Family Winemakers of CA, et al v. Jenkins, et al

Filing 920100114

Opinion

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var gAgent = navigator.userAgent.toLowerCase() var gWindows = ( (gAgent.indexOf( "win" ) != -1 ) || ( gAgent.indexOf( "16bit" ) != -1 ) ) var gIE = ( gAgent.indexOf( "msie" ) != -1 ) var bInlineFloats = ( gWindows && gIE && ( parseInt( navigator.appVersion ) >= 4 ) ) var floatwnd = 0 var WPFootnote1 = '                   Of the District of New Hampshire, sitting by designation.\ ' var WPFootnote2 = '                   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.\ ' var WPFootnote3 = '                   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.\ ' var WPFootnote4 = '                   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. \ ' var WPFootnote5 = '                   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. \ ' var WPFootnote6 = '                   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).\ ' var WPFootnote7 = '                   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.\ ' var WPFootnote8 = '                   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.\ ' var WPFootnote9 = '                   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.\ ' var WPFootnote10 = '                   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).\ ' var WPFootnote11 = '                   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. \ ' var WPFootnote12 = '                   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.\ ' var WPFootnote13 = '                   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. \ ' var WPFootnote14 = '                   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.\ ' var WPFootnote15 = '                   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). \ ' var WPFootnote16 = '                   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.\ ' var WPFootnote17 = '                   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.\ ' var WPFootnote18 = '                   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"). \ ' var WPFootnote19 = '                   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. \ ' var WPFootnote20 = '                   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\ 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). \ ' var WPFootnote21 = '                   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). \ ' var WPFootnote22 = '                   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\ conclude that § 19F discriminates against interstate commerce.\ ' var WPFootnote23 = '                   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.\ ' var WPFootnote24 = '                   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).\ ' var WPFootnote25 = '                   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.\ ' var WPFootnote26 = '                   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.\ ' var WPFootnote27 = '                   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.\ ' var WPFootnote28 = '                   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. \ ' var WPFootnote29 = '                   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).\ ' var WPFootnote30 = '                   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.\ ' var WPFootnote31 = '                   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.\ ' var WPFootnote32 = '                   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,\ 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).\ ' function WPShow( WPid, WPtext ) { if( bInlineFloats ) eval( "document.all." + WPid + ".style.visibility = 'visible'" ); else { if( floatwnd == 0 || floatwnd.closed ) floatwnd = window.open( "", "comment", "toolbars=0,width=600,height=200,resizable=1,scrollbars=1,dependent=1" ); floatwnd.document.open( "text/html", "replace" ); floatwnd.document.write( "\r\n" ); floatwnd.document.write( " p { margin-top:0px; margin-bottom:1px; } \r\n" ); floatwnd.document.write( "\r\n" ); floatwnd.document.write( WPtext ); floatwnd.document.write( 'Close'); floatwnd.document.write( "

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