Siesta Village Mkt, et al v. Perry, et al

Filing

08-10148

Siesta Village Mkt, et al v. Perry, et al

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IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
July 22, 2010 N o . 08-10146 Lyle W. Cayce Clerk

W I N E COUNTRY GIFT BASKETS.COM; K&L WINE MERCHANTS; B E V E R A G E S & MORE INC; DAVID L TAPP; RONALD L PARRISH; J E F F R E Y R DAVIS P la in t iffs ­ Appellants-Cross-Appellees v. J O H N T. STEEN, JR., Commissioner of the Texas Alcoholic Beverage C o m m is s io n ; GAIL MADDEN, Commissioner of the Texas Alcoholic Beverage C o m m is s io n ; JOSE CUEVAS, JR., Commissioner of the Texas Alcoholic B e v e r a g e Commission D e fe n d a n t s - Appellees-Cross-Appellants A L L E N STEEN, in his official capacity as administrator of the Texas A lc o h o lic Beverage Commission D e fe n d a n t ­ Appellee-Cross-Appellant

G L A Z E R S WHOLESALE DRUG COMPANY, INC; REPUBLIC BEVERAGE COM PANY I n t e r v e n o r Defendants ­ Appellees-Cross-Appellants

A p p e a ls from the United States District Court for the Northern District of Texas, Dallas

O N PETITION FOR REHEARING

Dockets.Justia.com

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No. 08-10146 B e fo r e JOLLY, PRADO, and SOUTHWICK, Circuit Judges. L e s lie H. Southwick, Circuit Judge: A p p e lla n t s ' Petition for En Banc Review is DENIED. We withdraw the p r io r panel opinion, issued on January 26, 2010, and substitute the following. T h is case primarily concerns a Texas law that allows alcohol retailers to s h ip to the door of their local consumers. Out-of-Texas wine retailers claim that t h e dormant Commerce Clause requires they be given a supposedly reciprocal r ig h t to make direct shipments to any Texas consumer. The district court partly a c c e p t e d their argument. We hold that the statutes do not run afoul of the dormant Commerce Clause. We VACATE and REMAND for entry of judgment. F A C T U A L AND LEGAL BACKGROUND T h e r e were several parties to this case, but they can be grouped easily. O n e plaintiff, Siesta Village Market LLC, who is a Florida wine retailer, has d is m is s e d its appeal. Another, Wine Country Gift Baskets.com, is a California w in e retailer. Wine Country's appellate brief describes the plaintiffs, present a n d past, as "a group of out-of-state wine retailers and Texas wine consumers." We refer to the plaintiffs collectively as "Wine Country." S u it was filed by Siesta Village and a few Texas wine consumers on March 3 1 , 2006, in the Dallas Division of the U.S. District Court for the Northern D is t r ic t of Texas. A nearly identical suit was filed by Wine Country, two other C a lifo r n ia retailers, and a few named Texas consumers in the Fort Worth D iv is io n . The suits were consolidated in the Dallas Division. The wine retailers lo c a t e d outside of Texas wish to ship wine directly to Texas consumers. D e fe n d a n t s are Alan Steen, the Administrator of the Texas Alcoholic B e v e r a g e Commission, and three Commission members sued in their official c a p a c it ie s . They enforce the Texas Alcoholic Beverage Code ("TABC"). We will r e fe r to the various Defendants as "the State" or "Texas."

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No. 08-10146 T w o Texas alcoholic beverage wholesalers intervened. These companies a r e Glazer Wholesale Drug Company, Inc., and Republic Beverage Co. A s do many other States, Texas has a three-tier system for regulating s a le s of alcoholic beverages. The first tier is the producer, who must sell its p r o d u c t to the second tier, which is a State-licensed wholesaler. The wholesaler d is t r ib u t e s the product to the third tier, consisting of State-licensed retailers. Consumers purchase from the retailers. "[S]trict separation between the

m a n u fa c t u r in g , wholesaling, and retailing levels" of the alcoholic beverage in d u s t r y must be maintained. TEX. ALCO. BEV. CODE § 6.03(i). The challenged Texas laws fall into three principal categories. Almost all t h e relevant provisions apply to alcohol generally, though the complaint is from c o m p a n ie s whose commercial interest is solely in wine. F ir s t , some laws allow individuals to bring alcoholic beverages into Texas fo r their own use, known as a "personal import exception," but limit the q u a n tit y . The district court held that this direct-purchase restriction was

u n c o n s t it u t io n a l in part. "Texas cannot prohibit consumers from purchasing w i n e from out-of-state retailers who comply with the Code and TABC r e g u la tio n s ," the district court held. Siesta Vill. Mkt., LLC v. Perry, 530 F. Supp. 2 d 848, 868 (N.D. Tex. 2008). It ordered Texas to allow out-of-state retailers to r e c e iv e Texas-issued retailer permits. Therefore, any consumer who bought w in e from an out-of-state holder of a Texas permit would not be subject to the q u a n t it y limit when entering the State with the beverages, though the limit for im p o r t in g would apply to the same person's excessive purchases from out-ofs t a t e retailers that did not have Texas permits. S e c o n d , and at the heart of this case, some of the laws allow in-state r e t a ile r s to deliver alcoholic beverages to their customers within designated local a r e a s , but forbid out-of-state retailers from delivering or shipping alcoholic

