No. 01-2720

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

ELEANOR HEALD; RAY HEALD; JOHN ARUNDEL; KAREN BROWN; RICHARD BROWN; BONNIE MCMINN; GREGORY STEIN; MICHELLE MORLAN; WILLIAM HORWATH; MARGARET CHRISTINA; ROBERT CHRISTINA; TRISHA HOPKINS; JIM HOPKINS; DOMAINE ALFRED, INC. Plaintiffs-Appellants

v.

JOHN ENGLER, Governor; JENNIFER M. GRANHOLM, Attorney General; JACQUELYN STEWART, Chairperson, Michigan Liquor Control Commission, in their Official Capacities; Defendants-Appellees and

MICHIGAN WINE & BEER WHOLESALERS ASSOCIATION Intervening Defendant-Appellee

Appeal from the United States District Court Eastern District of Michigan, Southern Division

Honorable Bernard A. Friedman

PROOF BRIEF OF DEFENDANTS-APPELLEES

JENNIFER M. GRANHOLM Attorney General Thomas L. Casey Solicitor General Co-Counsel Irene M. Mead (P31283) Assistant Attorney General Co-Counsel of Record Attorneys for Defendants-Appellees Michigan Dept. of Attorney General 7150 Harris Dr., P.O. Box 30005 Lansing, MI 48909

Dated: March 11, 2002 (517) 322-1367

i

TABLE OF CONTENTS

Page

Table of Authorities .............................................................................................. iii

Statement in Support of Oral Argument .............................................................. viii

Jurisdictional Statement ......................................................................................... 1

Statement of Issues Presented ................................................................................ 2

Statement of the Case............................................................................................. 3

Statement of Facts.................................................................................................11

Summary of Arguments ........................................................................................16

Argument..............................................................................................................19

I. Michigan’s laws requiring licensure and accountability for those trafficking in alcohol, and which preclude out-of-state, unlicensed wineries from shipping unregistered, unapproved wines directly to the homes of Michigan residents, are an appropriate exercise of the state’s broad authority conferred by the Twenty-first Amendment of the Constitution. ...........................................................................19

A. Standard of Review .................................................................................19

B. Historical Perspective ..............................................................................19

C. Michigan’s System ..................................................................................23

D. Plaintiffs have no Commerce Clause Claim.............................................25

1. MCL 436.1203 is a valid exercise of Michigan’s core powers under the Twenty-first Amendment. ...........................................................................27

2. The “Dormant” Commerce Clause is not implicated here because Congress has affirmatively acted to federalize state statutes such as Michigan Liquor Control Code § 203. ........................................................35

3. Even if the “Dormant” Commerce Clause were implicated here, Plaintiffs’ Commerce Clause claim would fail. ...........................................40

ii

II. The district court committed no reversible error when it denied, as moot, both parties’ motions to strike affidavits and other documentary evidence, where the court accepted all facts pleaded by Plaintiffs, concluded that none of the challenged evidence was necessary to its decision, and granted Defendants’ motion for summary judgment. .........................................................................................43

A. Standard of Review .................................................................................43

B. The court properly based its decision on the critical facts relating to the application of Michigan’s law precluding direct shipments from out-of-state alcohol producers.............................................................................................43

Conclusion and Relief Sought...............................................................................48

Certificate of Compliance .....................................................................................49

Certificate of Service ............................................................................................50

Addendum – Designation of Joint Appendix Contents..........................................51

iii

Table of Authorities

Page

CASES 324 Liquor Corp. v. Duffy,

479 U.S. 335 (1987) ........................................................................................34

44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996) ........................................................................................34

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984) ............................................................................33, 34, 41

Bainbridge v. Bush, 148 F. Supp. 2d 1306 (M.D. Fla. 2001).............................................................6

Bainbridge v. Bush, Nos. 01-14688 and 01-14734 (11th Cir. 2001) ..................................................6

Beskind v. Hunt, #3:00-CV-258-MU (W.D.N.C.) ........................................................................7

Black Law Enforcement Officers Ass’n v. City of Akron 824 F.2d 475 (6th Cir. 1987) ...........................................................................43

Bolick v. Roberts, #3:99CV755 (E.D. Va. 2001)............................................................................7

Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th Cir. 2000), cert. denied, sub nom. Bridenbaugh v. Carter, 121 S.Ct. 1672 (2001)........................................6, 7, 17

Bridenbaugh v. O'Bannon, 78 F. Supp. 2d 828 (N.D. Ind. 1999) .................................................................6

Brooks v. American Broadcasting Co., 932 F.2d 495 (6th Cir. 1991), cert. denied, 510 U.S. 1015 (1993)..................................................................19

Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573 (1986) ............................................................................33, 34, 41

iv

Butler v. Beer Across America, No. CV99-H-2050-S, 2000 WL 156005 (N.D. Ala. Feb. 10, 2000) ...................................................28

California Liquor Dealer’s Ass’n v. Midcal Alum., 445 U.S. 97 (1980)..........................................................................................32

Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984) ............................................................................30, 32, 45

Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1353 (6th Cir.), cert. dismissed, 469 U.S. 1200 (1985) .............................................................43

Cooper v. McBeath, 11 F.3d 547 (5th Cir. 1994) .............................................................................44

Craig v. Boren, 429 U.S. 190, (1976) reh'g denied, 429 U.S. 1124 (1977) ..........................................................................19, 30, 36

Dickerson v. Bailey, 87 F. Supp. 2d 691 (S.D. Tex. 2000) .............................................................6, 7

Everman v. Mary Kay Cosmetics, Inc., 967 F.2d 1346 (7th Cir. 1989) .........................................................................43

Florida Dep't of Bus. Regulation v. Zachy’s Wine and Liquor, Inc., 125 F.3d 1399 (11th Cir. 1997), cert. denied, 523 U.S. 1067 (1998) ................................................................................36, 37

General Motors Corp. v. Tracy 519 U.S. 278 (1997) ........................................................................................35

Healy v. Beer Inst., 491 U.S. 324 (1989) ............................................................................33, 34, 41

Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324 (1964) ........................................................................................32

LaPointe v. United Autoworkers, Local 600, 8 F.3d 376 (6th Cir. 1993)...............................................................................19

v

Leisy v. Hardin, 135 U.S. 100 (1890) ........................................................................................36

Maine v. Taylor, 477 U.S. 131 (1986) ........................................................................................42

Mast v. Long, CS-01-00298-RHW (E.D. Wa. 2001)................................................................7

Mast v. Prince, #CS-01-091-FVS (E.D. Wa. 2001)....................................................................7

North Dakota v. United States, 495 U.S. 423 (1990) ..................................................................... 22 and passim

S. A. Discount Liquor, Inc. v. Texas Alcoholic Beverage Comm'n, 709 F. 2d 291 (5th Cir. 1983) ..........................................................................22

Southward v. South Central Ready Mix Supply Corp., 7 F.3d 487 (6th Cir. 1993) ...............................................................................43

Swedenburg v. Kelly, 2000 WL 1264285 (S.D.N.Y. 2000)..................................................................6

Vance v. W.A. Vandercook Co., 170 U.S. 438 (1898) ........................................................................................36

Wimberly v. Clark Controller Co., 364 F.2d 225 (6th Cir. 1966) ...........................................................................46

CONSTITUTIONAL PROVISIONS U.S. Const. art I § 8 (Commerce Clause) ........................................... 3 and passim

U.S. Const. amend. XXI, § 2.............................................................. 3 and passim

FEDERAL STATUTES 15 U.S.C. § 1 ......................................................................................................32

42 U.S.C. § 1983.....................................................................................11, 25, 42

Federal Alcohol Administration Act, 27 U.S.C. § 201 et seq. .......... 32 and passim

vi

Tax Injunction Act, 28 U.S.C. § 1341 .............................................................9, 44

Webb-Kenyon Act, 27 U.S.C. § 122 ................................................ 32 and passim

Wilson Act, 27 U.S.C. § 121............................................................ 32 and passim

STATE STATUTES MCL 436.1111(5) ...............................................................................................12

MCL 436.1203................................................................................. 12 and passim

