Walgreen Co. v. Rullan, 405
F.3d 50 (1st Cir. 2005). In that case, the challenged statute
exempted existing pharmacies (roughly 92% of which were locally
owned) from compliance with a set of facially neutral statutory
requirements. Id. at 55-56. The statute also allowed those
"grandfathered" pharmacies to wield great influence in the
enforcement of the statutory requirements vis-à-vis new entrants.
Id. Statistical data adduced at trial "strongly indicate[d]" that
the statute suppressed competition and favored local interests.
Id. at 56.
The instant case is easily distinguishable from Walgreen.
Here, the plaintiffs adduced no evidence that the prohibition on
franchise and chain-store arrangements, in itself, has had, or
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threatens to have, a debilitating or unfair impact either on
competition in general or — leaving aside residency requirements —
on out-of-state enterprises in particular. There is, for example,
no evidence of any carve-out or other device that would enable in-
state entities to evade the challenged restrictions, nor is there
any hint of a home-field advantage in connection with the State's
enforcement of the restrictions. The absence of any such evidence
is telling. See, e.g., Exxon Corp. v. Gov. of Md., 437 U.S. 117,
125-26 (1978) (rejecting unsubstantiated argument that effect of
evenhanded proscription against refiners was "to protect in-state
independent dealers from out-of-state competition"); see also Lewis
v. BT Inv. Mgrs., Inc., 447 U.S. 27, 42 (1980) (discussing Exxon
and terming the absence of discrimination between interstate and
local competitors "a most critical factor").
Notwithstanding this lack of evidence, the plaintiffs
asseverate that evenhanded laws that apply to in-state and out-of-
state entities alike nonetheless may produce a discriminatory
effect, in violation of the dormant commerce clause, if they "favor
a subset of in-state interests." Walgreen, 405 F.3d at 58 (citing
C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 391
(1994)). This asseveration can be dispatched quickly. Leaving to
one side the residency requirements, see supra Part III(A), the
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statutory scheme at issue here does not favor in-state interests at
all.4
To this, we add one further observation: that a state
regulation that burdens some interstate firms "does not, by itself,
establish a claim of discrimination against interstate commerce."
Exxon, 437 U.S. at 126 (footnote omitted). Thus, the fact that the
mosaic of state laws enacted by the General Assembly may have had
a negative impact on W&S's business model is, in itself,
insufficient to show discriminatory effect.
This brings us to the claim that the statutory scheme has
an impermissible extraterritorial reach. The district court did
not address this claim, presumably due to shortcomings in the
manner of its presentment. Even assuming that this argument was
squarely presented, it does not profit the plaintiffs' cause.
A statute is per se invalid if it "regulates commerce
wholly outside the state's borders or when the statute has a
practical effect of controlling conduct outside of the state."
Pharm. Care Mgmt. Ass'n v. Rowe, 429 F.3d 294, 311 (1st Cir. 2005)
4
The plaintiffs also make a rather feeble argument that the
statutory scheme discriminates by exempting certain types of in-
state establishments, such as wineries and brewpubs purveying
locally produced wine and beer, from the franchise and chain-store
prohibitions. See R.I. Gen. Laws §§ 3-5-11(a), 3-5-11.1(a). But
there has been no showing here either that these kinds of business
establishments are similarly situated to package stores or that
their claimed exempt status has "deprive[d] out-of-state businesses
of access to a local market." C & A Carbone, 511 U.S. at 389.
Consequently, we reject the argument out of hand.
-27-
(quoting Pharm. Research & Mfrs. of Am., 249 F.3d at 79). The
argument sketched by the plaintiffs on this point is that the
statutory scheme dictates that businesses must abandon (or refrain
from entering into) out-of-state franchise and chain-store
arrangements in order to be eligible for a Rhode Island retail
liquor license. That bare claim, without more, fails to pass
muster. The plaintiffs have not explained how the commercial
activity identified is "wholly outside" the State's boundaries nor
have they explained why the force exerted by the statutory scheme,
with respect to out-of-state conduct, can fairly be described as
"control." This sophisticated area of law requires developed
argumentation, with evidentiary support. Cf. Beer Inst., 491 U.S.
at 337 n.14 (labeling as a "critical consideration" regarding
extraterritorial reach claims the "overall effect of the statute on
both local and interstate commerce"). On the sketchy arguments
asserted by the plaintiffs, we are unable to say that the scheme
"necessarily requires out-of-state commerce to be conducted
according to in-state terms." Pharm. Care Mgmt. Ass'n, 429 F.3d at
311 (quoting Cotto Waxo Co. v. Williams, 46 F.3d 790, 794 (8th Cir.
