No UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Transcription

1 No 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 Lansing, MI Dated: March 11, 2002 (517)

2 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 A. Standard of Review...19 B. Historical Perspective...19 C. Michigan s System...23 D. Plaintiffs have no Commerce Clause Claim MCL is a valid exercise of Michigan s core powers under the Twenty-first Amendment The Dormant Commerce Clause is not implicated here because Congress has affirmatively acted to federalize state statutes such as Michigan Liquor Control Code Even if the Dormant Commerce Clause were implicated here, Plaintiffs Commerce Clause claim would fail...40 i

3 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 ii

4 Table of Authorities CASES Page 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987) 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 and (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 (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 (1993)...19 Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573 (1986)...33, 34, 41 iii

5 Butler v. Beer Across America, No. CV99-H-2050-S, 2000 WL (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 (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 (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 (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 iv

6 Leisy v. Hardin, 135 U.S. 100 (1890)...36 Maine v. Taylor, 477 U.S. 131 (1986)...42 Mast v. Long, CS RHW (E.D. Wa. 2001)...7 Mast v. Prince, #CS FVS (E.D. Wa. 2001)...7 North Dakota v. United States, 495 U.S. 423 (1990) 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 (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, and passim FEDERAL STATUTES 15 U.S.C U.S.C , 25, 42 Federal Alcohol Administration Act, 27 U.S.C. 201 et seq and passim v

7 Tax Injunction Act, 28 U.S.C , 44 Webb-Kenyon Act, 27 U.S.C and passim Wilson Act, 27 U.S.C and passim STATE STATUTES MCL (5)...12 MCL and passim MCL (1)...13 MCL , 25, 28 MCL MCL MCL MCL MCL MCL MCL MCL MCL RULES FED. R. CIV. P. 12(b)(6)... 7, 9 FED. R. CIV. P , 9, 17 R R vi

8 R R R R R R OTHER AUTHORITIES 76 Cong. Rec (1933) Cong. Rec (1933) Cong. Rec (1933) Cong. Rec (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 H.R. Rep. No (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 vii

9 Statement in Support of Oral Argument Defendants request oral argument. This case challenges the state s Twentyfirst 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. viii

10 Jurisdictional Statement Defendants concur with Plaintiffs Statement of Jurisdiction. 1

11 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. 2

12 Statement of the Case Nature of the case Plaintiffs claim that Michigan s liquor laws that preclude unlicensed, out-ofstate 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 3

13 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], 4

14 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

15 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 (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 and (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 (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. 6

16 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 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 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 7

17 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, (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, (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. 8

18 (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, 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. 9

19 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. 10

20 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 (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, 11

21 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 (5), MCL (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 (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 (7)(b) and MCL (1). 4 Examples are bars and taverns. 5 Examples are liquor and grocery stores. 12

22 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 minors 6 or intoxicated persons, 7 that sales are made only during hours authorized by statute 8 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 law 15 places liability on a retailer for injuries and deaths resulting from sales to minors or intoxicated 6 MCL (1), MCL (2). 7 MCL (2). 8 MCL MCL MCL R R , R , R , R , R R , R MCL , MCL , MCL MCL

23 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

24 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. 15

25 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 instate 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. 16

26 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. 17

27 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. 18

28 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 (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 (1977) the Supreme Court provided a brief illuminating history: 19

29 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 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 (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 20

30 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 (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 (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 (1933). 21

31 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, tiedhouses, 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. ) 22

32 C. Michigan s System The Michigan statutes that Plaintiffs seek to have this Court declare unconstitutional are MCL , and related penalty provisions contained in MCL 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 23

33 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 24

34 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 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 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 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 25

35 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 Twentyfirst 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 26

36 (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 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 , 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, 27

37 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 , 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 (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 28

38 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: 29

39 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 30