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No. 08-10146 b e v e r a g e s to customers anywhere in Texas.1 Retailers may use common carriers lic e n s e d under the TABC, which include such companies as FedEx. Just before s u m m a r y judgment motions were filed in the consolidated suits, the Texas le g is l a t u r e amended the prior law which had allowed holders of package store p e r m it s or wine-only package store permits to ship their beverages statewide. TEX. ALCO. BEV. CODE § 22.03 (Vernon 2006) (amended Sept. 1, 2007). The a m e n d m e n t drew in the boundaries of the area of permissible shipment from the e n tir e State to basically the county in which the retailer has a store. Id. §§ 22.03 & 24.03 (Vernon 2009). The district court held that the statutes discriminated a g a in s t Wine Country and granted relief. T h ir d , the suit challenged requirements that the holders of TABC retailer p e r m it s have been Texas citizens for one year. The decision in an earlier case d ecla red those provisions unconstitutional insofar as they applied to wholesalers. S.Wine & Spirits of Tex., Inc. v. Steen, 486 F.Supp. 2d 626, 633 (W.D. Tex. 2007). The district court in the present case declared the requirements unconstitutional a s applied to retailers. The State does not appeal the voiding of the requirement a n d advised the district court that it will not enforce the citizenship rule. T h e parties agreed on a preliminary injunction blocking enforcement of c e r t a in provisions for the duration of the lawsuit. On summary judgment, the d is t r ic t court declared twenty-three TABC provisions to be unconstitutional. Siesta Vill. Mkt., 530 F. Supp. 2d at 873. T h e district court did not, however, provide the remedy Wine Country w a n t e d . The court decided that other provisions of the TABC, though clearly r e g u la tin g only in-state retailers, should be applied to out-of-state retailers. Thus, Wine Country had a right to make direct shipments to Texas consumers,

Although the statutes create some special permits for retailers selling only wine, the statutes allowing local delivery apply to retailers selling only wine and also to full-service package store permit holders. TEX. ALCO. BEV. CODE §§ 22.03(a), 24.03.

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No. 08-10146 b u t it was required to obtain a Texas retailer permit and purchase all wine s h ip p e d to Texas consumers from Texas-licensed wholesalers. Such a "victory" w a s , if not pyrrhic, apparently of no benefit.2 W in e Country's dissatisfaction is evident from the fact it was the first to a p p e a l, thereby becoming the Appellant despite the general success of its a r g u m e n t s . It claimed error in the remedy. The State cross-appealed to argue t h a t its statutes do not violate the dormant Commerce Clause. Siesta Village, t h e named plaintiff in one of the two consolidated cases, initially was an A p p e lla n t but has since dismissed its appeal. D IS C U S S IO N T h e grant of a motion for summary judgment is reviewed de novo. Pasant v . Jackson Nat'l Life Ins. Co., 52 F.3d 94, 96 (5th Cir. 1995). Summary judgment is appropriate when there is no genuine issue of material fact and the moving p a r ty is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c)(2). This appeal almost exclusively concerns questions of law. W in e Country convinced the district court that numerous TABC provisions v io la t e d the dormant Commerce Clause. Wine Country's arguments as the A p p e lla n t center on the remedy imposed by the district court. Because we set a s id e the invalidation of the statutory provisions, issues about the remedial r e lie f implementing the invalidation become moot. We thus do not discuss Wine C o u n tr y 's arguments on the remedy. T h e State of Texas as Cross-Appellant does not contest the district court's in v a lid a t io n of the requirement that retailers establish Texas citizenship. That

The Second Circuit found it operationally absurd for out-of-state retailers to purchase inventory from in-state wholesalers, have it delivered to the retailers in some fashion, then shipped back to in-state consumers. Arnold's Wines, Inc. v. Boyle, 571 F.3d 185, 192 n.3 (2d Cir. 2009). Wine Country also found the requirement to be dispiriting.