1995)).
Leaving residency strictures to one side, see supra Part
III(A), the most that the plaintiffs have shown is that the neutral,
evenhanded requirements that we have been discussing incidentally
burden interstate commerce by precluding various methods of
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distribution in the retail liquor market. That is not enough. In
order to invalidate the requirements, any such burden would have to
be "clearly excessive in relation to the putative local benefits."
Pike, 397 U.S. at 142.
Here, the hoped-for local benefits consist primarily of
regulating and safeguarding against anticompetitive behavior in the
retail liquor market. See R.I. Gen. Laws § 3-5-11.1; see also
Heald, 544 U.S. at 488-89; Wine & Spirits, 418 F.3d at 51, 54. The
corresponding burdens on interstate commerce are minimal. Again
leaving to one side the residency requirements, see supra Part
III(A), the plaintiffs have identified only two conceivable burdens:
a loss of flexibility in arranging business affairs and a less-than-
optimally-efficient distribution system for alcoholic beverages that
have traveled through interstate commerce. Even accepting that
these are real burdens, the plaintiffs have the obligation of
proving excessiveness, see Pharm. Care Mgmt. Ass'n, 429 F.3d at 313
— and they have not come close to showing that the burdens they
envision are excessive in relation to the statutory scheme's
legitimate goals.
We need not tarry. The Supreme Court previously has
rejected the notion that the dormant commerce clause protects
particular business structures or methods of operation in retail
markets. See Exxon, 437 U.S. at 127. The plaintiffs' argument that
consumers would be advantaged by unregulated competition in retail
-29-
liquor sales, like the argument rejected in Exxon, "relates to the
wisdom of the statute, not to its burden on commerce." Id. at 128.
It is, therefore, of little moment. The bottom line is that the
plaintiffs have failed to prove a violation of the dormant commerce
clause.
IV. THE EQUAL PROTECTION CLAIM
In a last-gasp effort to stem an unfavorable tide, the
plaintiffs advance an equal protection challenge to the statutory
scheme. This challenge presents something of a moving target; its
specifics have been in constant flux during the course of the
litigation. At this juncture, the challenge has morphed into an
assault on the legitimacy of the State's interest in enacting the
statutory scheme.
We apply rational basis scrutiny to equal protection
challenges to economic legislation. See Wine & Spirits, 418 F.3d
at 53 (citing Hodel v. Indiana, 452 U.S. 314, 331 (1981)). Using
that level of scrutiny, economic legislation will be upheld as
against an equal protection challenge if "the means chosen by the
legislature are rationally related to some legitimate government
purpose." Id. Refined to bare essence, the plaintiffs' current
challenge is yet another iteration of their by-now-discredited claim
that the Rhode Island General Assembly's principal concern in
enacting the amendments was economic protectionism. As we
previously have made clear, the plaintiffs' underlying premise —
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that economic protectionism is the primary justification for Rhode
Island's statutory scheme — is incorrect. See supra Part III(B).
Contrary to the plaintiffs' rodomontade, the State has not "freely
admit[ted]" that motivation, nor have the plaintiffs identified any
evidence that fairly supports it. Accordingly, we reject the
plaintiffs' ipse dixit and affirm our preliminary conclusion that
no cognizable equal protection violation has been demonstrated. See
Wine & Spirits, 418 F.3d at 53-54.
V. CONCLUSION
We need go no further. State legislatures acting in the
public interest are entitled to considerable deference in mapping
the contours of economic legislation. While that deference must
take full account of constitutional constraints, the Rhode Island
General Assembly has not crossed any constitutional boundaries here.
Accordingly, we uphold the judgment below.
Affirmed.
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Wine & Spirits Retailers, Inc. v. Rhode Island
Court: Court of Appeals for the First Circuit
Date filed: 2007-03-20
Citations: 481 F.3d 1
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