MCL 436.1701(1) ...............................................................................................13

MCL 436.1801........................................................................................13, 25, 28

MCL 436.1803....................................................................................................14

MCL 436.1901....................................................................................................13

MCL 436.1909....................................................................................................23

MCL 436.1911....................................................................................................13

MCL 436.1917....................................................................................................13

MCL 436.1919....................................................................................................13

MCL 436.2109....................................................................................................13

MCL 436.2113....................................................................................................13

MCL 436.2115....................................................................................................13

RULES FED. R. CIV. P. 12(b)(6) ................................................................................. 7, 9

FED. R. CIV. P. 56 .....................................................................................8, 9, 17

R 436.1043 .........................................................................................................13

R 436.1055 .........................................................................................................13

vii

R 436.1301 .........................................................................................................13

R 436.1438 .........................................................................................................13

R 436.1529 .........................................................................................................13

R 436.1621 .........................................................................................................13

R 436.1625 .........................................................................................................13

R 436.1726 .........................................................................................................13

OTHER AUTHORITIES 76 Cong. Rec. 4141 (1933) .................................................................................21

76 Cong. Rec. 4143 (1933) .................................................................................21

76 Cong. Rec. 4146 (1933) .................................................................................20

76 Cong. Rec. 4177 (1933) .................................................................................21

Duncan Baird Douglass, Constitutional Crossroads: Reconciling the Twenty-first Amendment and the Commerce Clause to Evaluate State Regulation of Interstate Commerce in Alcoholic Beverages, 49 Duke L.J. 1619, nn. 134-136 ........................................................................5

H.R. Rep. No. 1542 (1935) .................................................................................22

Ratification of the Twenty-first Amendment to the Constitution of the United States, 142 (Everett Somerville Brown ed., 1938) ......................................................21

Sydney J. Spaeth, The Twenty-First Amendment And State Control Over Intoxicating Liquor: Accommodating the Federal Interest, California Law Review, Vol. 79:161 (1991) .............................................................................................................28

viii

Statement in Support of Oral Argument

Defendants request oral argument. This case challenges the state’s Twenty-

first Amendment authority to regulate alcohol trafficking within its borders,

suggesting that requirements of licensing and accountability violate the Commerce

Clause by not permitting unlicensed, out-of-state alcohol providers to ship alcohol

directly to the homes of Michigan residents. Defendants agree with the Plaintiffs

that the Court’s review may be assisted by oral argument.

1

Jurisdictional Statement

Defendants concur with Plaintiffs’ Statement of Jurisdiction.

2

Statement of Issues Presented

I. Whether Michigan laws requiring licensure and accountability for those trafficking in alcohol, and which preclude out-of-state, unlicensed wineries from shipping unregistered, unapproved wines directly to the homes of Michigan residents, are an appropriate exercise of the state’s broad authority over alcohol conferred by the Twenty-first Amendment of the Constitution.

II. Whether the district court’s denial of cross-motions to strike affidavits was

reversible error, where the court accepted all facts pleaded by Plaintiffs, concluded that the assertions in the affidavits were unnecessary to its decision, and granted Defendants’ motion for summary judgment.

3

Statement of the Case

Nature of the case

Plaintiffs claim that Michigan’s liquor laws that preclude unlicensed, out-of-

state producers of alcohol from selling and shipping alcohol directly to Michigan

residents without state regulation violate the Commerce Clause, U.S. Const. art I §

8. Defendants assert that these laws are an appropriate and necessary exercise of

the state's authority to regulate alcohol trafficking under the Twenty-first

Amendment of the Constitution.

Section 2 of the Twenty-first Amendment provides for state control over

alcohol trafficking within state borders:

The 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. [U.S. Const. amend. XXI, § 2] Pursuant to this authority, Michigan enacted laws establishing a three-tier

system of alcohol distribution within its borders, which requires that purchases by

consumers be from in-state Michigan licensed retailers. Licensed in-state wineries

and breweries may make retail sales of their products only. Michigan licensed

retailers, wineries and microbreweries may also deliver the alcohol product they

are authorized to sell to purchasers within the state.

These license-holders must comply with all Michigan liquor laws or risk

penalties from fines to license revocation. They also must submit to inspection of

4

the licensed premises and document reviews at any time the establishment is open.

This allows for visual inspection of the licensed premises by police officers and

Commission investigators to ensure that sales of alcoholic beverages are not made

to minors and intoxicated persons.

Out-of-state producers of spirits, wine and beer may sell their products to

Michigan consumers through other types of licensees, including wholesalers and

out-state sellers of wine and beer. These licensees arrange for distribution of the

product through licensed retailers in the state. Sales and excise taxes are collected

through this three-tier system.

The term “direct shipping” refers to the practice of an out-of-state producer

or retailer of wine, spirits, or beer, shipping the product directly to the consumer.

Although the term does not appear in Michigan’s Liquor Control Code, Michigan’s

system of licensure and regulation precludes the practice, as do most other states.

Contrary to the impression Plaintiffs would leave with the Court, NOT A SINGLE

STATE permits unlimited, unregulated direct shipping of alcohol to its residents.1

1 Direct shipping is completely prohibited in Alabama, Arizona, Arkansas, Connecticut, Delaware, Kansas, Maine, Massachusetts, Michigan, Mississippi, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, and Virginia, with the prohibition a felony offense in Florida, Indiana, Kentucky, Maryland, North Carolina, Oklahoma, and Tennessee. So-called “reciprocal” states permit shipments of wine only between each other, but on a limited basis: California [2 cases/mo.], Colorado [2 cases/mo. – on-site sales only], Hawaii [2 cases/year], Idaho [2 cases/mo.], Illinois [2 cases/year], Iowa [2 cases/mo.], Minnesota [2 cases/year], Missouri [2 cases/year],

5

Michigan has not created an impediment to sales of beverage alcohol

products from other states, but rather, has specified a method that ensures

accountability of the sellers for injuries resulting from the sales, limits the

accessibility of alcohol to minors, promotes an orderly market, provides access to

alcohol sellers for enforcement actions, and provides a verifiable method of tax

collection.

Plaintiffs object that the particular producers of wine with which they wish

to do business have chosen, for financial, marketing, or other reasons, to not sell

their products in Michigan through the established regulatory framework.

The choice to not sell alcohol in a particular state within its regulatory

system because it is more costly to do so than to sell directly (and illegally) to

individuals, does not render the regulatory system unconstitutional. Plaintiffs have

no constitutional right to compel a state to permit sales of alcohol in a manner that

would maximize an alcohol producer’s profits or create access to any alcoholic

product produced anywhere in the world.

New Mexico [2 cases/mo.], Oregon [2 cases/mo.], Washington [2 cases/year], West Virginia [2 cases/mo.], and Wisconsin [1 case/year]. A few states permit limited direct shipping without a reciprocal agreement: Alaska [“reasonable quantity”], District of Columbia [1 btl./mo.], Georgia, Louisiana [4 cases/year], Nebraska [1 case/mo.], Nevada [1 case/mo.], New Hampshire [5 cases/year], North Dakota [1 case/mo.], and Wyoming [2 cases/year]. See, Duncan Baird Douglass, Constitutional Crossroads: Reconciling the Twenty-first Amendment and the Commerce Clause to Evaluate State Regulation of Interstate Commerce in Alcoholic Beverages, 49 Duke L.J. 1619, nn. 134-136.

6

Plaintiffs state that the courts currently considering similar cases have

reached different conclusions (Plaintiffs’ Appeal Brief p. 4, n. 2). This statement is

both misleading and incomplete. The only two cases other than this that have

reached the federal appellate levels support the Defendants’ position. Bridenbaugh

v. Freeman-Wilson, 227 F.3d 848 (7th Cir. 2000), cert. denied, sub nom.

Bridenbaugh v. Carter, 121 S.Ct. 1672 (2001), upheld Indiana’s direct shipping

laws. Bainbridge v. Bush, 148 F. Supp. 2d 1306 (M.D. Fla. 2001) was decided in

favor of Florida’s direct shipping laws at the district court level, has been argued,

and is currently pending decision before the 11th Circuit, Bainbridge v. Bush, Nos.

01-14688 and 01-14734 (11th Cir. 2001).

Plaintiffs cite Bridenbaugh v. O'Bannon, 78 F. Supp. 2d 828 (N.D. Ind.

1999) as a case decided in their favor. Although Plaintiffs cite it as though it were

an independent proceeding, this is the Indiana district court decision that was

reversed by the 7th Circuit.2 Plaintiffs also cite Dickerson v. Bailey, 87 F. Supp.

2d 691 (S.D. Tex. 2000) for their position. But, Dickerson has not resulted in a

final ruling; the original decision favoring the plaintiffs was reconsidered in light

of the 7th Circuit’s decision in Bridenbaugh, and the court is now considering

supplemental briefs before rendering a final decision. Similarly, in Swedenburg v.

Kelly, 2000 WL 1264285 (S.D.N.Y. 2000), the court’s denial of a motion for 2 Since counsel here were also counsel for the plaintiffs in Bridenbaugh, at all its levels, it is difficult to see how they could confuse these decisions.