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No. 08-10146 p a r t of the judgment was not included in any notice of appeal and therefore has n o t been brought to us for reversal or affirmance. T e x a s vigorously does contest the holding that the dormant Commerce C la u s e interfered with what Texas considers to be a right granted by the T w e n t y -fir s t Amendment to favor in-state retailers in some respects. T e x a s also argues that the direct shipping laws are justified by legitimate s t a t e interests. It alleges valid local public interests exist and the law has only in c id e n t a l effects on interstate commerce. Its policy justifications include the S t a te 's need to access retail sites for inspection and enforcement, which can u n c o v e r illegal activities ­ specifically regarding alcohol or more generally for m o n e y laundering ­ and the State's goals of promoting temperance, insuring tax c o lle c t io n s , and assuring the separation between the three tiers. We do not r e a c h the policy justifications, as our reversal is for other reasons. T h e last section in the Texas brief explains its embrace of the remedy that W in e Country rejects. There is no need to review those arguments. W e discuss only the cross-appeal arguments presented by Texas. First, we w ill examine closely the United States Supreme Court opinion that spoke s t r o n g ly and supportively about the three-tier system for distribution of alcohol. We then look at what three subsequent opinions from other courts have said a b o u t it. We then briefly review the district court's decision, and finally we a p p ly our analysis to it. A . The Three-Tier System and Granholm I n t o x ic a t in g liquor is the only consumer product identified in the C o n s t it u t io n . Only its regulation by States is given explicit warrant. The transportation or importation into any State, Territory, or p o s s e s s io n of the United States for delivery or use therein of in t o x ic a t in g liquors, in violation of the laws thereof, is hereby p r o h ib ite d .

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No. 08-10146 U .S . CONST. amend. XXI, § 2. The goals of "promoting temperance, ensuring o r d e r ly market conditions, and raising revenue" are met through regulation of t h e production and distribution of alcoholic beverages. North Dakota v. United S ta te s , 495 U.S. 423, 432 (1990) (plurality opinion). The understanding of a S t a te 's power under the Twenty-first Amendment may have changed since the 1933 ratification, but we need not review seventy-five years of history. Instead, w e rely primarily on the latest Supreme Court explanation. T h e basic point Texas makes on appeal is that the three-tier system allows certain kinds of distinctions and particularly allows distinctions between in-state a n d out-of-state retailers. Further, allowing Texas-licensed retailers to make t h e ir sales in certain ways, namely, by delivery, and prohibiting out-of-state r e t a ile r s from doing anything at all, is said to be authorized by controlling in t e r p r e t a t io n s of the Twenty-first Amendment. W e start where Texas urges us to start, and where the district court did, b y examining the most recent Supreme Court discussion of the interplay b e tw e e n a State's authority to regulate alcohol and the dormant Commerce C la u s e . See Granholm v. Heald, 544 U.S. 460 (2005). The Court reaffirmed the p r i n c ip le that, despite what might appear to be absolute authority granted to S t a te s by the Twenty-first Amendment to regulate alcohol, the antid is c r im in a t io n principles of the dormant Commerce Clause nonetheless place s o m e restrictions on the States. T h e Court said that "in all but the narrowest circumstances, state laws v io la t e the Commerce Clause if they mandate `differential treatment of in-state a n d out-of-state economic interests that benefits the former and burdens the la t t e r .'" Id. at 472 (quoting Ore. Waste Sys., Inc. v. Dep't of Envtl. Quality of Ore., 5 1 1 U.S. 93, 99 (1994)). "State laws that discriminate against interstate Id. at 476 (quoting

c o m m e r c e face `a virtually per se rule of invalidity.'" P h ila d e lp h ia v. New Jersey, 437 U.S. 617, 624 (1978)). 7

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No. 08-10146 T h e Granholm Court invalidated two States' "direct shipping" laws a llo w in g in-state wineries to ship wine they produced directly to consumers, but b a r r in g out-of-state wineries from doing the same. It found the "discriminatory c h a r a c t e r " of Michigan's prohibition "obvious," as that State's laws prohibited a n y shipment from out-of-state wineries, while allowing in-state wineries to ship a ft e r obtaining a permit. Id. at 473. New York's scheme was more complicated, a llo w in g out-of-state wineries to ship to in-state consumers if the wineries e s t a b lis h e d a physical presence in the State and became part of New York's t h r e e -t ie r distribution system. The Court nonetheless found New York's rules d is c r im in a t o r y , noting that the rules clearly gave "preferential terms" to in-state w in e r ie s , which qualified for a simpler permit, did not have to participate in the t h r e e -t ie r system, and could ship wine directly from the site of its production. Id. at 474. Both States' laws, then, dealt with producers. A t least as to producers, the Court held that the "Amendment does not s u p e r s e d e other provisions of the Constitution and, in particular, does not d is p la c e the rule that States may not give a discriminatory preference to their o w n producers." Id. at 486. Once finding the laws discriminatory, the Court examined whether they m ig h t be saved by a tenet of the dormant Commerce Clause that exempts laws t h a t "`advance[] a legitimate local purpose that cannot be adequately served by r e a son a b le nondiscriminatory alternatives.'" Id. at 489 (quoting New Energy Co. o f Ind. v. Limbach, 486 U.S. 269, 278 (1988)). Obtaining such an exemption r e q u ir e s the "clearest showing" that the law is the only adequate means of s e r v in g the State's legitimate purpose. Id. at 490 (quoting C&A Carbone, Inc. v . Clarkstown, 511 U.S. 383, 393 (1994)). The States claimed two purposes ­ p r e v e n t io n of underage drinking and the need for taxes. Id. at 489. The Court fo u n d that neither had sufficient evidentiary support to save those States' laws. Id. at 490-92. We do not discuss this point because we determine that the Texas 8

