Swedenburg v. Kelly
Chapter 10
Title Page
Email Listserve[NOTE: This case has been edited for classroom use by the omission of text, citations, and footnotes. See this alternate source for the full opinion.]
U.S. District Judge Richard M. Berman
DECISION AND ORDER
INTRODUCTION
On February 3, 2000, Plaintiffs Juanita Swedenburg ("Swedenburg") and David Lucas ("Lucas"), proprietors of two out-of-state wineries, and Patrick Fitzgerald ("Fitzgerald"), Cortes DeRussy ("DeRussy"), and Robin Brooks ("Brooks"), three New York State consumers (collectively "Plaintiffs") filed an action against Defendants Edward F. Kelly ("Kelly"), Chairman of the New York State Liquor Authority, and Lawrence J. Gedda ("Gedda") and Joseph Zarriello ("Zarriello"), Commissioners of the New York State Liquor Authority, requesting that the Court "[d]eclare . . . N.Y. Alco. and Bev. Cont. Law §§ 102(1)(a), (c), and (d) [collectively "ABC Laws"] . . . unconstitutional, void, and of no effect[.]"n1 (Compl. at 10.) Plaintiffs claim that "the Direct Shipment and Advertising Ban violates the rights of all the plaintiffs to freedom of commerce as guaranteed by the interstate commerce clause," (Compl. ¶ 38), "the economic liberty of the plaintiffs Swedenburg and Lucas under the privileges and immunities guarantee," (Compl. ¶ 46), and, "the right of the winery plaintiffs to produce, and of the consumer plaintiffs to receive, protected speech in violation of the First Amendment." (Compl. ¶ 54.)
Defendants Kelly, Gedda, and Zarriello, as well as Intervenors Charmer Industries, Inc., Peerless Importers Inc., Eber Brothers Wine & Liquor Corp., Premier Beverage Company LLC, Metropolitan Package Store Association, Inc., Local 2d of The Allied Food and Commercial Workers International Union, and Dr. Calvin Butts (collectively "Defendants") filed a (joint) motion to dismiss the complaint on or about May 11, 2000 pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 12(b) (6) (failure to state a claim upon which relief can be granted) alleging that "the Twenty-first Amendment insulates from constitutional attack state regulation of the delivery of alcoholic beverages," (Defs.' Mem. in Supp. of Mot. to Dismiss ("Defs, Mem.") at 3), and that "[a]cting within the scope of that 'core power,' states have the inviolate right to regulate distribution of alcohol within their borders[.]" (Defs.' Mem. at 2.) Plaintiffs . . . have opposed Defendants' motion. . . .
For the reasons set forth below, Defendants' motion to dismiss is denied.
BACKGROUND
"Under New York's Alcoholic Beverage Control ('ABC') Law, the only persons who are authorized to distribute alcoholic beverages to consumers in this State are persons who are licensed [by New York] and accountable[.]" (Defs.' Mem. at 5.) "Although the plaintiff wineries are licensed in their home states, they cannot obtain a license in New York because out-of-state wineries are not eligible." (Pls. Mem. in Opp'n to Defs.' Mot. to Dismiss ("Pls.' Mem.") at 2.) "They are therefore subject to the Direct Shipment and Advertising Ban." (Compl. ¶ 18.)
The "[P]laintiff wineries are not represented by wholesalers in New York"; (Compl. ¶ 21) "[f]ew wineries of such small size [as the Plaintiff wineries] are represented by wine wholesalers by reason of economies of scale." (Compl. ¶ 20.) Plaintiffs contend that "the Direct Shipment and Advertising Ban therefore has the effect of preventing plaintiff wineries of the opportunity to sell wines in the State of New York." (Compl. ¶ 21.)
Plaintiffs contend that the ABC Laws discriminate against out-of-state wineries "by prohibiting direct sales and shipments of wines to New York consumers from out-of-state wineries and by permitting such direct sales and shipments to New York consumers by licensed in-state wineries." (Compl. ¶ 34.) Plaintiffs assert that "Defendants have no adequate justification for maintaining such discrimination," (Compl. ¶ 35), because "[a] principal purpose of the Direct Shipment and Advertising Ban is economic protectionism . . . [which is] not a valid justification for discriminatory trade barriers under the interstate commerce clause." (Compl. ¶ 36.)