7

dismissal under FED. R. CIV. P. 12(b)(6), testing only the sufficiency of the

pleadings, was not a final decision. The court simply concluded that the case

should not be dismissed on the pleadings alone. Moreover, this preliminary ruling

relied on the Bridenbaugh district court decision, now reversed, and the Texas

ruling in Dickerson, supra, which was reconsidered following the Bridenbaugh

reversal.

Final decisions have yet to issue in Bolick v. Roberts, #3:99CV755 (E.D. Va.

2001), or Beskind v. Hunt, #3:00-CV-258-MU (W.D.N.C.), as well. Plaintiffs also

omitted mention of Mast v. Prince, #CS-01-091-FVS (E.D. Wa. 2001), which

challenged the state’s importation restriction to “reciprocal” states’ wines. This

case initially was dismissed for technical errors in serving process, but a new

action on the same basis has been filed, Mast v. Long, CS-01-00298-RHW (E.D.

Wa. 2001).

Course of Proceedings and Disposition Below

Defendants accept the Plaintiffs’ statement on the Course of Proceedings,

with the following additions and corrections.

On June 15, 2000, Defendants filed a motion to dismiss Plaintiffs’ complaint

pursuant to FED. R. CIV. P. 12(b)(6), based solely on the sufficiency of the

pleadings. (R. 16 Defendants’ motion for summary judgment, Apx. pg.__) This

motion, which required no affidavits, was originally scheduled for argument on

8

August 23, 2000, (R. 17 Court notice of hearing, Apx. pg.__), but that date was

extended several times.

In the meantime, Plaintiffs were permitted to file an amended complaint

adding two out-of-state wineries as plaintiffs and an additional count, which was

filed on October 12, 2000. (R. 48 Plaintiffs’ amended complaint, Apx. pg.__)

When only one of winery plaintiffs, Domaine Alfred, responded to

interrogatories, Malvadino Vineyards was dismissed from the case by stipulation

of the parties on January 9, 2001. (R. 85 Stipulation, Apx. pg.__)

On October 5, 2000, Plaintiffs responded to Defendants’ June 15, 2000

motion, attaching a number of exhibits. All parties filed motions to dismiss and

responses under FED. R. CIV. P. 56, attaching supporting and opposing affidavits

and other documentary evidence. (R. 36 Intervenor’s motion for summary

judgment, Apx. pg. __); (R. 35 Defendants’ supplemental brief, Apx. pg.__); (R.

54 Defendants’ response, Apx. pg.__); (R. 55 Intervenor’s reply, Apx. pg. __); (R.

56 Intervenor’s response, Apx. pg.__); (R. 71 Defendants’ reply, Apx. pg. __); (R.

74 Defendants’ motion for summary judgment against Domaine Alfred, Apx. pg.

__); and (R. 81 Intervenor’s supplemental motion, Apx. pg.__).

The Plaintiffs and the Defendants both moved to strike certain of the

affidavits and other evidence supplied in support of the opposing parties’ motions.

9

(R. 53 Defendants’ motion to strike, Apx. pg.__); (R. 69 Defendants’ response,

Apx. pg.__); and (R. 70 Defendants’ reply, Apx. pg.__)

Two amicus curiae briefs were submitted in support of Defendants’ and

Intervenor-defendant’s motions for summary judgment. The amicus brief of the

Michigan Interfaith Counsel on Alcohol Problems was submitted upon stipulation

of the parties. (R. 78 Amicus curiae brief by Interfaith Counsel, Apx. pg.__) The

other amicus brief, jointly filed by nine of Michigan’s public universities, (R. 62

Motion by universities to file amicus brief, Apx. pg.__) was opposed by Plaintiffs,

but was admitted by Judge Friedman. (R. 72 Order granting leave to file amicus

brief, Apx. pg.__)

Defendants’ FED. R. CIV. P. 12(b)(6) motion for dismissal, all parties’ FED.

R. CIV. P. 56 motions for summary judgment, and all parties’ motions to strike

affidavits were scheduled for hearing on the afternoon of June 13, 2001.

Numerous motions in other cases were scheduled for hearing at the same date and

time.

When this case was called, the Court requested that oral argument be limited

to the Twenty-first Amendment/Commerce Clause issue in the motions for

summary judgment, indicating that it did not require argument on the standing or

Tax Injunction Act issues, or on the cross motions to strike affidavits.

10

On September 28, 2001, Judge Friedman issued his Opinion and Order,

which granted Defendants’ motion for summary judgment. (R. 91 Opinion and

order, Apx. pg.__) Contrary to Plaintiffs’ assertion that the “district court entered

summary judgment for the defendants and against Plaintiffs . . . without ever

having ruled on the evidentiary motions,” Plaintiffs’ Appeal Brief, page 5, the

court stated, “It is further ordered that the remaining motions are denied as moot.”

Plaintiffs filed a motion for reconsideration, contending that the court erred

by not specifically addressing the cross motions to strike affidavits, and in its

ultimate decision on the merits. The court denied the motion. (R. 94 Order, Apx.

pg. __) With respect to the cross motions to strike, the court explained:

The court did not address the parties’ cross motions to strike various affidavits and other evidence because the court did not consider the challenged evidence in deciding the summary judgment motions. In effect, the court denied the cross motions to strike as moot. This case turns on largely legal questions, not factual disputes. With respect to Plaintiffs’ substantive claim, the court stated: The bottom line in this case is that the 21st Amendment authorizes states to regulate the flow of alcohol within their borders. The three-tier system is a proper exercise of that authority, despite the fact that such a system places a minor burden on interstate commerce.

This appeal followed.

11

Statement of Facts

On March 22, 2000, thirteen Michigan residents filed suit against the

Michigan Governor, Attorney General, and Chairperson of the Liquor Control

Commission. This lawsuit challenged Michigan's laws prohibiting out-of-state,

unlicensed purveyors of alcohol from directly shipping alcohol to private

residences, as a violation of the Commerce Clause and their civil rights under 42

U.S.C. § 1983. (R. 1 Complaint, Apx. pg. __)

The facts upon which this case depends are straightforward and undisputed.

Michigan's laws do not permit residents to purchase alcohol from unlicensed

producers or retailers for delivery to them at their residences. This is true whether

the unlicensed producers or retailers are located within the state or out-of-state.

Michigan operates under a three-tier regulatory structure, which separates

transactions and obligations of manufacturers, wholesalers and retailers.

Manufacturers of alcohol may not also be wholesalers, nor may wholesalers be

retailers. The historical basis for this structure is described in detail in the

argument section that follows, but simply put, it protects against the collusion,

price-fixing and monopolization problems that existed before Prohibition.

The most critical, and accordingly, most regulated, alcohol transaction is the

consumer purchase. In order to obtain alcoholic beverages in Michigan,

12

consumers must purchase from licensed retailers within the state.3 Michigan’s

retail licensees are divided into two classes - on-premise, where alcohol is

consumed at the licensed premises,4 and off-premise, where alcohol is purchased

for consumption elsewhere.5 This case deals only with off-premise licensees.

In addition to the traditional type of retailer, which sells various alcoholic

beverage products, Michigan statutorily provides for winery and microbrewery

licenses that do not fall precisely within the traditional three-tier structure.

Licensed Michigan wineries are permitted to function within all three tiers, but

only with respect to the product they make. A winery may produce wines for

consignment to Michigan wholesalers, thus operating in the manufacturer tier. It

also may act as wholesaler for its own wines, providing them to retailers for sale to

consumers. Finally, a winery may sell its own product directly to consumers at the

winery.

This apparent anomaly in the three-tier structure exists because the policy

concerns of collusion do not apply. A winery’s retail operation is limited to its

own products at the winery. 3 MCL 436.1111(5), MCL 436.1203(2). Consumers also may personally transport into Michigan up to one case per day of wine or beer purchased outside the state for their own use and consumption. MCL 436.1203(7)(a). If a consumer wishes to purchase alcohol by Internet, catalog, or telephone, the order may be placed outside the state as long as a licensed, accountable Michigan retailer fills it. MCL 436.1203(7)(b) and MCL 436.1203(1). 4 Examples are bars and taverns. 5 Examples are liquor and grocery stores.

13

To the extent that a winery is a limited retailer, it may ship its product within

Michigan, as other off-premise retailers may do. But, it also is held to the same

statutory requirements for responsible sales that are imposed upon other retailers,

and its license is subject to the same penalties.

