(PREVIOUS POST)

Maybe the third time is the charm.  Not satisfied with another 5th Circuit opinion rejecting the myth that alcohol retailers are the same as alcohol producers, the Siesta Village plaintiffs filed a new motion for a rehearing for an en banc hearing for the 5th Circuit.  Click here to read the petition.    Looks like they have trotted out the old “model bill”  myth again.  (See older posts for a discussion on that issue.)

(earlier post)  5th Circuit Rules For Texas. Granholm Means Wineries, Not Retailer

Today the 5th Circuit ruled for the state of Texas and that out of state alcohol retailers do not have the same rights of  in state alcohol retailers.  The opinion can be found here.    Recall a panel of the 5th Circuit ruled for Texas in January (below).   The plaintiffs appealled for a full en banc review.   Instead today the 5th Circuit  denied the en banc review,  withdrew its ruling from January 26, 2010 and substituted today’s opinion.

The court agreed with much of the 2nd Circuit’s reasoning in Arnold’s Wine v. Boyle and noted that the Granholm decision focus was on products or producers, not  all three tiers in a state’s three tier system of alcohol regulation.  It noted the similarilities of  the Texas three tier system to North Dakota’s three tier system which it noted was approved and upheld  in North Dakota v. United States, 495 U.S. 423 (1986).

 I expect an appeal to the U.S. Supreme Court despite the lack of a circuit split.

(from prior posts)          Updated: The state of Texas has filed their opposition to the en banc petition by the Plantiffs. Read their opposition here.

 The Plaintiffs in the Wine Country Gift Baskets/Siesta Village case are trying to get the entire 5th Circuit to hear their case in a petition filed last week.   In a press release, the Specialty Wine Retailers Association stated:  “We are concerned not only that the Fifth Circuit’s recent ruling disregarded opinions of the U.S. Supreme Court, but that it also disregarded precedent from its own cases within the Fifth Circuit,” said Tom Wark, executive director of SWRA .   Personally, I believe that this rehearing petition grossly stretches the two Fifth Circuit decisions as well as the Granholm and I am hopeful that the state will again demonstrate this succinctly to the court.

As you recall, the State of Maryland sought an en banc opinion after it lost the most recent decision at the 4th Circuit.  Similarly, Costco failed to get the entire 9th Circuit to take up its cause after it lost most of its challenge to Washington state laws.    Both requests were denied.  Rehearings en banc are rarely granted.

 A win for the 21st Amendment today in the 5th Circuit.

 Our read of Granholm is that the Twenty-first Amendment still gives each State quite broad discretion to regulate alcoholic beverages. The dormant Commerce Clause applies, but it applies differently than it does to products whose regulation is not authorized by a specific constitutional amendment. Regulating alcoholic beverage retailing is largely a State’s prerogative. “  

“Because of  Granholm and its approval of three-tier systems, we know that Texas may authorize its in-state, permit-holding retailers to make sales and may prohibiti out-of-state retailers from doing the same.” 

The decision gives the state of Texas a clear win on all counts and joins the 2nd Circuit in rejecting the attempts to twist the 2005 Supreme Court decision in Granholm v. Heald  involving wineries into an examination of state distribution and retailing laws.

The Court did caution though that it was limiting its ruling.   “We pull back from any effort to define the reach of a three-tier retailer.”

Since the National Conference of State Legislatures (NCSL) continues to have its position on direct shipping interpreted wrongly across the country, they have sought to clarify it.  Recently, they have written to one attorney  asking for clarity to avoid stating that the the full NCSL had endorsed a wine model shipping legislation.  Click here for the letter.

SUPREME COURT NOT INFALLIBLE, GRANHOLM FACT WRONG.

NBWA decided to look under the hood at one of the facts used by alcohol deregulators in the Granholm and related cases.  It seemed very odd to us that the National Conference of State Legislatures (NCSL), a group dedicated to supporting state rights, would have an alleged action of that organization used AGAINST its member states.  Justice Kennedy actually seems to believe that the NCSL developed and passed the model bill drafted by the California wineries. He cited to it two times in the Granholm case.

Because one law firm continues to imply that the NCSL passed a model bill on winery direct shipping, we asked NCSL to clarify their position.  NCSL’s clarification is attached here.  I also wrote to the law firm and asked them to correct the record in other lawsuits and prevent further confusion on the NCSL activity. The letter is here.

The Supreme Court sometimes gets things wrong.  For example, last term they did not recognize an existing death penalty statute when they said there was none for child rape in Kennedy v. Louisiana.   Like that case, the Granholm court just got the facts wrong .  Next time the court takes this up, they will have the correct facts.