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No. 08-10146 p r o v is io n s are constitutional and do not need to be saved. A decision by this court foreshadowed Granholm. In it, we struck down T e x a s laws that allowed Texas wineries to ship directly to consumers and thus b y p a ss going first to a wholesaler, but these laws prohibited out-of-state wineries fr o m doing the same. Dickerson v. Bailey, 336 F.3d 388, 406-07 (5th Cir. 2003). The Texas legislature responded to Dickerson by authorizing wineries wherever lo c a t e d to ship directly to Texas consumers once they were issued the a p p r o p r ia te permit. TEX. ALCO. BEV. CODE §§ 54.01-.12. We disagree with Wine Country that Dickerson answers today's questions. That precedent, as did Granholm, concerned wineries, i.e., the producers of the p r o d u c t traveling in commerce. The producers in a three-tier system often are n o t located in the State in which the sales occur. The traditional three-tier s y s t e m , seen as one that funnels the product, Granholm, 544 U.S. at 489, has an o p e n in g at the top available to all. The wholesalers and retailers, though, are o ft e n required by a State's law to be within that State. The distinction is seen in Texas law. It allows wineries themselves, located for example in California o r Florida as are the retailer plaintiffs, to ship directly to Texas consumers. Texas argues that the following language in Granholm certifies the c o n s t it u t io n a lit y of the three-tier system that most States use, and is the lens t h r o u g h which the concept of discrimination needs to be seen: T h e States argue that any decision invalidating their d ir e c t -s h ip m e n t laws would call into question the constitutionality o f the three-tier system. This does not follow from our holding. "The Twenty-first Amendment grants the States virtually complete c o n t r o l over whether to permit importation or sale of liquor and how t o structure the liquor distribution system." Cal. Retail Liquor D e a le r s Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980). A S t a t e which chooses to ban the sale and consumption of alcohol a lt o g e t h e r could bar its importation; and, as our history shows, it w o u ld have to do so to make its laws effective. States may also a s s u m e direct control of liquor distribution through state-run 9

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No. 08-10146 o u tle t s or funnel sales through the three-tier system. We have p r e v io u s ly recognized that the three-tier system itself is " u n q u e s t io n a b ly legitimate." North Dakota v. United States, 495 U .S . at 432; see also id. at 447 (Scalia, J., concurring in judgment) (" T h e Twenty-first Amendment . . . empowers North Dakota to r e q u ir e that all liquor sold for use in the State be purchased from a licen se d in-state wholesaler"). State policies are protected under the T w e n t y -fir s t Amendment when they treat liquor produced out of s t a t e the same as its domestic equivalent. The instant cases, in c o n t r a s t , involve straightforward attempts to discriminate in favor o f local producers. I d . at 488-89 (citations reformatted). That language may be dicta. If so, it is c o m p e llin g dicta. What we make of that language, and its ability to protect t h e s e Texas statutes from Wine Country's dormant Commerce Clause a r g u m e n t s , is the next part of our analysis. B . Other Courts' Granholm Analysis G r a n h o lm dealt specifically with state laws treating in-state and out-ofs t a t e producers of alcohol differently. This present appeal involves retailers. Since Granholm, other decisions from outside this Circuit have addressed that p r e c e d e n t 's applicability to retailers who wish to ship wine into other States. We w ill discuss the three that are the most relevant.3 I n the earliest decision, some Virginia consumers and a few out-of-state w in e r ie s challenged a Virginia statute that limited the amount of alcohol that c o n s u m e r s could personally carry into the State for their own use. Brooks v. V a s s a r , 462 F.3d 341, 349 (4th Cir. 2006). The plaintiffs' theory was that the p r o v is io n was unconstitutional because consumers could purchase an unlimited a m o u n t of wine from in-state sources but only limited amounts out-of-state for t h e ir personal importation into Virginia.

A fourth decision analyzing Granholm was recently released, but we find nothing in it to affect our reasoning. Family Winemakers of Cal. v. Jenkins, 592 F.3d 1, 20-21 (1st Cir. 2010) (state law granting distribution rights to "small" wineries was held to discriminate in favor of in-state wineries, all of whom were "small").