Under Michigan law, retailers bear the burden of ensuring that sales are not

made to minors6 or intoxicated persons,7 that sales are made only during hours

authorized by statute8 and special permits,9 that sales are not made in violation of

local option laws,10 that only state approved products are sold,11 that spirit sales are

made in accordance with state-mandated price controls,12 and that appropriate

taxes are collected and remitted to the state.13 Retailers are held responsible for

improper or illegal sales, with penalties ranging from fines to suspension or

revocation of their liquor licenses.14 Michigan’s dram-shop law15 places liability

on a retailer for injuries and deaths resulting from sales to minors or intoxicated

6 MCL 436.1701(1), MCL 436.1801(2). 7 MCL 436.1801(2). 8 MCL 436.2113. 9 MCL 436.2115. 10 MCL 436.2109. 11 R 436.1043. 12 R 436.1055, R 436.1438, R 436.1529, R 436.1625, R 436.1726. 13 R 436.1301, R 436.1621. 14 MCL 436.1901 - 436.1911, MCL 436.1917, MCL 436.1919. 15 MCL 436.1801.

14

individuals. Michigan law requires that retailers maintain adequate liability

insurance to cover such an event.16

Ignoring the significant and costly encumbrances placed on in-state retailers

and wineries acting as their own retailers, the Plaintiffs focus only on the in-state

retailers’ ability to deliver products to Michigan residents. They claim that this

one factor so negatively affects the ability of out-of-state wineries to compete that

it violates the Commerce Clause.

After hearing arguments on the cross motions for dismissal and summary

judgment, on September 28, 2001, Judge Friedman issued his Opinion and Order

finding in favor of Defendants, based on the state's authority under the Twenty-first

Amendment of the Constitution.

The court believes that the decisions in House of York, Bridenbaugh and Bainbridge correctly concluded that direct shipment laws are a permissible exercise of state power under § 2 of the 21st Amendment. While the dormant Commerce Clause would prohibit states from burdening interstate commerce by applying such laws to other products, the 21st Amendment directly authorizes the states “to control alcohol in ways that it cannot control cheese.” Bridenbaugh, 227 F.3d at 851. The Supreme Court has specifically upheld the three-tier distribution system and has stated more than once that “within the area of its jurisdiction, the State has ‘virtually complete control’ over the importation and sale of liquor and the structure of the liquor distribution system.”

* * *

16 MCL 436.1803.

15

The Court is persuaded that Michigan’s direct shipment law is a permitted exercise of state power under § 2 of the 21st Amendment. The measure cannot be characterized as “mere economic protectionism.” The direct shipment law is one provision of a comprehensive system that regulates the flow of all alcoholic beverages into and within the State of Michigan. Out-of-state wineries are not prohibited from selling their products in Michigan; they simply must do so in a manner prescribed by Michigan’s statutory scheme - namely, by going through a licensed wholesaler. The Michigan Legislature has chosen this path to ensure the collection of taxes from out-of-state wine manufacturers and to reduce the risk of alcohol falling into the hands of minors. The 21st Amendment gives it the power to do so. The court denied, as moot, the motions by both sides to strike affidavits and

exhibits. (R. 91 Opinion and order, Apx. pg. __)

On October 15, 2001, Plaintiffs filed a motion for reconsideration

challenging the court’s application of the law, and claiming that the court erred by

not specifically ruling on Plaintiffs’ Motion to Strike Affidavits. (R. 93 Motion for

reconsideration, Apx. pg. __)

Judge Friedman denied this motion on November 5, 2001, stating:

The bottom line in this case is that the 21st Amendment authorizes states to regulate the flow of alcohol within their borders. The three-tier distribution system is a proper exercise of that constitutional authority, despite the fact that such a system places a minor burden on interstate commerce. The court did not address the parties’ cross motions to strike various affidavits and other evidence because the court did not consider the challenged evidence in deciding the summary judgment motions. In effect, the court denied the cross motions to strike as moot. This case turns on largely legal questions, not factual disputes.

16

Summary of Arguments

1. Michigan’s prohibition on direct shipping is a proper exercise of the state’s authority under the Twenty-first Amendment.

The unregulated, direct shipping of alcoholic beverages to Michigan

residents from out-of-state, unlicensed alcohol producers properly may be

prohibited by the state as a valid exercise of authority under the Twenty-first

Amendment of the Constitution. The “dormant” Commerce Clause is not

implicated because Congress has expressly acted to exclude alcohol regulation of

this type from the application of the Commerce Clause. Moreover, even if the

“dormant” Commerce Clause were involved, the regulations at issue will withstand

scrutiny under a balancing of interests.

2. The district court did not abuse its discretion by ruling on the motions for summary judgment without first making specific findings on the motions to strike, where the court did not rely on the challenged evidence.

The lower court's ruling in favor of Defendants on their motion for summary

judgment applied the current law on the Twenty-first Amendment and the

Commerce Clause to undisputed facts. Plaintiffs’ challenge relies on a single

distinction between in-state and out-of-state wineries, which is the ability of an in-

state winery to make a delivery to its Michigan customers while an out-of-state

winery may not. Defendants and Plaintiffs agree that this is the case, but disagree

on what it means.

17

Although many affidavits and exhibits were attached to the briefs on the

motions for summary judgment, none of these change the essential factual

scenario. Moreover, the primary case relied upon by the Court, Bridenbaugh,

supra, is virtually on all fours with the facts here.17 The court properly applied the

law to the undisputed facts.

Moreover, in ruling on Defendants’ FED. R. CIV. P. 56 motion for summary

judgment, the court was required to review the facts in the light most favorable to

Plaintiffs. Remanding the case for specific rulings on the motions to strike could

only provide additional bases to dismiss Plaintiffs’ case. For example, the

Defendants moved to strike portions of Plaintiffs’ affidavits that claimed injury by

“no longer being able to purchase” certain wines, on the basis that the Plaintiffs

refused to answer interrogatories expressly requesting this information. Striking

these affidavits, or denying the Plaintiffs the ability to establish injury in this

17 Plaintiffs’ attempt to distance themselves from Bridenbaugh is understandable, since the same counsel litigated Bridenbaugh and its plaintiffs were similarly situated to those here. Plaintiffs have argued that the treatment of wineries was a key difference, although the situation is identical to Michigan’s. Plaintiffs also argued that Bridenbaugh presented no plaintiff with standing to challenge discriminatory licensing, presumptively meaning an out-of-state winery. However, the winery Plaintiffs added to this action by amendment admitted it never had applied for a Michigan license to enable it to sell its wines, nor had it contacted an existing out-state seller of wine licensee to carry and market its wines, nor had it shipped wine to Michigan or ever made a sale of wine to a Michigan resident. In order to establish discriminatory licensing, there must be at least an effort to obtain licensure. Plaintiffs also contended that the 7th Circuit “applied unconventional legal analysis.”

18

manner, would certainly strengthen Defendants’ argument that Plaintiffs lacked

standing to sue.

Returning the case to the district court for specific findings on these motions

would only protract the proceedings, and would not result in a more favorable

result for Plaintiffs. Any error, if it exists, is harmless.

19

Argument

I. Michigan’s laws requiring licensure and accountability for those trafficking in alcohol, and which preclude out-of-state, unlicensed wineries from shipping unregistered, unapproved wines directly to the homes of Michigan residents, are an appropriate exercise of the state’s broad authority conferred by the Twenty-first Amendment of the Constitution.

A. Standard of Review

A district court's grant of summary judgment is reviewed de novo. Brooks v.

American Broadcasting Co., 932 F.2d 495, 500 (6th Cir. 1991), cert. denied, 510

U.S. 1015 (1993). Summary judgment is proper if the “pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits if

any, show that there is no genuine issue of any material fact and that the moving

party is entitled to judgment as a matter of law.” LaPointe v. United Autoworkers,

Local 600, 8 F.3d 376, 378 (6th Cir. 1993).

B. Historical Perspective

Alcohol is different from most other products, because of the damage that

results from its overuse and abuse. The costs to society from alcohol-related

deaths and injuries have long been recognized, and as a result, alcohol trafficking

has a lengthy history of extensive regulation and control.

In Craig v. Boren, 429 U.S. 190, 205, 206 (1976) reh'g denied, 429 U.S.