NCSL does have one official position that is relevant to this debate.  In its official policy statement on the internet and electronic commerce NCSL has a section on alcohol regulation.   This statement went through the proper rules and was endorsed by the entire NCSL.  It states in relevant part:  ”Nothing in this policy statement is to be construed as limiting or affecting the right of any state to regulate alcohol according to its local norms and standards pursuant to the 21^st Amendment.”   A link to this official NCSL position is here: http://www.ncsl.org/Default.aspx?TabID=773&tabs=855,21,633#633

In full disclosure, the law firm disagrees  and provided this response.  To quote Strother Martin, “What we have here is a failure to communicate.”

Because of this settlement, there remains a circuit conflict between 4th and 9th Circuit on issue of volume discount ban. 

Clock ticking in Maryland… Cert petition due Jan 8,2010

UPDATE: Looks like folks will be busy working over the end of the year holiday season. Maryland has until January 8 to file a cert petition in the TFWS matter. http://origin.www.supremecourtus.gov/docket/09a400.htm

The possibility of Supreme Court review of the intersection betweeen state action, 21st Amendment and the Sherman Antitrust Act increased with Maryland seeking more time to file a writ of certiorari in the TFWS case.

Maryland has sought an extension until December 9 to file its Writ.  If granted and fully briefed by the other side the earliest the court could decide to accept this case would most likely be February.   It is unclear if that would be enough time for the court to consider this case before the end of its term in June.

Obviously there is much more to be written in the TFWS saga.  Stay tuned here.   Click here for a copy of Maryland’s petition.

UPDATE:    That was quick.  The 4th Circuit said “No Thank You” to the state’s request for a rehearing en banc. According to the order no judge asked to keep this 10 year old case going.

Next step:  Maryland decides whether to appeal to the U.S. Supreme Court.

Yesterday the state of Maryland filed a petition for rehearing en banc for the 4th Circuit.   Recall this was a challenge to Maryland alcohol regulations on volume discount ban, price posting and price holding for wine and liquor.  This is an important development as it is an opportunity for the tortured 10 year old history of this case to be reviewed.   To me, certain aspects of this case were caught in a continuous cycle/rut of deference to previous rulings on narrow issues that failed to permit the judges the opportunity to comprehensively look at the entire case from start to finish.    It would be nice for the 4th Circuit to look at the entire case, not just one issue.

The Maryland Attorney General’s brief highlighted four main issues for appeal: 1) The unfair heightened scrutiny facing state alcohol regulations duly authorized by the 21st Amendment; 2) the court’s failure to sever aspects of this case and do a “minimum-damage” approach to state regulation review; 3) the court’s error in calling the Maryland system a hybrid restraint and 4) the court’s failure to properly balance the state and federal interests in regulating alcohol with other federal interests.

This briefing will continue through the summer.  It is unknown when this court will rule on this petition.   Adding to the drama is the unsettled nature of the 4th Circuit with 1/3 of the judge positions open.

Update:  TN brief below.   Supreme Court to decide whether to take this the week of September 29, 2009.

A pairing of lawyer and wine connoisseur has lead to the U.S. Supreme Court  being asked whether limitations imposed by Tennessee on the transportation or possession of untaxed alcoholic beverages violate the Commerce Clause. The question arises within the context of a larger challenge concerning Tennessee’s laws governing the wine industry. The U.S. Court of Appeals for the Sixth Circuit upheld Tennessee’s ban on the direct shipment of alcohol to consumers, but concluded that certain other challenged laws were discriminatory on their face and remanded the issues to the District Court for further proceedings.  Tennessee has subsequently amended its laws in response to the 6th Circuit.  Plaintiff Jelovsek is pressing this appeal despite the legislature’s action. In her appeal she suggestions the following questions presented:

I. Whether discriminatory and protectionist laws in Tennessee’s three-tier alcohol distribution system are immune from challenge on Commerce Clause grounds, contrary to the law of this Court and other circuits?

II. Whether the Sixth Circuit erred in failing to strike down the following provisions of state laws in violation of the Petitioner’s right of equal access to the interstate wine market as protected by theCommerce Clause:

A. The laws that require in-state residency and presence to obtain a Tennessee wholesale or retail alcohol license, which laws restrict the Petitioner’s access to a wide variety of wines offered by out-of-state vendors.

B. The law that prohibits direct shipment of wine to the Petitioner from out-of-state retailers, when the State allows him to purchase as much wine as he wants from in-state retailers.

C. The law that criminalizes the Petitioner’s possession of wines purchased from out-of state retail vendors upon which Tennessee taxes have not been paid, when there is no mechanism to pay such taxes ?
?
The State of Tennessee has filed its motion in opposition to this petition.   The state’s brief is attached here.  It notes this is a bad case to take up for several reasons including the recent changes to TN law.   Sorry for the PDF of a copy as I had a hard time finding this one.

