Jerry Bainbridge, Faye Bainbridge, Gene Bretoi, Betty E. Millinnix-bretoi, Et. Al., Plaintiffs-appellants, v. Richard E. Turner, Director of the Florida Division of Alcoholic Beverages and Tobacco of the Department of Professional and Business Regulation, Defendants-appellees, 311 F.3d 1104 (11th Cir. 2002)

This case implicates the tension between the "dormant" aspect of the Commerce Clause¹  and the Twenty-first Amendment.²  The primary question in this appeal is whether the State of Florida may prohibit out-of-state wineries from shipping their products directly to Florida consumers while permitting in-state wineries to do so. Appellants, who are wine consumers and out-of-state wineries, contend that Florida's statutory scheme violates the Commerce Clause of the U.S. Constitution. The State³  counters that its action, whether in violation of the Commerce Clause or not, is permitted under the Twenty-first Amendment. The State is partly correct. If the subject of Florida's regulatory scheme were an ordinary widget (rather than liquor), the statutes would violate the Commerce Clause. But if the State demonstrates that its statutory scheme is closely related to a core concern of the Twenty-first Amendment and not a pretext for mere protectionism, Florida's statutes can be upheld. We ultimately conclude that the factual record is too incomplete to uphold a judgment as a matter of law for the State,⁴  and so we vacate the summary judgment granted by the district court.

Like many states, Florida has instituted an elaborate system to regulate the manufacture and sale of alcohol within its borders. The regulatory framework establishes what is known as a "three-tier" distribution system — in essence a vertical quarantine. First, it requires three vertical layers of distribution (manufacturer, distributor, and vendor) and mandates that no layer in the vertical hierarchy act in the capacity of another. FLA. STAT. ANN. § 561.22(1) (West 2002). For example, a manufacturer cannot act as a distributor or retailer. Second, it allows only the last link in the vertical chain, the vendor, the ability to sell directly to consumers. Id. § 561.14(3). An exception to the vertical quarantine is carved out for in-state wineries, which are allowed to receive vendors' permits. Id. § 561.221(1) (a). Vendors, whether a typical retailer or a vertically integrated winery/retailer, are allowed to ship directly to consumers so long as the vendor uses vehicles that it owns or leases. Id. § 561.57(2). In no event, however, can a vendor ship to consumers by common carrier.⁵  In sum, in-state wineries can obtain a vendor's license, enabling them to either sell wine on their premises or ship by vehicles that they own or lease.⁶ 

Out-of-state wineries, by contrast, are subject to different regulations. Specifically, out-of-state wineries are prohibited from directly delivering their products to consumers, whether by private vehicle or common carrier. FLA. STAT. ANN. § 561.54(1).⁷  Violators are potentially subject to treble damages, id. § 561.54(2), and felony prosecution, id. § 561.545(3). The in-state winery, then, can sell on its premises or by delivery using its own vehicles, thus bypassing the intermediaries in the three-tier distribution system and (most importantly) their mark-ups. Out-of-state wineries, on the other hand, cannot avoid this mark-up and are therefore at a competitive disadvantage — so much so that many of them are unable to enter the Florida market, and many wine connoisseurs are unable to attain the wines they desire.⁸  This discriminatory scheme, it is alleged, violates the Commerce Clause in a way that cannot be saved by the Twenty-first Amendment. Below, we shall follow the analytical framework used by the Supreme Court in Bacchus Imports., Ltd. v. Dias, 468 U.S. 263, 104 S. Ct. 3049, 82 L. Ed. 2d 200 (1984), and subsequent lower courts, see, e.g., Milton S. Kronheim & Co. v. District of Columbia, 91 F.3d 193 (D.C. Cir. 1996). First, we scrutinize Florida's statutes under the Commerce Clause.⁹  Second, we examine whether any violation is saved by the Twenty-first Amendment.

The Commerce Clause states that "Congress shall have Power ... To regulate Commerce ... among the several States...." U.S. CONST. art. I, § 8, cl. 3. Although the clause speaks literally only to the powers of Congress, it is well settled that it has a "dormant" aspect as well, namely, one that serves as "a substantive restriction on permissible state regulation of interstate commerce." Dennis v. Higgins, 498 U.S. 439, 447, 111 S. Ct. 865, 870, 112 L. Ed. 2d 969 (1991) (internal quotation marks omitted). "This `negative' aspect of the Commerce Clause prohibits economic protectionism — that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors." New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273-74, 108 S. Ct. 1803, 1807, 100 L. Ed. 2d 302 (1988). The clause also works to keep states from "ventur [ing] excessively into the regulation of... [interstate] commerce ... [and] trespass [ing] upon national interests ...." Kassel v. Consol. Freightways Corp. of Del., 450 U.S. 662, 669, 101 S. Ct. 1309, 1315, 67 L. Ed. 2d 580 (1981) (internal quotation marks omitted).