1124 (1977) the Supreme Court provided a brief illuminating history:

20

The history of state regulation of alcoholic beverages dates from long before adoption of the Eighteenth Amendment. In the License Cases, 5 How. 504, 579, 12 L.Ed. 256 (1847), the Court recognized a broad authority in state governments to regulate the trade of alcoholic beverages within their borders free from implied restrictions under the Commerce Clause. Late in the century, however, Leisy v. Hardin, 135 U.S. 100, 10 S.Ct. 681, 34 L.Ed.128 (1890), undercut the theoretical underpinnings of License Cases. This led Congress, acting pursuant to its powers under the Commerce Clause, to reinvigorate the State’s regulatory role through the passage of the Wilson and Webb-Kenyon Acts. . . . With passage of the Eighteenth Amendment, the uneasy tension between the Commerce Clause and the state police power temporarily subsided. The Twenty-first Amendment repealed the Eighteenth Amendment in 1933. The wording of § 2 of the Twenty-first Amendment closely follows the Webb-Kenyon and Wilson Acts, expressing the framers’ clear intention of constitutionalizing the Commerce Clause framework established under those statutes. This Court’s decisions since have confirmed that the Amendment primarily created an exception to the normal operation of the Commerce Clause. . . . (Omitting citations)

Section 2 of the Twenty-first Amendment provides:

The 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. [U.S. Const. amend. XXI, § 2]

The first purpose of the Twenty-first Amendment was to end Prohibition by

repealing the Eighteenth Amendment. The “noble experiment” had failed.

However, one of the reasons understood to have contributed to the failure was that

national regulation had not taken into account local conditions. See, e.g., 76 Cong.

Rec. 4146 (1933), statement of Senator Wagner (“The real cause of the failure of

the Eighteenth Amendment was that it attempted to impose a single standard of

21

conduct upon all the people of the United States without regard to local sentiment

and local habits.”) Another concern was that a state wishing to protect its residents

from alcohol crossing the border from other states might lack the power to do so.

76 Cong. Rec. 4141 (1933), statement of Senator Blaine.

An additional concern was the loss of tax revenue during Prohibition

because the trade in alcohol was illicit. See, e.g., Ratification of the Twenty-first

Amendment to the Constitution of the United States, 142 (Everett Somerville

Brown ed., 1938) (“It is both foolish and intolerable to go on submitting to a

fallacious system under which an illicit, outlaw liquor traffic annually draws

hundreds of millions of dollars of profits out of the nation’s capital . . . .”) (Indiana

ratification convention.) The purpose of § 2 was summed up by Senator Blaine,

“to restore to the States by constitutional amendment absolute control in effect

over interstate commerce affecting intoxicating liquors which enter the confines of

the States,” 76 Cong. Rec. 4143 (1933).

It is worth noting that a proposed, but unadopted, § 3 of the Amendment

would have given Congress concurrent power to regulate the sale of alcohol for

consumption on the premises. This section was dropped on the basis that it was

inconsistent with § 2 and “would take away from every State in the Union the right

to determine how it would regulate the liquor traffic within its boundaries,”

statement of Senator Black, 76 Cong. Rec. 4177 (1933).

22

Finally, still another important, clearly stated purpose of the Twenty-first

Amendment was to moderate consumption of alcohol by separating producers

from consumers through a forced distribution structure, typically a three-tier

system of manufacturers, wholesalers, and retailers. Before Prohibition, “tied-

houses,” where alcohol producers controlled retailers, were considered to have

contributed to irresponsible sales and increased consumption of alcohol. See, e.g.,

H.R. Rep. No. 1542, at 12 (1935) (Federal Alcohol Control Act).

The regulatory statutes challenged by Plaintiffs provide that all alcohol sales

to Michigan consumers be through accountable licensees. Like many other states,

Michigan has established a three-tier system of manufacturers, wholesalers, and

retailers, who deal in alcohol to be sold in the state.

Such three-tier systems have been upheld as legitimate under § 2. The 5th

Circuit Court of Appeals stated, with respect to a similar Texas structure:

To avoid the harmful effects of vertical integration in the intoxicants industry, the state has effectively restricted manufacturers, wholesalers, . . . and retailers to one level of activity . . . the state of Texas is surely acting within its discretion by placing reasonable restriction on the intoxicants industry in order to prevent these evils.

S. A. Discount Liquor, Inc. v. Texas Alcoholic Beverage Comm'n, 709 F. 2d

291, 293 (5th Cir. 1983) See also, North Dakota v. United States, 495 U.S. 423,

432 (1990). (Such three-tier systems are “unquestionably legitimate.”)

23

C. Michigan’s System

The Michigan statutes that Plaintiffs seek to have this Court declare

unconstitutional are MCL 436.1203, and related penalty provisions contained in

MCL 436.1909. Section 203 provides:

(1) Except as provided in this section and section 301, a sale, delivery, or importation of alcoholic liquor, including alcoholic liquor for personal use, shall not be made in this state unless the sale, delivery, or importation is made by the commission, the commission’s authorized agent or distributor, an authorized distribution agent approved by order of the commission, a person licensed by the commission, or by prior written order of the commission. All spirits for sale, use, storage, or distribution in this state, shall originally be purchased by and imported into the state by the commission, or by prior written authority of the commission. . . .

This statutory provision reflects the essence of the State’s authority to control

alcohol as provided by the Twenty-first Amendment to the U.S. Constitution.

Under Michigan’s laws, the only persons who are authorized to directly sell

alcoholic beverages to consumers in Michigan are persons who are licensed as

retailers and held accountable.

The sale and/or delivery of alcoholic beverages to Michigan wholesalers,

from wholesalers to retailers, and from in-state retailers to consumers, requires

licensure or approval by the Commission. Just as unlicensed out-of-state sellers

are prohibited from making direct sales and shipments of their product to

24

consumers so, too, are unlicensed producers, wholesalers, and commercial wineries

within this State.

As noted previously, licensed in-state wineries and microbreweries, although

alcohol producers, are permitted to make limited retail sales of only their own

product under the terms of their licenses, and may deliver their product to residents

within the state. In-state wineries and microbreweries, however, like all other

licensed retailers, are held to strict regulatory requirements, and may have their

licenses forfeited for serious offenses such as sales to minors. Accordingly,

Michigan consumers may receive alcoholic beverages only through a distribution

system consisting of identified licensed parties, directly accountable to the State.

The strict distribution requirements underlying the State’s liquor regulations

serve several purposes. Michigan’s retailers and wholesalers are subject to

rigorous investigation in order to become licensed, which requires, among other

things, extensive disclosure of financial documents and a police background check.

Once licensed, they must comply with a multitude of statutory requirements and

Commission rules designed to protect the consuming public. These stringent

requirements protect Michigan consumers from unlawful sales, including sales to

minors, by requiring that alcoholic beverages be sold and distributed to consumers

only by persons who are responsible and who can be held accountable. By making

licensees accountable to and reachable by the State, the statute ensures their

25

compliance with the law, since violations may subject a licensee to fines,

suspension or revocation of their liquor licenses, and even criminal prosecution.

Licensees also can be held accountable for purposes of civil actions brought by

victims of alcohol-related accidents under Michigan's dram-shop law, MCL

436.1801 et seq.

In addition, requiring that delivery to Michigan consumers be accomplished

only through the State’s regulatory framework helps ensure that sales and alcohol

taxes are collected and remitted. The State is thus assured of an important source

of revenue, and unlicensed out-of-state sellers of alcoholic beverages are not given

an unfair competitive advantage by avoiding regulatory costs and taxes.

D. Plaintiffs have no Commerce Clause Claim.

The Plaintiffs attack the constitutionality of portions of MCL 436.1203 on

the basis that it violates the Commerce Clause by requiring that shipments of

alcoholic beverages into the State be consigned to a person duly licensed to traffic

in alcoholic beverages. They allege that this gives rise to a right of action under 42

U.S.C. § 1983.

In essence, Plaintiffs seek by this case to permit any Michigan inhabitant

with access to a credit card, including a minor, to have alcoholic beverages

delivered to their doorstep, with the ease and anonymity of delivering products

such as jeans or books. Plaintiffs make no distinction between the sale of other

26

products that are generally not regulated, and the sale of alcohol, a substance that is

always potentially dangerous and traditionally has been heavily regulated.

Moreover, Plaintiffs characterize § 203 as constituting a ban on out-of-state

wines being imported into or sold to consumers in Michigan. This certainly is not

the case and, in fact, the vast majority of wines, beer and spirits imported and sold

in Michigan originate outside of the state. Rather, as authorized by the Twenty-

first Amendment and federal legislation, § 203 provides the mechanism by which

the importation, sale and delivery of all alcohol within Michigan may take place.