Plaintiffs also claim that "[b]ecause nearly all the winery plaintiffs' sales are directly to consumers, the Direct Shipment and Advertising Ban significantly impairs plaintiffs' ability to pursue their chosen and legitimate livelihood." (Compl. ¶ 43.) Since "[t]he freedom to pursue a livelihood is a fundamental right protected by the privileges and immunities guarantee[,] [and] [t]he opportunities available to plaintiffs Swendenburg and Lucas to sell and ship wine directly to New York consumers are severely disadvantageous relative to the opportunities available to similarly situated New York wineries, by virtue of the Direct Shipment and Advertising Ban[,] [Plaintiffs claim that the ABC Laws] . . . violate[] the economic liberty of plaintiffs Swedenburg and Lucas under the privileges and immunities guarantee." (Compl. ¶¶ 41, 44, 46.)
Plaintiffs further claim that "[t]he Direct Shipment and Advertising Ban, on its face, prohibits in the most sweeping terms truthful information and advertising about wine. . ." [Compl. ¶ 49), and "subjects to misdemeanor liability any person who advertises out-of-state wines in any manner whatsoever, including over the Internet." (Compl. ¶ 50.) Plaintiffs contend that "the Direct Shipment and Advertising Ban violates the right of the winery plaintiffs to produce, and of the consumer plaintiffs to receive, protected speech in violation of the First Amendment." (Compl. ¶ 54.)
Defendants counter that "[t]he ABC law is a valid exercise of New York's 'core power' to regulate the importation and distribution of alcohol within the State under the Twenty-first Amendment,"n5 (Defs.' Mem. at 8), and that "[t]he 'dormant' Commerce Clause is not implicated here because Congress, in enacting the Webb-Kenyon Actn6 and related federal legislation, directly authorized the states to adopt laws, such as the ABC Law, which govern the importation, transportation and distribution of alcoholic beverages, and thereby federalized those state laws." (Defs.' Mem. at 8.)
Defendants claim that "[e]ven if the 'dormant' Commerce Clause were implicated here, the ABC Law would not impose an undue burden on interstate commerce because it has prevented neither the importation of alcohol into New York State, nor the sale of out-of-state alcohol within New York State. Furthermore, the ABC Law is not designed to discriminate against interstate commerce, as evidenced by the fact that almost all of the alcohol sold within New York State, including most wine, comes from out-of-state sources and is still distributed in the same manner as in-state product." (Defs.' Mem. at 8-9.)
Defendants further state that "[t]he Privileges and Immunities Clause is not implicated here because only natural persons, who are citizens of other states but located here, are entitled to protection under this clause." (Defs,' Mem. at 9.) They assert that "[a]s business entities, the winery plaintiffs in this case are not 'citizens' within the meaning of the Privileges and Immunities Clause and, therefore, do not qualify for its protection." (Defs.' Mem. at 25.)
Defendants also claim that "[t]he First Amendment is not implicated here because the ABC Law restricts, to a limited extent, only unprotected commercial speech concerning an unlawful activity[,]" (Defs.' Mem. at 9), and that the "narrowly tailored restriction on commercial advertising for alcoholic beverages is plainly aimed at preventing the unlawful solicitation of orders for direct shipments of alcohol to New York residents by unlicensed, out-of-state suppliers. Because this provision minimally restricts only commercial speech concerning an unlawful activity, plaintiffs' First Amendment claim fails as a matter of law." (Defs.' Mem. at 27.)
. . . .
STANDARD OF REVIEW
In resolving a motion to dismiss, the Court must accept the factual allegations set forth in the complaint as true and draw all reasonable inferences in favor of the plaintiff. . . . The burden upon the movant is very substantial as the issue before the court on a Fed. R. Civ. P. 12(b) (6) motion "is not whether a plaintiff is likely to prevail ultimately, 'but whether the claimant is entitled to offer evidence to support the claims. Indeed, it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test.'" Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995) (quoting Weisman v. LeLandais, 532 F.2d 308, 311 (2d Cir. 1976) (per curiam)). "The motion to dismiss for failure to state a claim is disfavored and is seldom granted." Bower v. Weisman, 639 F. Supp. 532, 539 (S.D.N.Y. 1986). . . .
ANALYSIS
. . . .
In 1994, the Supreme Court noted that, in attempting to harmonize state and federal powers where alcoholic beverages are concerned, a court must determine "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 requirements directly conflict with express federal policies." Capital Cities Cable. Inc. v. Crisp, 467 U.S. 691, 714 (1984).
In Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), the Supreme Court explained that "[t]he central purpose of the [Twenty-first Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition . . . State laws that constitute mere economic protectionism are therefore 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 (emphasis added.) And in 1986, the Supreme Court stated that "[w]hen a state statute directly regulates or discriminate's 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 Distillers v. N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986).n12
Clearly, "recent Twenty-First Amendment cases have emphasized federal interests to a greater degree than had earlier cases[,]" Bacchus, 469 U.S. at 275.
Rulings in this judicial circuit . . . also reflect [that] evolution. . . .
. . . .
Technological advancements facilitate -- as never before -- the commerce between and among states. The Internet increasingly is responsible for direct sale and shipment of goods to consumers. See Vijay Shanker, Note, Alcohol Direct Shipment Laws, the Commerce Clause, and the Twenty-First Amendment, 85 Va. L. Rev.353, 356 (1999): "Recent years . . . have seen a boom in the direct shipment business, do in large part to the Internet . . . Wholesalers and retailers are consequently concerned about a potential drop in revenues and, because sales taxes for alcohol are generally collected at the wholesale point, states are foreseeing lost tax revenues. As a result, states have been amending their direct shipment laws, either by imposing greater restrictions or by increasing sanctions for violations."
In view of the allegations in the complaint, and light of these (legal and economic) developments, it would be inappropriate to deny Plaintiffs here the opportunity to adduce evidence in support of their claims.n16
Interstate Commerce
In their complaint, Plaintiffs' allege that "[t]he Direct Shipment and Advertising Ban violates the rights of all plaintiffs to freedom of commerce as guaranteed by the interstate commerce clause," (Compl. ¶ 38), by discriminating "on its face against out-of-state wineries, and in favor of New York wineries, by prohibiting direct sales and shipments of wines to New York consumers from out-of-state wineries and by permitting such direct sales and shipments to New York consumers by licensed instate wineries." (Compl. ¶ 34.) Plaintiffs allege that "[a] principal purpose of the Direct Shipment and Advertising Ban is economic protectionism, primarily or exclusively for the benefit of wholesalers." (Compl. ¶ 36.) The winery Plaintiffs also allege that they "all have New York consumers who would like to order their products" and that they "would sell and ship products to New York customers but do not do so because of the Direct Shipment and Advertising Ban." (Compl. ¶ 23.)
Defendants contend that "[t]he 'dormant' Commerce Clause is not implicated here because Congress, in enacting the Webb-Kenyon Act and related federal legislation, directly authorized the states to adopt laws, such as the ABC Law, which govern the importation, transportation and distribution of alcoholic beverages, and thereby federalized those state laws." (Defs.' Mem. at 8.) In the alternative, Defendants assert that "[e]ven if the 'dormant' Commerce Clause, were implicated here, the ABC Law would not impose an undue burden on interstate commerce because it has prevented neither the importation of alcohol into New York State, nor the sale of out-of-state alcohol within New York State." (Defs.' Mem at 8.) Defendants' contend that "according to data from the New York State Department of Taxation and Finance . . . nealy [sic] 90% of all wine sld [sic] in New York State comes from out-of-state sources." (Defs. Mem. at 23 n.25.)
Because all reasonable inferences are, at this stage of the case, to be drawn in favor of the plaintiff, Plaintiffs' Commerce Clause claim survives the motion to dismiss. Both . . . the Twenty-first Amendment and the Commerce Clause are parts of the same Constitution [and] each must be considered in light of the other and in the context of the issues and interests at stake in any concrete case.'" Bacchus, 468 U.S. at 275 (quoting Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 332 (1964)). "If a state law purporting to promote [legitimate] purposes is in reality 'simple economic protectionism,' we have applied a 'virtually per se rule of invalidity.'. . . Even if a statute regulates 'evenhandedly,' and imposes only 'incidental' burdens on interstate commerce, the courts must nevertheless strike it down if the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Clover Leaf Creamery Co., 449 U.S. at 471.
. . . .
Defendants' argument that the "dormant" Commerce Clause is not implicated here because of the Webb-Kenyon Act and related federal legislation, similarly, does not warrant dismissal of the complaint at this time. . . .