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No. 08-10146 T h e opinion for the court held that plaintiffs' effort to compare in-state r e t a ile r s to out-of-state retailers and then allege they were treated differently w a s fundamentally a challenge to the three-tier system itself. Brooks, 462 F.3d a t 352 (Niemeyer, J.).4 Because the Supreme Court had described the three-tier s y s t e m as "unquestionably legitimate," the court held the Virginia statutes to be c o n s t it u t io n a lly sound. Id. (quoting Granholm, 511 U.S. at 489). In another decision, there were challenges to New York statutes that are a n a lo g o u s to those here. New York law permitted an in-state alcoholic beverage r e t a ile r to deliver directly to consumers' residences in New York, using the r e t a ile r 's vehicles or by using vehicles of a transportation company licensed by t h e State's liquor authority; out-of-state retailers did not have comparable r ig h t s . Arnold's Wines, Inc. v. Boyle, 571 F.3d 185, 188 (2d Cir. 2009). T h e Second Circuit started with a recognition that the Twenty-first A m e n d m e n t does not authorize all alcohol regulation. Any discrimination

b e tw e e n in-state and out-of-state alcohol products or producers must reasonably fu r t h e r a legitimate state interest "that cannot adequately be served by r e a s o n a b le nondiscriminatory alternatives." Id. at 189 (citation omitted). The c o u r t's focus on "products or producers" is the central debate: how much further, if at all, beyond products and producers do the anti-discrimination principles go? T h e Second Circuit held products and producers are the limit. It described p la in t iffs ' arguments as simplistic analogies to the Granholm-identified d is c r im in a t io n . A State's making distinctions among in-state and out-of-state r e t a ile r s , and even requiring wholesalers and retailers to be present in and lic e n s e d by New York, were fundamental components of the three-tier system a u t h o r iz e d in Granholm. Id. at 190.

Judge Niemeyer wrote for the court, but a second judge concurred only in the judgment with respect to this part of the opinion, while the third judge on the panel dissented from that part. This reasoning presumably has limited precedential effect in that Circuit.

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No. 08-10146 T h e court concluded that the New York laws permitting only in-state r e t a ile r s to ship directly to consumers were in "stark contrast" to the laws struck d o w n in Granholm, which "created specific exceptions to the states' three-tier s y s t e m s favoring in-state producers." Id. at 191. It found that the productionr e la t e d discrimination involved in Granholm "was exactly the type of economic p r o t e c t io n is t policy the Commerce Clause sought to forestall, and where the G r a n h o lm Court drew the line." Id. The line drawn by the court was between the broad state powers under the T w en ty -first Amendment "to regulate the transportation, sale, and use of alcohol w it h in their borders," and any "attempts to discriminate in favor of local p r o d u c t s and producers." Id. It held New York's laws were evenhanded in their control of "importation and distribution of liquor within the state," and that m a d e the dormant Commerce Clause all but irrelevant. Id. at 192. I n the third case, the court considered a Michigan law authorizing some in -s t a t e retailers to ship wine directly to consumers, while out-of-state retailers w it h o u t a physical presence in Michigan could not. Siesta Vill. Mkt., LLC v. G r a n h o lm , 596 F. Supp. 2d 1035, 1037-38 (E.D. Mich. 2008), vacated as moot, O r d e r Dismissing Action, July 17, 2009.5 The Michigan court limited the effect o f the Supreme Court's Granholm decision: "While the [Granholm v.] Heald c o u r t did state that the three-tier system was an appropriate use of state power, it did not approve of a system that discriminates against out-of-state interests." Id. at 1039. The court found that "regulations creat[ing] an extra burden on outo f-s ta t e wine retailers" were not saved by the Twenty-first Amendment. Id. The c o u r t also held it to be insufficient that out-of-state retailers could comply with M ic h ig a n law by establishing a location in the State. The "prohibitive" expense o f opening physical stores in multiple States gave a clear advantage to in-state
An appeal to the Sixth Circuit was apparently mooted by an intervening change in the Michigan statutes being challenged.
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No. 08-10146 r e t a ile r s . Id. at 1040 (citing Granholm, 544 U.S. at 474-75). Accordingly, the c o u r t struck down the Michigan laws. C . The District Court's Interpretation T h e district court here considered the Texas "Personal Import Exception," w h ic h authorizes individuals to import alcohol for their own use. One section p r o h ib it s importation unless authorized. TEX. ALCO. BEV. CODE §107.05. That s e c t io n is then made inapplicable to Texas residents who import for personal use n o t more than one quart of liquor, three gallons of wine, or twenty-four twelveo u n c e bottles of beer. Id. § 107.07. There is no direct limit on how much can be p u r c h a s e d , only on how much can be imported. T h e s e provisions were held by the district court to discriminate against o u t-o f-s t a t e retailers because they "prohibit consumers from purchasing wine fr o m out-of-state retailers" in unlimited quantities. Siesta Vill. Mkt., 530 F. S u p p . 2d at 868. The remedy was to allow out-of-state retailers to apply for T e x a s retail permits, even without the retailers' opening a location in the State. Any retailer with a Texas permit and making sales at locations outside of Texas c o u ld not be limited in sales volumes when those limits do not apply to Texas p e r m it holders making sales inside Texas. T h e district court also held that the Texas local shipping rights were d is c r im in a t o r y . The court held the relevant question to be whether there was d is c r im in a t io n "with respect to access to in-state markets," and there could be no e x c e p t io n for de minimis levels of discrimination. Id. at 864 (emphasis in