Plaintiffs allege that the statute’s requirement that all direct sales to

Michigan residents be by way of licensed retailers, which, by inference, constitutes

a prohibition on direct shipments of wine from unlicensed out-of-state wine sellers

to Michigan residents, “discriminates against interstate sales and delivery, and

provides a direct economic advantage to in-state businesses, in violation of the

Commerce Clause.” (R. 1 Complaint, ¶ 28, Apx. pg. __) That challenge must fail

for three reasons:

(i) Michigan’s regulation of the alcohol distribution process is a valid exercise of the state’s “core power” under the Twenty-first Amendment; (ii) Exercising its plenary power under the Commerce Clause, Congress has authorized the State’s conduct by passage of the Webb-Kenyon, Wilson, and Federal Alcohol Administration Acts; and

27

(iii) In any event, the challenged Michigan statute would withstand scrutiny under the “dormant” Commerce Clause because it does not discriminate against interstate commerce.

1. MCL 436.1203 is a valid exercise of Michigan’s core powers under the Twenty-first Amendment.

Section 2 of the Twenty-first Amendment provides direct authority to the

states to regulate the sale, transportation and importation of alcohol by prohibiting

“the 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

law thereof . . .”

Michigan Liquor Control Code § 203, MCL 436.1203, falls squarely within

the core powers reserved to the states under this provision. Specifically, § 203

dictates the conditions under which alcoholic beverages can be sold, delivered or

imported into Michigan, as expressly granted by the Twenty-first Amendment.

There has been no amendment to the U.S. Constitution, or change in other

controlling legal authority, that alters the long-standing precedents that the

Twenty-first Amendment’s grant of power to the states includes control over

importation, sale and delivery of alcoholic beverages within the state.

Section 203 is unquestionably a valid exercise of the core powers that the

Supreme Court has repeatedly recognized. By requiring that alcoholic beverages

only be sold to consumers by responsible, accountable, and licensed parties,

28

Michigan ensures an orderly, controlled market in which liquor, a potentially

dangerous and too frequently abused substance, is not delivered into the wrong

hands, and all such transactions are taxed and uniformly regulated. See, Sydney J.

Spaeth, The Twenty-First Amendment And State Control Over Intoxicating Liquor:

Accommodating the Federal Interest, California Law Review, Vol. 79:161 (1991).

Moreover, requiring that sales to consumers be through Michigan licensed

retailers ensures jurisdiction over claims by persons injured as a result of

irresponsible sales. Under Michigan’s dram-shop law, MCL 436.1801, a seller

who unlawfully sells or provides alcohol to an underage purchaser or visibly

intoxicated individual may be held liable for resulting injuries and death. Thus, a

Michigan licensee who delivers alcoholic beverages to a Michigan consumer may

not only be subject to administrative and criminal sanctions but also may be held

accountable to victims of alcohol-related accidents resulting from irresponsible

sales. Conversely, Michigan residents injured by alcohol-related accidents

resulting from unlawful sales outside the regulatory scheme would have no

assurance that out-of-state sellers may be subject to suit. In Butler v. Beer Across

America, No. CV99-H-2050-S, 2000 WL 156005 (N.D. Ala. Feb. 10, 2000), an

action brought by the parents of a 15 year-old who had used his parents’ credit card

to order beer over the Internet, was dismissed by the federal court in Alabama on

29

the basis that it had no personal jurisdiction over the Illinois beer seller that sold

and shipped the beer directly to the adolescent.

The limits of the authority of a state to regulate alcohol trafficking under the

Twenty-first Amendment were discussed by the Supreme Court in North Dakota,

supra, which involved North Dakota’s regulations on labeling and reporting

alcohol sold to federal military bases within the state. These regulations were

upheld despite a challenge based on the Supremacy Clause, where the purchaser of

the alcohol was the federal government, whose military bases are not subject to

state regulation. In contrast, at issue here are alcoholic beverages shipped from

out-of-state directly to Michigan residents at their homes, clearly within the state’s

jurisdictional boundaries.

While noting that it had invalidated certain state liquor regulations where the

area or transaction fell outside its jurisdiction, the Court stated:

At the same time, however, within the area of its jurisdiction, the State has “virtually complete control” over the importation and sale of liquor and the structure of the liquor distribution system. See California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 110; 100 S.Ct. 937, 945, 63 L.Ed.2d 233 (1980); see also Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 712; 104 S.Ct. 2694, 2707; 81 L.Ed.2d 580 (1984); California Board of Equalization v. Young’s Market Co., 299 U.S. 59; 57 S.Ct. 77; 81 L.Ed. 38 (1936). The Court has made clear that the States have the power to control shipments of liquor during their passage through their territory and to take appropriate steps to prevent the unlawful diversion of liquor into their regulated intrastate markets. Id. at 431.

The Court noted:

30

Given the special protection afforded to state liquor control policies by the Twenty-first Amendment, they are supported by a strong presumption of validity and should not be set aside lightly. Id. at 433. (omitting citation)

A state’s core powers under the Twenty-first Amendment were delineated:

The labeling and reporting regulations are components of an extensive system of statewide regulation that furthers legitimate interests in promoting temperance and controlling the distribution of liquor, in addition to raising revenue. Id. at 439.

In his concurrence, Justice Scalia noted:

The Twenty-first Amendment, which prohibits “the transportation or importation into any State . . . for delivery or use therein of intoxicating liquors, in violation of the laws thereof,” is binding on the Federal Government like everyone else, and empowers North Dakota to require that all liquor sold for use in the State be purchased from a licensed in-state wholesaler. Nothing in our Twenty-first Amendment case law forecloses that conclusion. In all but one of the cases in which we have invalidated state restrictions on liquor transactions between the Federal Government and its business partners, the liquor was found not to be for “delivery or use” in the State because its destination was an exclusive federal enclave. Id. at 447. The Supreme Court has consistently held that where, as here, a state’s law

implicates a “core power” under the Twenty-first Amendment, it is immune from

challenge. North Dakota, supra; Craig, supra, at 206. In decision after decision,

the Supreme Court has recognized that the primary Twenty-first Amendment “core

power” is state control over the importation, sale and distribution process. North

Dakota, supra; Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 712 (1984).

Plaintiffs’ challenge to Michigan’s importation, sale and distribution process is a

31

frontal attack on the most basic “core power” secured by the Twenty-first

Amendment, and accordingly, must fail.

In North Dakota, supra, in addition to recognizing the state’s primary core

power under the Twenty-first Amendment to regulate the transportation and

importation of alcoholic beverages for sale within the state, the Supreme Court

recognized that states have other legitimate concerns (such as collection of tax

revenues) when structuring a distribution system for alcoholic beverages.

Accordingly, a state statute exercising the state’s “core power” to regulate

the importation and distribution of alcohol within its borders is absolutely

protected and unquestionably insulated from challenge under the Twenty-first

Amendment. In contrast, a state statute implicating other legitimate state concerns

may survive constitutional challenge but still be subjected to a balancing of state

and federal interests. North Dakota, supra, at 432-433. Because Michigan’s

regulations governing intrastate alcohol distribution are an exercise of the state’s

“core power” to regulate the transportation or importation of alcoholic beverages

for delivery and use within the State, these regulations are immune from challenge.

Those Supreme Court cases that have held state liquor laws unconstitutional

under the Commerce Clause, notwithstanding the Twenty-first Amendment, are

easily distinguishable. None of those cases implicated a state’s “core powers” to

regulate the “transportation or importation” of intoxicating liquor “for delivery or

32

use therein.” U.S. Const. amend. XXI, § 2. One class of distinguishable cases

invalidated statutory provisions that, unlike here, regulated the transportation of

alcoholic beverages for delivery to and use in a non-state destination (such as a

military base or a destination outside the country) not under the jurisdiction of the

state.18 Another class of distinguishable cases invalidated state regulations, such as

price regulations, that, unlike here, conflicted with existing federal statutes.19

Indeed, the cases invalidating state liquor regulations based upon conflicting

federal laws are inapposite to the instant case for another reason. Here, the federal

legislation addressing state liquor regulation, the Webb-Kenyon, Wilson, and

Federal Alcohol Administration Acts, affirmatively support and "federalize" the

challenged regulations.

A final class of distinguishable cases invalidated state regulations that,

unlike here, created an economic discrimination against out-of-state products or

18 See North Dakota, supra at 431-432 (citing Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324 (1964)). The Supreme Court has held that such regulations that do not concern delivery of alcoholic beverages inside the state are not within the core powers of the Twenty-first Amendment. Id. Accordingly, such “transportation” cases are inapposite to the case at bar. 19 See California Liquor Dealer’s Ass’n v. Midcal Alum., 445 U.S. 97, 112-113 (1980), (holding that resale price maintenance statute violates Sherman Act, 15 U.S.C. § 1); Capital Cities, supra, at 713 (“when a State has not attempted directly to regulate the sale or use of liquor within its borders - the core § 2 power - a conflicting exercise of federal authority may prevail.”)