It does not appear that the Webb-Kenyon Act and related federal legislation provide the states with any additional power to avoid the Commerce Clause than that granted to them in the Twenty-first Amendment. Indeed,
[w]hile it may be conceded that the intent of the Wilson Act, . . . the Webb-Kenyon Act, . . . and the Twenty-First Amendment, was to take from intoxicating liquor the protection of the interstate commerce laws in so far as necessary to deny them an advantage over the intoxicating liquors produced in the state into which they were brought, yet, none of them show an intent or purpose to so abdicate control over interstate commerce as to permit discrimination against the intoxicating liquor brought into one state from another.Pacific Fruit & Produce Co., v. Martin, 16 F. Supp. 34, 39-40 (W.D. Wash. 1936) (emphasis added.)n24 Moreover, the Supreme Court has indicated that congressional authorization of discriminatory state laws must be unambiguously clear. For the purposes of the instant motion, neither the Webb-Kenyon Act nor the Wilson Act exhibits such an "unmistakably clear" direction.
Privileges and Immunitiesn25
Plaintiffs Swedenburg and Lucas claim that "[t]he freedom to pursue a livelihood is a fundamental right protected by the privileges and immunities guarantee," (Compl. ¶ 41), and "[b]ecause nearly all the winery plaintiffs' sales are directly to consumers, the Direct Shipment and Advertising Ban significantly impairs plaintiffs' ability to pursue their chosen and legitimate livelihood." (Compl. ¶ 43.)n26 Plaintiffs Swedenburg and Lucas argue that they have alleged "their Privileges and Immunities Clause cause of action in their individual capacities" (Pls.' Mem. at 31), but even if they "are seen as pursuing their claim based on injury to their businesses rather than as individuals, they have standing to assert their privileges and immunities claim. . ." (Pls.' Mem. at 31.)
Defendants contend that "[a]s business entities, the winery plaintiffs in this case are not 'citizens' within the meaning of the Privileges and Immunities Clause and, therefore, do not qualify for its protection," (Defs.' Mem. at 25.) Defendants further assert that Saenz v. Roe, 526 U.S. 499 (1999), makes clear that, "Article IV protection is available only to those citizens who, upon entering another state, are treated discriminatorily precisely because they are not citizens of that state." (Defs.' Reply at 20.) (emphasis in original.)
"Derived, like the Commerce Clause, from the fourth of the Articles of Confederation, the Privileges and Immunities Clause was intended to create a national economic union." Supreme Court of New Hampshire v. Piper, 470 U.S. 274, 279-80 (1985).n28 The Privileges and Immunities Clause was intended to "fuse into one Nation a collection of independent, sovereign States." Toomer v. Witsell, 334 U.S. 385, 395 (1948). The Supreme Court declared in Toomer that "one of the privileges which the clause guarantees to citizens of State A is that of doing business in State B on terms of substantial equality with the citizens of that State." Toomer, 334 U.S. at 396. "Those protections are not 'absolute,' but the Clause "does bar discrimination against citizens of other States where there is no substantial reason for the discrimination beyond the mere fact that they are citizens of other States.'" Saenz v. Roe, 526 U.S. 489, 502 (1999) (citing Toomer, 334 U.S. at 396).
The term "citizens" as used in the Privileges and Immunities Clause applies "only to natural persons." Paul v. Virginia, 75 U.S. 168, 177 (1868). Plaintiffs Swedenburg and Lucas have brought the instant case as proprietors of wineries and in their individual capacities. Plaintiffs Swedenburg and Lucas, certainly in their individual capacities, are "citizens" within the meaning of the Privileges and Immunities Clause and may continue to pursue claims thereunder.
Defendants' contention that the "Privileges and Immunities Clause is designed to protect a citizen of one state from discriminatory treatment when traveling to other states" appears overly restrictive. (Defs.' Mem. at 25.) Defendants seem to suggest that because Plaintiffs Swedenburg and Lucas are not physically in New York State, they cannot invoke the protection the Privileges and Immunities Clause. This argument is unavailing. In Blake v. McClung, 172 U.S. 239 (1898), the Supreme Court, applying the Privileges and Immunities Clause, condemned a Tennessee statute that granted a priority to resident creditors over nonresident creditors. . . .
. . . Nowhere does the McClung Court suggest that the nonresident creditors must be "physically present" in order to fall within the ambit of the Privileges and Immunities Clause.