o r ig in a l). The disability imposed on out-of-state retailers was not a "mere p r a c t ic a l consequence" of location, as it might be if Texas permitted only overt h e -c o u n t e r sales of alcohol. Since Texas allowed in-state retailers to ship

a lc o h o l, there was no practical reason why out-of-state retailers could not also. Id. at 865-66. Shipping was the key, because shipping was as easily done from o u ts id e the State as from within. 13

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No. 08-10146 H a v in g found the Texas laws discriminatory, the court turned to the q u e s t io n of whether the State could show legitimate local purposes, not o b ta in a b le by nondiscriminatory alternatives, to justify the discrimination. We d o not ultimately reach that analysis, so we do not summarize it here. D . Dormant Commerce Clause Analysis W e first analyze the provisions that allow an in-state retailer to deliver w it h in its county but bars an out-of-state retailer from shipping into Texas. Texas argues that distinguishing between retailers in this way is a fundamental p a r t of the constitutional three-tier system, which is "unquestionably le g it im a t e ." Granholm, 544 U.S. at 488-89. T o the contrary, Wine Country focuses on the Granholm prohibition on a s t a t e 's liquor laws discriminating against out-of-state interests. Wine Country a c k n o w le d g e s that the Court limited its holding to discrimination benefitting a lc o h o l on the basis of its in-state production status, but Wine Country argues t h a t makes sense as that was the Granholm dispute. Texas argues the

G r a n h o lm failure to mention retailers was significant, as distinctions favoring in -s t a t e retailers are inherently part of the three-tier system. W e first note what is not in issue. The discrimination that Granholm in v a lid a t e d was a State's allowing its wineries to ship directly to consumers but p r o h ib it in g out-of-state wineries from doing so. Texas grants in-state and out-ofs t a t e wineries the same rights. TEX. ALCO. BEV. CODE §§ 54.01-54.12. S u c h discrimination ­ among producers ­ is not the question today. When a n a ly z in g what else is invalid under the Supreme Court's Granholm reasoning, w e find direction in a source for some of the Court's language. The Court quoted a 1986 precedent that North Dakota's three-tier system was "unquestionably le g it im a t e ." Granholm, 544 U.S. at 489 (quoting North Dakota v. United States, 4 9 5 U.S. 423, 432 (1986)). North Dakota's system was similar to that in Texas, in which producers sell to state-licensed wholesalers, who sell to state-licensed 14

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No. 08-10146 r e t a i le r s . North Dakota, 495 U.S. at 428. That sort of system has been given c o n s t it u t io n a l approval. The discrimination that would be questionable, then, is that which is not inherent in the three-tier system itself. If Granholm's le g it im iz in g of the tiers is to have meaning, it must at least mean that. The le g it im iz in g is thus a caveat to the statement that the Commerce Clause is v io la t e d if state law authorizes "differential treatment of in-state and out-ofs t a t e economic interests that benefits the former and burdens the latter." G r a n h o lm , 544 U.S. at 472 (internal quotation marks and citation omitted). T h e r e fo r e , the foundation on which we build is that Texas may have a t h r e e -t ie r system. That system authorizes retailers with locations within the S t a te to acquire Texas permits if they meet certain eligibility requirements. Those retailers must purchase their alcoholic beverages from Texas-licensed w h o le s a le r s , who in turn purchase from producers. Each tier is authorized by T e x a s law and approved by the Twenty-first Amendment ­ so says Granholm ­ to do what producers, wholesalers, and retailers do.6 W in e Country argues that the three tiers have tumbled because Texas has p e r m it t e d retailers to make home deliveries within a confined range. At least in part, this must be an argument that Texas retailers are being allowed to act in ways that are unacceptable for retailers in a constitutionally sound system. The defect is one of discrimination: Texas retailers are doing what a retailer in C a lifo r n ia or Florida physically and practically can do, which is to use a licensed s h ip p e r to deliver to a Texas consumer, but legally cannot do. T o address the argument, it would be useful to know what specific actions a lle g e d ly caused the retailers to stop being Granholm-approved, traditional

Wine Country at oral argument emphasized a provision of Texas law allowing Texas retailers to receive direct shipments from Texas wineries, bypassing the wholesaler tier. See TE X . ALCO. BEV. CODE § 110.053. This provision is not on the list of those enjoined by the district court and is not a subject of this appeal. Siesta Vill Mkt.., 530 F. Supp. 2d at 851.