To determine whether a statutory scheme violates the dormant Commerce Clause, we employ two tiers of analysis. See Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 578-79, 106 S. Ct. 2080, 2084, 90 L. Ed. 2d 552 (1986). If the scheme "directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry." Brown-Forman, 476 U.S. at 579, 106 S. Ct. at 2084. Only if such a regulation is shown to "advance [] a legitimate local purpose that cannot be adequately served by reasonable non-discriminatory alternatives" will it be upheld. Limbach, 486 U.S. at 278, 108 S. Ct. at 1810; see also Hunt v. Washington State Apple Advert. Comm'n, 432 U.S. 333, 353, 97 S. Ct. 2434, 2447, 53 L. Ed. 2d 383 (1977). "When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have examined whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits." Brown-Forman, 476 U.S. at 579, 106 S. Ct. at 2084. Though the two tiers of analysis are not clearly distinguishable, " [i]n either situation, the critical consideration is the overall effect of the statute on both local and interstate activity." Id.

Florida's regulatory scheme cannot withstand tier-one scrutiny. The State's argument is confusing because it at once (a) concedes that absent the effect of the Twenty-first Amendment and/or the Webb-Kenyon Act, prohibition of direct shipment would violate the dormant commerce clause, and (b) then goes on to defend the statute as non-discriminatory. We can sympathize with the State's reluctance to engage in the latter argument, because the district court was certainly correct in finding the law discriminatory on its face.

The state argues, "No alcohol can be delivered to a consumer by common carrier in Florida regardless of the source of the product. These laws apply to everyone engaged in the business of alcoholic beverages." This is correct, but incomplete, because it fails to note that in-state vendors (and therefore in-state wineries fortunate enough to have a vendor's permit) can deliver alcohol to consumer by using vehicles that they own or lease. See part I, supra. Next, the State contends, "No distributor or manufacturer can sell alcoholic beverages to a consumer, and a vendor cannot transport such merchandise to a consumer except in his own or leased vehicle. There is no discrimination involved — everyone is restricted in the same way." This contention is misleading because one cluster of manufacturers — in-state wineries — can deliver to consumers via owned or leased vehicle, and therein lies the discrimination. We agree with the district court that the statute discriminates on its face.¹⁰ 

Being facially discriminatory, Florida's regulatory scheme violates the Commerce Clause unless the statute advances a legitimate local purpose that cannot be adequately served by reasonable non-discriminatory alternatives. We agree with the holding below that there are, in fact, non-discriminatory alternatives. Florida could license and regulate out-of-state wineries that intend to ship to Florida consumers through a licensing process similar to that employed with in-state wineries. See Joint Stipulation, ¶ 22 (noting that other states utilize a permit system for out-of-state liquor producers). This licensing process could also satisfy the State's revenue concerns by requiring out-of-state wineries to collect and remit all applicable taxes. Id. Similarly, the state could address its "diversion" concerns by imposing labeling requirements on wine shipped directly to Florida consumers. Finally, vigorous enforcement of criminal penalties, see FLA. STAT. ANN. §§ 562.11, 562.111, and threats of license revocation could be used to control the sale of alcohol to minors. Because the Florida statutes discriminate against out-of-state retailers and non-discriminatory alternatives are available to serve the State's interests, Florida's regulatory scheme violates the Commerce Clause.¹¹ 

The "dormant" aspect of the Commerce Clause arises from a negative inference from the constitutional grant to Congress to regulate commerce. It is therefore axiomatic that when Congress acts in a way that grants states permission to burden interstate commerce, the courts may not interfere. The Supreme Court put it this way:

[W]e only engage in this review when Congress has not acted or purported to act. Once Congress acts, courts are not free to review state taxes or other regulations under the dormant Commerce Clause. When Congress has struck the balance it deems appropriate, the courts are no longer needed to prevent States from burdening commerce, and it matters not that the courts would invalidate the state tax or regulation under the Commerce Clause in the absence of congressional action. Courts are final arbiters under the Commerce Clause only when Congress has not acted.

Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 154-55, 102 S. Ct. 894, 910-11, 71 L. Ed. 2d 21 (1982) (citations omitted). This consent by Congress is sometimes dubbed a "reconveyance" of federal authority. See generally Boris I. Bittker, Bittker on the Regulation of Interstate and Foreign Commerce § 9.02 & n. 5 (1999).