33

had the impermissible extra-territorial effect of regulating commerce in other

states. The cases primarily relied upon by Plaintiffs fall in this category.

In Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), the Court invalidated

a Hawaii statute exempting locally produced pineapple wine from the state’s excise

tax that economically discriminated against out-of-state liquor. The Court held

that the statute’s purpose was not “designed to promote temperance or to carry out

any other purpose of the Twenty-first Amendment, but instead . . . the purpose was

‘to promote a local industry.’” Id. at 276.

In Healy v. Beer Inst., 491 U.S. 324 (1989) the Court invalidated a

Connecticut price affirmation statute requiring out-of-state sellers to affirm that the

prices charged in Connecticut were no higher than prices contemporaneously

charged in border states. The Court concluded that the statute’s effect was to

impair the sellers’ ability to competitively price products in border states.

Similarly, Brown-Forman Distillers Corp. v. New York State Liquor Auth.,

476 U.S. 573 (1986) involved a New York price affirmation statute, held by the

Court to constitute an attempt by New York to control the sale of alcoholic

beverages in another state. Brown-Forman also noted that “the Twenty-first

Amendment . . . gives the States wide latitude to regulate the importation and

distribution of liquor within their territories” (emphasis added) Brown-Forman,

supra, at 584.

34

None of these cases involved a state’s “core power” to regulate the

transportation and importation of alcohol; rather, they, at most, implicated other

legitimate state concerns.

Plaintiffs would have this Court ignore North Dakota, supra, as only a

plurality, and suggest that Bacchus, Brown-Forman, and Healy overruled earlier

cases cited by Defendants. However, Brown-Forman specifically relied upon the

very cases Plaintiffs assert were overruled, and Healy merely relied upon Brown-

Forman. Further, the Supreme Court opinions following Healy and Brown-

Forman continued to rely upon the cases that Plaintiffs claim were overruled. 44

Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 514, 516 (1996); North Dakota,

supra, at 431-433; 324 Liquor Corp. v. Duffy, 479 U.S. 335, 346 (1987). It is

worthy to note that Justice White, the author of the Bacchus opinion, joined the

plurality in North Dakota to uphold the validity of the state’s labeling regulation.

Moreover, while Brown-Forman and Healy involved alcohol, they did not

involve the transportation or importation of liquor, but instead were pricing cases.

This case, in contrast, does involve the “transportation or importation” of

“intoxicating liquors” into Michigan “for delivery or use therein.” U.S. Const.

amend. XXI, § 2. Michigan law treats all such deliveries in the same way by

requiring delivery to be accomplished by licensed, responsible parties that are

accountable to the State — a requirement expressly within its core powers under

35

the Twenty-first Amendment that advances the State’s legitimate interests in

promoting temperance, raising revenue, ensuring an orderly market with a level

playing field for all who traffic in alcoholic beverages, and ensuring jurisdiction

over and creditworthiness of the seller where redress for injuries is required.

Under the Supreme Court precedents relating to the Twenty-first

Amendment, the challenged statute in this case is squarely within the State’s core

powers. It provides an evenhanded mechanism for the importation, distribution

and delivery of all alcoholic beverages within the State. Just as the Commerce

Clause gives Congress the plenary power to legislate with respect to interstate

commerce, so too, does the Twenty-first Amendment give states the plenary power

to legislate with respect to intrastate trafficking in alcoholic beverages.

2. The “Dormant” Commerce Clause is not implicated here because Congress has affirmatively acted to federalize state statutes such as Michigan Liquor Control Code § 203.

The “dormant” Commerce Clause prohibits state laws that unduly burden

interstate commerce, in the absence of express federal authorization. General

Motors Corp. v. Tracy, 519 U.S. 278; 287 (1997). This does not come into play

here, where Congress has exercised its authority and, by federal enactment,

approved the type of state law at issue here.

Historically, the “dormant” Commerce Clause restriction on state laws did

not apply to the “broad authority in state governments to regulate the trade of

36

alcoholic beverages within their borders.” Craig, supra, at 205. In 1890, when the

Supreme Court undercut that broad authority in Leisy v. Hardin, 135 U.S. 100

(1890), Congress responded, “acting pursuant to its powers under the Commerce

Clause, to reinvigorate the State’s regulatory role through the passage of the

Wilson and Webb-Kenyon Acts.” Craig, supra, at 205.

Recognizing that a state could not effectively control intrastate alcohol

distribution if it could not regulate its introduction into the state, Congress passed

these two statutes to carve out an exception to the “dormant” Commerce Clause

and to allow states to regulate alcohol imports.

The Wilson Act, originally passed in 1890, directs that alcoholic beverages

that are transported into the state are subject to the same laws as alcoholic

beverages that are produced in a state:

All . . . intoxicating liquors or liquids transported into any State or Territory . . . shall upon arrival in such State or Territory be subject to the operation and effect of the laws of such State or Territory 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 or Territory. . . . [27 U.S.C. § 121] However, in Vance v. W.A. Vandercook Co., 170 U.S. 438 (1898), the

Supreme Court held that the Wilson Act did not allow states to prohibit individuals

from ordering liquor for personal consumption from out-of-state vendors. The

Webb-Kenyon Act, 27 U.S.C. § 122, was passed in 1913 in part to close the

“loophole” created by Vance. Florida Dep't of Bus. Regulation v. Zachy’s Wine

37

and Liquor, Inc., 125 F.3d 1399, 1401 (11th Cir. 1997), cert. denied, 523 U.S.

1067 (1998).

The Webb-Kenyon Act is entitled “An act divesting intoxicating liquors of

their interstate character in certain cases.” It mandates that alcoholic beverages

shipped into a state are subject to the state’s laws relating to their receipt,

possession, sale or use. 27 U.S.C. § 122. It is precisely the same “loophole”

closed by Webb-Kenyon that Plaintiffs seek to reopen, even though Webb-Kenyon

specifically prohibits:

[t]he shipment or transportation . . . of any . . . intoxicating liquor of any kind, from one State, Territory, or District . . . into any other State, Territory, or District . . . [for the purpose of being] received, possessed, sold, or in any manner used . . . in violation of any law of such State, Territory, or District. [27 U.S.C. § 122] After Prohibition ended and the Twenty-first Amendment was ratified in

1933, Congress reenacted both the Wilson and Webb-Kenyon Acts in 1935.

Shortly thereafter, the Federal Alcohol Administration Act, 27 U.S.C. § 201 et seq.

(Supp. 1999) (the “FAAA”) was passed. Section 203 of the FAAA mandates that

a person engaged in the business of importing distilled spirits, wine or malt

beverages first obtain a basic permit. The federal basic permit will be denied to an

applicant if “the operations proposed to be conducted by such person are in

violation of the law of the State in which they are to be conducted.” 27 U.S.C. §

204(a)(2)(C). Under § 204(d) of the FAAA, “[a] basic permit shall be conditioned

38

upon compliance … with the Twenty-first Amendment and laws relating to the

enforcement thereof.” The FAAA basic permit is subject to revocation or

suspension (after notice and a hearing), if the permittee willfully violates the

conditions of compliance. 27 U.S.C. § 204(e). Thus, the issuance and potential

suspension or revocation of a federal permit are, under the FAAA, dependent on

compliance with state law.

In spite of the clear legal authority favoring the alcohol regulation at issue

here, Plaintiffs contend that modern interstate commerce has changed so that the

laws are an anachronism, and the long-standing case precedents are no longer

valid.

To the contrary, new methods of marketing and increased consumer

awareness of alcohol products do not change the reasons behind alcohol regulation.

Alcohol remains a potentially addicting substance that is easily abused without

proper regulation. The increased availability and marketing of alcohol products

makes the need for enforceable regulation more important, not less so. The

Twenty-first Amendment, Wilson Act, Webb-Kenyon Act, and FAAA make it

clear that the authority for regulating this potent substance is to remain with the

states.

Further, Plaintiffs’ position in this regard is contradicted by recent

Congressional action strengthening the state’s enforcement authority under Webb-

39

Kenyon. The House, by a vote of 371 to 1, and the Senate, by a vote of 95 to 0,

passed the following amendment:

Sec. 2. Injunctive Relief in Federal District Court (a) Definitions

* * *

(b) Action by State Attorney General - If the attorney general has reasonable cause to believe that a person is engaged in, or has engaged in, any act that would constitute a violation of a State law regulating the importation or transportation of any intoxicating liquor, the attorney general may bring a civil action in accordance with this section for injunctive relief (including a preliminary or permanent injunction) against the person, as the attorney general determines to be necessary to –

(1) restrain the person from engaging, or continuing to engage, in the violation; and (2) enforce compliance with the State law.

