In wine retailer shipping case, 4th Circuit panel splits over proper test for Twenty-first Amendment dormant Commerce Clause challenges and interpretation of holdings in Granholm and Tennessee Wine. Bonus: we have the briefs and appendix for you.
Judge Friendly often proved the power of an articulate and well-reasoned dissent. His dissents led to Supreme Court review, en banc consideration, and future policy and precedent. Judge Wilkinson has a Friendly-esque track record and his recent dissent in a dormant Commerce Clause wine retailer shipping challenge may lead to further review of the 4th Circuit’s decision in B-21 Wines, Inc. v. Bauer (link to opinion (and excellent dissent)).
B-21 Wines involves a dormant Commerce Clause challenge to North Carolina’s discriminatory practice (all judges in the opinion agreed the practice is discriminatory) of allowing in-state wine retailers to ship to North Carolina residents and prohibiting out-of-state wine retailers the same shipping rights.
A wine merchant and North Carolina wine-enthusiasts brought this suit in league with the same group of attorneys that have not prevailed with similar challenges in the Sixth Circuit (Lebamoff v. Whitmer) and Eighth Circuit (Sarasota Wine Market v. Schmitt). The District Court found in favor of North Carolina ruling that the ban on shipping by out-of-state wine retailers was an integral part of North Carolina’s three-tiered system.
A three-judge 4th Circuit panel hearing the appeal split with two judges finding that Granholm and Tennessee Wine do not call for an analysis questioning whether less restrictive alternative methods are available and stand for the holding that a less restrictive test is called for in the review of alcohol involved discrimination in violation of the dormant Commerce Clause:
Our analysis of the applicable precedents compels us to conclude that, where a challenged alcoholic beverage control regime discriminates against interstate commerce, the proper follow-up inquiry is whether that regime can nevertheless be justified “as a public health or safety measure or on some other legitimate nonprotectionist ground.” See Tenn. Wine, 139 S. Ct. at 2474. Although consideration of nondiscriminatory alternatives could have some relevance to that inquiry, it does not transform the applicable framework into the test that ordinarily applies to a dormant Commerce Clause challenge when the Twenty-first Amendment is not implicated.
The majority opinion does not define “essential feature” but finds that an “other legitimate nonprotectionist ground” allowed by Tennessee Wine and the Twenty-first Amendment are “those discriminatory requirements that are essential features of the three-tier system.” (This is the (now pernicious) holding from the dubious readings of Tennessee Wine and Granholm in Sarasota Wine that we addressed last week.)
The majority opinion continues on to find that in-state retailer shipping is an “essential feature” through unfounded logical statements making false equivalencies and conclusions to reach an ultimate premise: 1) almost all alcohol sold in state passes through three-tiers; 2) direct shipping from out-of-state would exempt out-of-state sellers from the state’s three-tier requirements; 3) that would allow for less regulated wine and undermine safe consumption. In case you don’t believe me, here’s the passage:
Unlike the discriminatory licensing requirement for retailers that the Supreme Court reviewed in Tennessee Wine, the Retail Wine Importation Bar is an integral part of North Carolina’s three-tier system. To begin with, the Bar directly relates to North Carolina’s ability to separate producers, wholesalers, and retailers. The Old North State requires that nearly all alcoholic beverages pass through each of the three tiers before being sold to consumers. And the direct shipping of alcoholic beverages to North Carolina consumers by out-of-state retailers would completely exempt those out-of-state retailers from the three-tier requirement. That would open the North Carolina wine market to less regulated wine, undermining the State’s three-tier system and the established public interest of safe alcohol consumption that it promotes. As one of our sister circuits recently observed in similar circumstances, the opening of a state’s wine market to retail wine shipments from outside the State “necessarily means opening it up to alcohol that passes through out-of-state wholesalers or for that matter no wholesaler at all.” See Lebamoff Enters. Inc. v. Whitmer, 956 F.3d 863, 872 (6th Cir. 2020), cert. denied, ––– U.S. ––––, 141 S. Ct. 1049, 208 L.Ed.2d 520 (2021). Eliminating the role of North Carolina’s wholesalers in this way would create what the court of appeals in Whitmer appropriately called “a sizeable hole” in the State’s three-tier system. Id. And when such direct wine shipping is authorized, “the least regulated (and thus the cheapest) alcohol will win.” Id.9
The dissent in B-21 Wines takes such a reading to task pointing out that such a reading ignores the actual words used in the relevant Supreme Court opinions and the requirements of those opinions for dormant Commerce Clause / 21st Amendment analysis:
The majority fails to adequately explain why the feature in the case at bar is any different. Prohibiting wine shipments to consumers from out-of-state retailers is no more essential to a three-tiered model than residency requirements. One can easily imagine a state maintaining a strict licensing regime to ensure that the tiers remain distinctly owned, while treating in-state and out-of-state retailers alike. Indeed, many states with three-tiered systems do allow out-of-state retailers to ship wine on the same terms as in-state retailers. J.A. 91, 245–46; e.g., Cal. Bus. & Prof. Code § 23661.2; Conn. Gen. Stat. § 30-18a; Idaho Code § 23-1309A; La. Rev. Stat. § 26:359; Neb. Rev. Stat. § 53-123.15; N.H. Rev. Stat. § 178:27; N.M. Stat. § 60-7A-3; Or. Rev. Stat. § 471.282; Va. Code §§ 4.1-206.3(F), -209.1; W. Va. Code § 60-8-6; Wyo. Stat. § 12-2-204.