The State devotes a substantial portion of its brief to arguing that the Webb-Kenyon Act,¹²  27 U.S.C. § 122, constitutes a reconveyance of authority, enabling states to regulate liquor in a way that is immunized from Commerce Clause scrutiny. The problem with this argument is that the Twenty-first Amendment itself, no less than the Webb-Kenyon Act, could theoretically constitute a reconveyance. But the Supreme Court has not interpreted the Twenty-first Amendment in that fashion, and we decline to so interpret a mere statute passed prior to the Amendment. Put differently, Congress might decide to permit an otherwise unconstitutional burden on interstate commerce in one of two ways, either by ordinary legislation or by an amendment to the Constitution. It would be odd to say that the latter — here, the Twenty-first Amendment — does not immunize states from Commerce Clause scrutiny, but that the former does. The Amendment and the Act must be read congruently. Therefore, in understanding whether the Webb-Kenyon Act constitutes a reconveyance, we must look to see how the Supreme Court has interpreted the Twenty-first Amendment. If the Supreme Court has decided that the Amendment does not constitute a reconveyance, then neither does its statutory counterpart, the Webb-Kenyon Act. As will be discussed in part IV, infra, the Supreme Court has, in fact, held in a number of cases that the Twenty-first Amendment does not operate totally to immunize states from Commerce Clause scrutiny. Therefore, Florida cannot look to the Webb-Kenyon Act for help.

We are unconvinced by the appellants' argument that Florida's regulatory scheme has impermissible extra-territorial effects under Healy v. Beer Institute, 491 U.S. 324, 109 S. Ct. 2491, 105 L. Ed. 2d 275 (1989). In that case, the Supreme Court struck down a Connecticut statute requiring out-of-state brewers to affirm that their posted prices to Connecticut beer wholesalers were no higher than the prices charged to wholesalers in neighboring states. Florida's direct-shipment laws, by contrast, do not regulate transactions occurring "wholly outside" the state. Rather, all regulation begins at the state border.

In sum, we conclude that in the absence of the Twenty-first Amendment, the Florida scheme would violate the dormant Commerce Clause. This is not because the statute attempts to regulate transactions outside its borders; it does not. Rather, it is because Florida's law discriminates on its face without meeting the requirement that it advance a legitimate local purpose that cannot be adequately served by reasonable non-discriminatory alternatives. Finally, we conclude that the dormant Commerce Clause attack is not shielded by the Webb-Kenyon Act, because that statute cannot be interpreted as a reconveyance of Congress's authority to interfere with interstate commerce. As we discuss below, however, the attack might be shielded by the Twenty-first Amendment if the State can muster sufficient evidence.¹³ 

The Twenty-first Amendment has long been a source of confusion in constitutional law. The text of section 2 renders it unconstitutional for anyone to violate state laws governing the importation of intoxicating beverages. That is, it makes an already-illegal action also an unconstitutional action, but does not purport to do anything to the Commerce Clause of Article I. See Laurence H. Tribe, How to Violate the Constitution Without Really Trying: Lessons from the Repeal of Prohibition to the Balanced Budget Amendment, 12 Const. Comment. 217, 219-20 (1995). But if the Amendment in no way alters the dormant Commerce Clause, it would create the anomaly in which an entity (e.g., a liquor distributor) would frequently violate the Constitution by violating unconstitutional state laws. Laurence H. Tribe, American Constitutional Law § 1-12, at 35 n. 15 (3d ed.2000). The Amendment is thus treated as though it permits states to enact some laws banning the importation of alcoholic beverages even though such laws might, without the Twenty-first Amendment, violate the dormant Commerce Clause. See, e.g., 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 516, 116 S. Ct. 1495, 1514, 134 L. Ed. 2d 711 (1996) (" [T]he Twenty-first Amendment limits the effect of the dormant Commerce Clause on a State's regulatory power over the delivery or use of intoxicating beverages within its borders...."). At the same time, the Supreme Court has also held that the Amendment falls short of giving states free rein in regulating the importation of alcoholic beverages. See Healy, 491 U.S. at 341-43, 109 S. Ct. at 2502-03. The doctrine can be restated as follows: the Twenty-first Amendment alters the dormant Commerce Clause in a way that provides states some added insulation from an otherwise valid attack, but falls short of full immunization.