(c) Federal Jurisdiction-

(1) In general - The district courts of the United States shall have jurisdiction over any action brought under this section by an attorney general against any person, except one licensed or otherwise authorized to produce, sell, or store intoxicating liquor in such state. (2) Venue - An action under this section may be brought only in accordance with section 1391 of title 28, United States code, or in the district in which the recipient of the intoxicating liquor resides or is found.

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[Public Law 106-386, § 2004]

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Accordingly, the “dormant” Commerce Clause cannot be used to invalidate

§ 203 of the Michigan Liquor Control Code because Congress has affirmatively

exercised its plenary powers under the Commerce Clause to authorize this, and

similar state statutes. In enacting the Webb-Kenyon Act, the Wilson Act, and the

FAAA, Congress unequivocally recognized the states’ authority to control and

confine the distribution of alcoholic beverages to licensed sellers who have

themselves been determined to be responsible and accountable.

3. Even if the “Dormant” Commerce Clause were implicated here, Plaintiffs’ Commerce Clause claim would fail.

Even if the “dormant” Commerce Clause were implicated in this case,

Plaintiffs’ Commerce Clause claim would fail because the challenged statute

neither discriminates against, nor imposes an undue burden on interstate

commerce. The challenged statute neither bans the importation of alcoholic

beverages into Michigan, nor prohibits the sale of out-of-state alcoholic beverages

within the State. Rather, § 203 simply requires that out-of-state liquor be subject

to the same regulatory control as in-state liquor, by requiring its sale and delivery

within the state be made by persons and entities licensed to traffic in alcoholic

beverages. Michigan law imposes no legal impediment — none at all — to the

sale of out-state wine in Michigan.

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Plaintiffs allege no more than that Michigan’s distribution system is not

ideally suited for their own peculiar tastes in wine - that is, some small, elite

wineries have chosen not to comply with Michigan’s regulations in order to legally

sell their products here. However, the Commerce Clause protects the interstate

market itself — not particular individuals who would participate in that market.

The function of the Commerce Clause is to protect the overall flow of goods into a

state. Here, it is beyond dispute that the overall flow into Michigan of alcohol,

generally, and wine, specifically, is not legally hindered. In fact, nearly all of the

wines sold to Michigan consumers are from out-of-state wineries.

On rare occasion, the Supreme Court has invoked the “dormant” Commerce

Clause to invalidate state liquor laws that are “not supported by any clear concern

of the Twenty-first Amendment.” Bacchus, supra; Healy, supra; Brown-Forman,

supra. For the reasons previously explained, Michigan’s delivery system not only

implicates a legitimate state “concern” but falls squarely within the state’s “core

powers” under the Twenty-first Amendment.

Irrespective of the Twenty-first Amendment, however, § 203 has at most a

minimal extra-territorial effect. The distinction Plaintiffs challenge is that in-state

wineries may deliver their product directly to a resident, but out-of-state wineries

must go through a Michigan licensed retailer, who may deliver their product to the

resident.

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The panoply of regulations to which an in-state winery is subject certainly

more than offset, both in costs and burden, any nominal commercial advantage

given by the ability to deliver directly to consumers. This de minimis difference in

the statute’s treatment of direct shipments by in-state wineries and out-of-state

wineries constitutes no constitutionally cognizable “discrimination” at all. Even if

deemed discrimination, this difference would nevertheless be justified by valid

factors wholly unrelated to economic protectionism. Maine v. Taylor, 477 U.S.

131, 138 (1986).

The most critical aspect of Michigan’s requirements is accountability for the

sale and delivery. Michigan has a compelling interest in ensuring that the delivery

of alcoholic beverages into the hands of Michigan residents is accomplished in a

regulated manner by a person who is accountable to the State through being

licensed in the jurisdiction. Accordingly, even if the “dormant” Commerce Clause

was implicated in this case, Plaintiffs’ Commerce Clause challenge to § 203 must

fail.

42 U.S.C. § 1983 only provides a remedy for a violation of rights guaranteed

by constitution or federal statute. It does not provide an independent cause of

action. Because Plaintiffs stated no cause of action under the Commerce Clause,

they also have no cause of action under 42 U.S.C. § 1983.

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II. The district court committed no reversible error when it denied, as

moot, both parties’ motions to strike affidavits and other documentary evidence, where the court accepted all facts pleaded by Plaintiffs, concluded that none of the challenged evidence was necessary to its decision, and granted Defendants’ motion for summary judgment.

A. Standard of Review

An abuse of discretion standard is used to review a trial court's evidentiary

rulings. Everman v. Mary Kay Cosmetics, Inc., 967 F.2d 1346, 1354 (7th Cir.

1989)(applying abuse of discretion standard to refusal to supplement record). An

abuse of discretion is apparent when the appellate court is “firmly convinced” that

the lower court has erred. Southward v. South Central Ready Mix Supply Corp., 7

F.3d 487, 492 (6th Cir. 1993). A district court abuses its discretion when “’it relies

on clearly erroneous findings of fact, or when it improperly applies the law or uses

an erroneous legal standard.’” Black Law Enforcement Officers Ass’n v. City of

Akron, 824 F.2d 475, 479 (6th Cir. 1987) (quoting Christian Schmidt Brewing Co.

v. G. Heileman Brewing Co., 753 F.2d 1353, 1356 (6th Cir.), cert. dismissed, 469

U.S. 1200 (1985)).

B. The court properly based its decision on the critical facts relating to the application of Michigan’s law precluding direct shipments from out-of-state alcohol producers.

At the time and date set for hearing on the parties’ cross motions to dismiss

and cross motions to strike, several other cases were also scheduled. When this

case was called, the court asked that arguments be focused on the Twenty-first

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Amendment/Commerce Clause issue. The court indicated it did not require

argument on Defendants’ challenges for lack of standing or for lack of subject

matter jurisdiction under the Tax Injunction Act, 28 U.S.C. § 1341. It also

indicated it did not need to hear arguments to strike evidence.

The district court reached its decision without need for, or reference to, the

affidavits, interrogatory answers, copies of web pages, and various other

documentary evidence attached to the briefs supporting and opposing summary

judgment. As discussed, the critical “facts” here are Michigan’s liquor laws - their

meaning and application.

It is undisputed that Michigan’s laws have had the effect of prohibiting

direct shipping since shortly after Prohibition was repealed. The original

enactment cannot be considered economic protectionism, since, at that time, there

was no local liquor industry to protect. See, Cooper v. McBeath, 11 F.3d 547 (5th

Cir. 1994). It also is undisputed that Michigan retailers, including Michigan

wineries and microbreweries to a limited extent, may directly deliver products

purchased from them to Michigan residents. It further is abundantly clear from the

statutes that these retailers operate under an extensive regulatory system that

encumbers them with a heavy burden of accountability.

Nothing in the affidavits or evidence challenged by Plaintiffs formed a part

of the Court’s decision.

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The Statement of Facts in Plaintiffs’ brief is nearly wholly dedicated to a

recitation of the status of the wine industry and the personal desires of the

Plaintiffs to obtain wine not sold in Michigan because the wineries do not find it

sufficiently profitable to work through the State’s three-tier system of alcohol

distribution and sales.

These “facts” are not pertinent under a proper analysis of this issue. If a

state regulation concerns “whether to permit importation or sale of liquor and how

to structure the liquor distribution system” - “the central power reserved by § 2 of

the Twenty-first Amendment,” Capital Cities, supra, at 715, that is the end of the

matter. No requirement exists that the state regulation be narrowly drawn so as to

minimize the burden on commerce, maximize profits for out-of-state wineries, or

provide the greatest selection of wines to Plaintiffs. Section 2 expressly empowers

states to restrict imports of alcoholic beverages in a manner that the Commerce

Clause would not permit as to any other product. Section 2, the Wilson Act, the

Webb-Kenyon Act and the FAAA demonstrate a clear purpose to create an

exception to the normal operation of the Commerce Clause.

The Court properly concluded that the affidavits and other documentary

evidence challenged by Plaintiffs were not pertinent to resolution of the case.

Because of this, it was unnecessary to explicitly rule on the motions to strike.

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Wimberly v. Clark Controller Co., 364 F.2d 225, 227 (6t