The “Law of the Case doctrine” was cited as the primary reason why they could not grant the state’s relief.   So the structure of the case prevents them for making this case consistent with the Costco case in the 9th Circuit.  Next up, the entire 4th panel and/or the U.S. Supreme Court.

Oral Argument Held in 4th Circuit on TFWS anti-trust case…AGAIN!

The never-ending Sherman anti-trust challenges to Maryland’s liquor regulations on price posting, price hold and bans on volume discounts had developments today.   The latest (and fourth) trip to the 4th Circuit is obstensibly related to the most recent district court opinion (memorandum opinion).  In my humble opinion, the oral argument in December 2008 seemed to suggest the 4th Circuit was grappling with how to reconcile some older, and in my view, incorrect rulings within this case, with the recent 9th Circuit Costco case and also remove themselves from the unwieldy posture of this case.  However, in February, the 4th Circuit issued an order calling for new oral arguments.   No new guidance or limitation was provided. 

What did that mean?  Well perhaps the answer was provided today when the lawyers for the two parties walked into the court to see an entirely new panel of judges on the 4th Circuit hearing this case.   The ten years of investment of the plaintiff, defendant and taxpayers in getting the other court panel up to speed on the huge record and details about the intersection of  laws related to anti-trust, alcohol and public health had to start anew with a new panel.  I do not know why the panels were switched.

And from the questions today, this new panel does not seem to favor the state’s position and seem to have taken the more narrow view of  ”why the heck should we overturn the district judge?” as opposed to a more general debate about whether the laws were hybrid or unilateral restraints.  As a result, the state was on defense and TFWS on offense for this hearing.    Instead of picking up where they left on in December, the state was in a position of showing that Judge Quarles was clearly erroneous in his ruling on tax differentials between Maryland and Delaware while at the same time responding to arguments from the panel and TFWS attorney asking why the state didn’t just raise taxes if it is interested in higher prices to raise the price of alcohol.  It was repeatedly noted by the lawyer for TFWS that Maryland has the lowest tax on liquor and if it was really interested in temperance and orderly markets it would raise the liquor tax.   He repeatedly pointed out that the state and wholesalers fought any tax increase.   Judge Duncan also asked a question on this theme.  Essentially, TFWS is saying if you argue against a tax hike you can not  seriously justify a volume discount ban (and by implication credit prohibition, minimum mark up laws, etc.) or other state laws that may impact temperance and orderly markets.

Obviously, this hearing today could pose a serious setback in the state’s ability to regulate alcohol.  It looks like  Judge Pechman’s thinking that raising taxes is the  only way a state can influence alcohol policy and pricing may have another life if my observations today are correct.   An adverse ruling in the 4th Circuit may trigger a full en banc request to get the 4th Circuit to clean out this mess, lay all issues out before it, and end the procedural games that have hampered the full appeal of this case.   However, this is rank speculation on my part.

Most importantly, the 4th Circuit and the 9th Circuit could be split on this issue and we may be looking at a U.S. Supreme Court showdown as early as late 2009.

A transcript of the most recent 4th Circuit oral argument will be posted once obtained.

NBWA along with WSWA submitted an amicus brief  in support of the state of Maryland.   The state’s brief was submitted before the 9th Circuit ruled for the state of Washington and against Costco on most counts.

Circuit Judge Calabresi noted in his concurrence the challenge of lower courts and state legislatures trying to harmonize and implement the Supreme Court jurisprudence on the 21st Amendment.  (“It can leave state legislatures and lower federal courts with no firm understanding of what the law actually is.”) Moreover, he cautioned against judges putting their own spin on history saying “But judges are not historians with fancy robes and life tenure.”

 I would have added a section to this concurrence noting that the beauty of the 21st Amendment is if there is a perceived alcohol related policy problem, people can fix it in their state legislature or at the ballot box. For example, you want the county to be ”dry” or “wet” or you want to limit licenses; vote on it.  Don’t have the federal court set alcohol policy.

What does this mean for alcohol regulation? As always, it depends.  One of the 5 votes is now officially retired (Souter) so this may be a temporary win for state rights to regulate.  Moreover, this case had a most interesting breakdown of Justice Scalia voting with the more liberal wing of the court.  Would that breakdown replicate in an alcohol related matter?   How would a new Justice vote?

Nevertheless it is a important break for the states, specifically state attorneys general, seeking to enforce state laws against national corporate players.  Hiding behind federal regulations to preempt state laws so companies can avoid dealing with state laws they deem ”bothersome” may not be so easy next time.