In no way is the three-tiered system jeopardized by a requirement of evenhandedness. Allowing imported wine does not necessitate allowing unregulated wine. Nothing stops North Carolina from requiring out-of-state retailers to obtain a state shipping license and comply with the same conditions as in-state retailers. See, e.g., FTC Report, supra, at 7–8; J.A. 243 (Model Direct Shipping Bill); Granholm, 544 U.S. at 491–92, 125 S.Ct. 1885 (referencing the Model Direct Shipping Bill favorably). One of those conditions could be that retailers sell wine to North Carolina consumers only if it has been purchased from a wholesaler. In all events, the conditions are for North Carolina to decide, so long as they have the virtue of being facially evenhanded.
The logic and reasoning presented in the dissent provide a level of detail and a more cogent argument, raising issues and points left unaddressed by the majority. That’s an open invitation to future action – en banc consideration, a petition for cert. The dissent addresses each and every one of the points made in the majority opinion with arguments and points left unaddressed by the majority and the dissent added several key elements and points that the majority did not take the time to consider such as the ease of adopting a regime that allows out-of-state retailers to ship wine and the lack of evidence, despite Granholm’s admonition, regarding proof that the discrimination advances the stated goals.
At base, it appears that the decision in B-21 Wines as well as the decisions in Lebamoff (Whitmer) and Sarasota Wines, are premising their holdings on the very rational criticized in Tennessee Wine – that discrimination of rights is sustainable against retailers but not against manufacturers because they are at different “tiers.” But this is the very thing Tennessee Wine spoke against in pointing out the unpersuasive nature of arguments differentiating between producers and retailers. The dissent in B-21 Wines makes this point:
In Tennessee Wine, the Supreme Court unequivocally endorsed the broader reading. The case involved Tennessee’s law limiting alcohol retail licenses to those who had been state residents for at least a two-year period. 139 S. Ct. at 2456. The Court squarely rejected the proposition that Granholm’s nondiscrimination principle applied only to producers and products, but not retailers or distributers [sic]: “There is no sound basis for this distinction.” Id. at 2470–71. Nothing in Granholm’s “reading of history or its Commerce Clause analysis was limited to discrimination against products or producers,” but rather forbade “discrimination against all out-of-state economic interests” that “deprived citizens of their right to have access to the markets of other States on equal terms.” Id. at 2471.
Disregarding tier and considering challenges brought by similarly situated entities to disparate treatment in wine-shipping rights should become the issue these cases focus on after this ruling and dissent. The language from Tennessee Wine regarding the dubiousness of the arguments that the tier of a party results in a difference in Twenty-first Amendment dormant Commerce Clause analysis and the competing holdings about the proper test proposed by Tennessee Wine may make this case a better candidate than Sarasota Wine and Whitmer (Lebamoff) were for SCOTUS review to provide clarity on the proper test and tier issues and further the cause of Twenty-first Amendment and Commerce Clause interplay.
A whole-hearted thank you to Paul Pisano over at the excellent Alcohol Law Review for bringing the ruling on this to our attention within minutes of the issuance.
Here are the documents:
- The Appellants’ Opening Brief
- The Appellee’s Response Brief
- The Appellants’ Reply Brief
- The Amicus Brief from the Center for Alcohol Policy
- The Joint Appendix
- The 4th Circuit Opinion in B-21 Wines v. Bauer
Of interest from the Joint Appendix; the dissent raised the issue of multiple states that license out-of-state retailers to sell wine direct to consumers. Those states have no issues with the practice and letters from each of the state liquor authorities verifying the lack of problems associated with direct wine shipping are included starting at page 151 of the Joint Appendix.
Also of interest, Judge Wilkinson’s turn of phrase in several portions of this opinion – most notably:
Of course, it is always easier for state legislatures to follow the course of least resistance, appeasing the in-state crowd. And I understand the fondness for home cooking. But the fact remains that it is impermissible under the dormant Commerce Clause for North Carolina to “plainly favor[ ]” North Carolina retailers over those of any other state.