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No. 08-10146 t h i r d - t ie r retailers. If Texas allowed a retailer to carry the beverages to a c u s t o m e r 's vehicle parked in its lot, or across the street, would that be a p r o b le m ? If a retailer's own delivery trucks traveled to the customer, is that d is c r im in a t i o n ? Does discrimination not begin until a retailer uses a licensed s h ip p e r ? Relevant to the answer, Texas has not defended on the basis that r e t a ile r s are just permitted to serve their usual local markets in enhanced, c u s t o m e r -fr ie n d ly ways. Indeed, at oral argument, the Texas Solicitor General s a id that the geographical limits to local deliveries were irrelevant. The prior s t a t e -w id e delivery version of the provision would be constitutional under that a r g u m e n t . We need not and do not reach the broader definitional issue. I n analyzing "retailing" for Twenty-first Amendment purposes, we find a u s e fu l warning in concurring Judge Calabresi's observations in Arnold's Wines. He found a tension between the original (likely) meaning of the Twenty-first A m e n d m e n t and the current interpretation, a change largely the result of S u p r e m e Court reaction to the changing economic and social world since the a d o p t io n of the Amendment. Arnold's Wines, 571 F.3d at 198-201 (Calabresi, J., c o n c u r r in g ). He also concluded that uncertainty existed about the direction the S u p r e m e Court will take with its developing interpretation of the Amendment. Yet he agreed that the majority applied the best understanding of its current m e a n in g . The best understanding is also what we seek. W e pull back from any effort to define the reach of a traditional three-tier r e ta ile r . Instead, we resolve whether what Texas has allowed here is so

s u b s t a n t ia lly different from what retailing must include as not to be third-tier r e t a ilin g at all. Because of Granholm and its approval of three-tier systems, we k n o w that Texas may authorize its in-state, permit-holding retailers to make s a le s and may prohibit out-of-state retailers from doing the same. Such an a u t h o r iz a t io n therefore is not discrimination in Granholm terms. The rights of r e t a ile r s at a minimum would include making over-the-counter sales. Wine 16

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No. 08-10146 C o u n tr y 's argument implies that is where Granholm-approved retailing ends a n d where the potential for discrimination begins. We disagree. Texas has a d ju s te d its controls over retailers by allowing alcoholic beverage sales to c u s t o m e r s other than those who walk into a store. Still, sales are being made to p r o x im a t e consumers, not those distant to the store. Retailers are acting as r e t a ile r s and making what conceptually are local deliveries. Our read of Granholm is that the Twenty-first Amendment still gives each S t a te quite broad discretion to regulate alcoholic beverages. The dormant

C o m m e r c e Clause applies, but it applies differently than it does to products w h o s e regulation is not authorized by a specific constitutional amendment. Regulating alcoholic beverage retailing is largely a State's prerogative. Granholm prohibited discrimination against out-of-state products or p r o d u c e r s . Texas has not tripped over that bar by allowing in-state retailer d e liv e r ie s . Yet it also has not discriminated among retailers. Wine Country is n o t similarly situated to Texas retailers and cannot make a logical argument of d is c r im in a t io n . The illogic is shown by the fact that the remedy being sought in t h is case ­ allowing out-of-state retailers to ship anywhere in Texas because lo c a l retailers can deliver within their counties ­ would grant out-of-state r e t a ile r s dramatically greater rights than Texas ones. Wine Country argues that Texas has created the need for that outsized r e m e d y through its discrimination, and Texas can eliminate local unfairness by b r o a d e n in g the rights granted its own retailers. The problem with the argument is that it ignores the Twenty-first Amendment. When analyzing whether a S t a te 's alcoholic beverage regulation discriminates under the dormant C o m m e r c e Clause, a beginning premise is that wholesalers and retailers may be r e q u ir e d to be within the State. Starting at that point, we see no discrimination in the Texas law. We view local deliveries as a constitutionally benign incident of an 17