Where, in this never-never land between the two extreme poles of irrelevance and total immunization, does the constitutional rule lie? The answer holds the key to this case. As discussed above, the dormant Commerce Clause doctrine consists of four principles: (1) laws that directly regulate commerce occurring in other states are invalid, see, e.g., Healy, 491 U.S. at 336, 109 S. Ct. at 2499; (2) laws that amount to "mere economic protectionism" are also invalid, see, e.g., Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 276, 104 S. Ct. 3049, 3058, 82 L. Ed. 2d 200 (1984); (3) laws that discriminate on their face are rarely upheld and must be shown to "advance [] a legitimate local purpose that cannot be adequately served by reasonable non-discriminatory alternatives," New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278, 108 S. Ct. 1803, 1810, 100 L. Ed. 2d 302 (1988); and (4) when a statute has only indirect effects on interstate commerce and regulates evenhandedly, courts examine whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits, Brown-Forman, 476 U.S. at 579, 106 S. Ct. at 2084. How does the Twenty-first Amendment alter this analysis? Appellants impliedly contend that only the fourth principle is not knocked out. That is, the Twenty-first Amendment may well eliminate the need to engage in balancing when a statute is discriminatory only in effect, but a statute that discriminates on its face remains virtually invalid per se. The State, on the other hand, contends that all prongs are trumped by the Amendment — save perhaps the ban on laws with extra-territoriality effects (principle one). We disagree with both parties. We think that the following rule represents the best reading of the cases: All components of the dormant Commerce Clause doctrine remain in force unless a "core concern" of the Twenty-first Amendment is implicated. When such a concern is implicated, the Amendment removes the constitutional cloud from the challenged law so long as the state demonstrates that it genuinely needs the law to effectuate its proffered core concern. In no event can the law directly regulate extra-territorially, see Healy, 491 U.S. at 336, 109 S. Ct. at 2499; nor can a law ever be motivated by "mere economic protectionism," see Bacchus, 468 U.S. at 276, 104 S. Ct. at 3058. In short, principles three and four are both knocked out, but only when the State makes the appropriate "core concern" showing.¹⁴ 

Our starting point is Bacchus. There, the Supreme Court struck down a Hawaii tax on imported liquor. Drawing from Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 84 S. Ct. 1293, 12 L. Ed. 2d 350 (1964), a preemption-insulation case, the Supreme Court held:

It is by now clear that the Amendment did not entirely remove state regulation of alcoholic beverages from the ambit of the Commerce Clause .... The question in this case is thus whether the principles underlying the Twenty-first Amendment are sufficiently implicated by the [state tax exemption for liquor products manufactured in Hawaii] to outweigh the Commerce Clause principles that would otherwise be offended. Or as we recently asked in a slightly different way, "whether the interests implicated by a state regulation are so closely related to the powers reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirement directly conflicts with express federal polices" (citations omitted).

Bacchus, 468 U.S. at 275-76, 104 S. Ct. at 3057.

The Court held that laws constituting mere economic protectionism are "not entitled to the same deference as laws enacted to combat the perceived evils of an unrestricted traffic in liquor." Bacchus, 468 U.S. at 276, 104 S. Ct. at 3058. Since the state sought only to promote local industry rather than to "justify its tax on the ground that it was designed to promote temperance or to carry out any other purpose of the Twenty-first Amendment," the statute was held unconstitutional. Id. (emphasis added). Four important principles can be gleaned from this holding. First, statutes closely intertwined with a purpose "closely related" to the Twenty-first Amendment can generally withstand an otherwise fatal attack under the Commerce Clause. Second, statutes are not "closely related" if their primary purpose is merely to protect local industry. Third, there are "other purposes" of the Twenty-first Amendment besides temperance (although the Court left unanswered what those concerns might be). Fourth, it was not sufficient in Bacchus that the challenged statute was discriminatory; what was fatal was that it constituted mere protectionism. The Court left open one key issue: what are the "purposes" of the Twenty-first Amendment pursuant to which discriminatory state legislation can withstand a Commerce Clause attack?

The Supreme Court has left the issue largely unexplained, save for a single sentence in North Dakota v. United States, 495 U.S. 423, 110 S. Ct. 1986, 109 L. Ed. 2d 420 (1990). The plurality opinion in that case is the only word by the Court on what (besides temperance) constitutes a valid state concern under the Twenty-first Amendment. North Dakota was an inter-governmental immunity case (a close cousin of the preemption-insulation case) rather than a Commerce Clause case. At issue was whether North Dakota's reporting and labeling requirements could withstand a constitutional challenge since they interfered with contrary federal interests in selling liquor to military personnel. The Court upheld the statute, asserting that other interests besides temperance, such as ensuring orderly market conditions and raising revenue, are "unquestionably legitimate" under the Twenty-first Amendment. North Dakota, 495 U.S. at 432, 110 S. Ct. at 1993. We find unpersuasive appellants' distinction of the case on the grounds that it did not involve the dormant Commerce Clause. As noted above, the two lines of cases have frequently intersected. For example, Bacchus, like North Dakota, relied heavily on Hostetter (a preemption-insulation case) in coming to its conclusion.¹⁵ 