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No. 08-10146 a c c e p t a b le three-tier system. That view is consistent with the unquestioning r e f e r e n c e by the Supreme Court in Granholm to a Michigan statute that a u t h o r iz e d retailers to make home deliveries under certain conditions. Granholm, 544 U.S. at 469.7 A State's granting this authority to retailers is n e ith e r recent nor unique. Texas has permitted direct delivery and carrier s h ip m e n t by in-state retailers at least since 1977. TEX. ALCO. BEV. CODE § 22.03 (V e r n o n 2006, adopted Sept. 1, 1977). Some other States also allow delivery by in -s t a t e retailers.8 A State's right to authorize a variety of retail practices for a lc o h o lic beverages free of dormant Commerce Clause barriers may not be lim it le s s . Yet it seems to us that implementing consumer-friendly practices for in -s t a t e retailing of these products often has more to do with changing economic r e a lit ie s than with the Constitution. On rehearing, Wine Country argues that we disregarded the methodology r e q u ir e d to analyze this kind of claim. When statutes that regulate alcohol fa c ia lly discriminate against out-of-state interests, generally we ask two q u e s t io n s : (1) do the statutes violate the Commerce Clause and, (2) if so, are they s a v e d by Section 2 of the Twenty-First Amendment? Dickerson, 336 F.3d at 3959 6 (citing Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U .S . 573, 578-79, 584-85 (1986)). After Dickerson, though, the Supreme Court r e it e r a t e d the legitimacy of the three-tier system. Granholm, 544 U.S. at 489. The present appeal challenged an inherent aspect of that system. Because G r a n h o lm told us that the three-tiers are legitimate under the Twenty-first
Michigan has subsequently repealed this provision and banned all direct shipment by retailers, perhaps in response to the ruling of the district court in Siesta Vill. Mkt., 596 F. Supp. 2d 1035. See MICH. COMP. LAWS ANN. § 436.1203(2) (amend. eff. March 31, 2009). See, e.g., COLO. REV. STAT. ANN. § 12-47-407(3) & § 408(3); FLA. STAT. ANN. § 561.57(1); 235 ILL. COMP. STAT. ANN. § 5/5-1(d); IND. CODE ANN. § 7.1-3-9-9; IOWA ADMIN. CODE r. 18517.1(1); ME. REV. STAT. ANN. tit. 28-A, § 2077(2) & (3); MD. CODE ANN. art. 2B, § 2-301(b)(1); MA S S . GEN. LAWS ANN. ch. 138, § 22; MINN. R. 7515.0580; N.J. ADMIN. CODE § 13:2-20.3; N.Y. CO M P . CODES R. & REGS. tit. 9, § 67.1; 02-040-016 R.I. CODE R. § 4(10).
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No. 08-10146 A m e n d m e n t , we did not need to take the steps of Dickerson first. In effect, G r a n h o lm already worked out the answer to the analysis. A ls o alleged is that we disregarded Cooper v. McBeath, 11 F.3d 547 (5th C ir . 1994). There we invalidated a requirement that certain alcohol permits c o u ld be issued only if the recipient had been a Texas resident for one year. Id. a t 555. Our case concerns physical location of businesses; Cooper concerned le g a l residence of owners. The former is a critical component of the three-tier s y s t e m , while the latter is not involved. The opinions are consistent. W e conclude that the limited rights Texas has given its state-licensed r e t a ile r s to make deliveries do not transgress the dormant Commerce Clause. T h e r e is one final issue. We mentioned that the remedy ordered by the d i s t r ic t court was to require Texas to issue retailer permits to out-of-state r e ta ile rs . Such permit holders wherever located could ship directly to Texas

r e s id e n t s . Also benefitted by the district court's order were those individuals w h o wanted to avoid the limit Texas placed on the quantity of alcoholic b e v e r a g e s that could be purchased out-of-state and then be taken into Texas for p e r s o n a l use. TEX. ALCO. BEV. CODE §§ 107.05(a) & 107.07(a). If the person

e n t e r i n g Texas could show that the alcohol being transported for personal use w a s bought from an out-of-state holder of one of the newly-mandated Texas r e t a ile r permits, no limit on quantity could be imposed. If the alcohol was not s o purchased, the quantity could be limited. W e have held that Texas can require its authorized retailers to sell from lo c a t io n s physically located in Texas. Therefore, the dormant Commerce Clause d o e s not support ordering Texas to issue retail permits for use at out-of-state lo c a t io n s . No other issue about the personal importation limit is meaningfully r a is e d . We leave the provision fully in force. C O N C L U S IO N W e reverse the district court's judgment invalidating the requirement that 19

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No. 08-10146 o n ly retailers with a physical presence within the State could receive retailer p e r m it s or deliver to consumers in the State. The provisions as listed by the d is t r ic t court were Texas Alcoholic Beverage Code sections 22.03, 24.03, 54.12, a n d 107.07(f). We reinstate those to the extent the district court's judgment n u llifie d them. Our reversal leaves in place the district court's voiding of

p r o v is io n s that retailers be Texas citizens for one year. No challenge to that r u lin g was brought to us. N o t h in g in this opinion precludes the enforcement, as written, of the p e r s o n a l importation exception authorized by Texas Alcoholic Beverage Code s e c t io n s 107.05(a) and 107.07(a). I n these respects the district court's judgment is VACATED. R E M A N D for entry of judgment consistent with this opinion. We

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