This does not mean, however, that the State can prevail without evidence supporting a genuine need for its discriminatory laws.¹⁶  Not only must the State raise a "core concern," but it must also show that its statutory scheme is genuinely needed to effectuate the proffered core concern.¹⁷  We find inadequate the State's proffered concerns of protecting minors and ensuring orderly markets. With regard to minors, the State makes the following argument: "The threat of loss of a beverage license because of sale to underage consumers will better ensure that sale and delivery will only be to qualified consumers. The State has the right to decide not to rely on UPS or FedEx drivers to make the proper age determinations before delivering liquor." As we explained in part I, no delivery of alcohol to consumers by common carriers is allowed under Florida law.¹⁸  This rule will not be changed if the direct-shipment laws are struck down; out-of-state firms would simply be able to deliver by using vehicles that they own or lease, just like their in-state rivals. This means that the out-of-state firm can equally be threatened with the loss of a beverage license if it illegally delivers alcohol to minors. As for "ensuring orderly markets," we are not sure what that phrase means, but it certainly does not mean discrimination in a way that effectively forecloses out-of-state firms from the Florida market.

This leaves excise taxes. Like many states, Florida receives significant tax revenue from excise taxes on alcohol pursuant to section 564.06 of the Florida Code.¹⁹  It is true that North Dakota listed the raising of revenue as a legitimate core concern under the Twenty-first Amendment.²⁰  North Dakota, 495 U.S. at 432, 110 S. Ct. at 1993. We do not think it sufficient, however, for Florida to simply show that (a) taxation is a "core concern" and (b) the three-tier distribution scheme, although discriminatory, promotes its revenue-raising goals. Before the State can successfully raise the Twenty-first Amendment as a shield, it must show that its statutory scheme is necessary to effectuate the proffered core concern in a way that justifies treating out-of-state firms differently from in-state firms — a fact question. Why, exactly, must Florida engage in this discriminatory scheme to effectuate its desire to raise revenue? What is so unique about the geographic location of out-of-state wineries that makes taxing them so difficult that they are forced (unlike their in-state counterparts) into the three-tier distribution system? After all, in-state wineries are taxed directly, and this alternative therefore appears to be a viable substitute to the three-tier taxation scheme.²¹  So why can't out-of-state firms be taxed directly, just like in-state wineries?²²  In short, the State has not shown as a matter of law that its regulatory scheme is so closely related to the core concern of raising revenue as to escape Commerce Clause scrutiny. In fact, the Joint Stipulation does not discuss the degree to which Florida's liquor regulations are needed to effectuate its revenue-raising agenda at all.

Because a material issue of fact remains, the judgment of the district court is VACATED and the case REMANDED for further consideration of this single issue.²³ 

RONEY, Circuit Judge, dissenting:

I respectfully dissent. I would affirm the district court's denial of plaintiffs' claim.

First, since the state in its brief has conceded that "absent the effect of the 21st Amendment and/or the Webb-Kenyon Act, prohibition of direct shipment (of alcoholic beverages to consumers in interstate commerce) would violate the dormant commerce clause," I would accept that concession and not decide that stand-alone issue.

Second, I would hold that Florida's direct shipment laws are constitutional under § 2 of the 21st Amendment of the United States Constitution, based upon the reasoning of the district court. Bainbridge v. Bush, 148 F. Supp. 2d 1306 (M.D. Fla .2001).

In these credit card days of easy purchase by telephone and internet, this statute reflects the "core" concerns of the 21st Amendment that alcoholic beverages not be sold to underage consumers and not be sold effectively unregulated and untaxed. This court improperly treats as equal the prospective loss of a beverage license to an in-state firm and the loss of a Florida beverage license of an out-of-state firm, if one is required at all. One would put the firm out of business, the other would simply restrict the market by a state. Likewise, there is a distinct difference between an in-state firm being able to deliver by a vehicle owned or leased by it, a vehicle presumably registered and licensed by Florida, and an out-of-state firm being able to deliver by out-of-state vehicles which it owns or leases, over which the state of Florida has little control. The jurisdictional barriers to enforcement of Florida's beverage laws against out-of-state firms selling and delivering directly to consumers justifies the constitutionality of the statutes claimants seek to hold unconstitutional.