First Amendment
Plaintiffs claim that "[t]he Direct Shipment and Advertising Ban, on its face, prohibits in the most sweeping terms truthful information and advertising about wine, including but not limited to commercial speech," (Compl. ¶ 49.) The "statute's broad language prohibits advertising concerning a range of lawful activities, namely, information relevant to visiting out-of-state wineries and purchasing wines produced by out-of-state wineries." (Pls.' Mem. at 34-35.) Defendants contend that "[t]he First Amendment is not implicated here because the ABC Law restricts, to a limited extent, only unprotected commercial speech concerning an unlawful activity." (Defs.' Mem. at 9.) Defendants assert that "the regulation, on its face and as applied, prohibits only advertising that solicits orders for alcoholic beverages and, thus, is directly related to the State's 'core power.'" (Defs. Reply at 21.) (emphasis in original.) According to Defendants, the "narrowly tailored restriction on commercial advertising for alcoholic beverages is plainly aimed at preventing the unlawful solicitation of orders for direct shipments of alcohol to New York residents by unlicensed, out-of-state suppliers. Because this provision minimally restricts only commercial speech concerning an unlawful activity, plaintiffs' First Amendment claim fails as a matter of law." (Defs.' Mem. at 27.)
. . . The Court is unwilling to decide the First Amendment questions without a more thoroughly developed record of proceedings in which the parties have an opportunity to prove the disputed factual assertions upon which they rely.
. . . .
ORDER
For the foregoing reasons, Defendants' motion to dismiss [] Plaintiffs' complaint is denied. . . .
FOOTNOTES
1ABC Law § 102(1) (a) states that, "No person shall send or cause to be sent into the state any letter, postcard, circular, newspaper, pamphlet, order kit, order form, invitation to order, price list, or publication of any kind containing an advertisement or a solicitation of any order for any alcoholic beverages . . . unless such person shall be duly licensed hereunder to traffic in alcoholic beverages," Section 102(1) (c) provides that, "No alcoholic beverages shall be shipped into the state unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages. . ." Section 102(1) (d) provides that, "No common carrier or other person shall bring or carry into the state any alcoholic beverages, unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages. . ."
5 Section 2 of the Twenty-first Amendment states that "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.
6 The Webb-Kenyon Act states, in part, that "[t]he shipment or transportation . . . of any Spirituous, vinous, malted, fermented, or other intoxicating liquor of any kind, from one State, Territory, or District of the United States . . . into any other State, Territory, or District of the United States . . . or from any foreign country into any State, Territory, or District of the United States . . . in violation of any law of such State, Territory, or District of the United States . . . is hereby prohibited." 27 U.S.C. § 122.
12 The Supreme Court has stated that "[i]f a state law purporting to promote [legitimate] purposes is in reality 'simple economic protectionism,' . . . we have applied a 'virtually per se rule of invalidity,'. . . Even if a statute regulates 'evenhandedly,' and imposes only 'incidental' burdens on interstate commerce, the courts must nevertheless strike it down if 'the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.'" Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 471 (1981) (citations omitted.)
16 The Court hastens to add that it is in no way ruling here upon the ultimate merits of the parties' respective claims.
24 The Wilson Act states that "All fermented, distilled, or other intoxicating liquors or liquids transported into any State or Territory . . . shall upon arrival in such State or Territory be subject to the operation and effect of the laws of such State or Territory enacted in the exercise of its police powers, to the same extent and in the same manner as though such liquids or liquors had been produced in such State or Territory, and shall not be exempt therefrom by reason of being introduced therein in original packages or otherwise." 27 U.S.C. § 121 (emphasis added.)
25 The Privileges and Immunities Clause of Article IV, § 2 provides that "The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States." U.S. Const. art. IV, § 2.
26 Though the [Supreme] Court has not issued an exhaustive list of the rights or activities that will be considered fundamental to interstate harmony as to fall within the purview of the privileges and immunities clause, it would seem clear that the ability to engage in private sector commercial activity is one of them." 2 Ronald D. Rotunda & John E. Nowak, Treatise of Constitutional Law § 12.7 (3rd ed. 1999).
28 The Supreme Court "has recognized the 'mutually reinforcing relationship' between the Commerce Clause and the Privileges and Immunities Clause." Piper at 280 n.8 (quoting Hicklin v. Orbec, 437 U.S. 518, 531 (1978)). In fact, "there is a respectable argument that the framers of the Constitution intended the privileges and immunities clause to play the role that has come to be played instead by the negative commerce clause." W.C.M. Window Co., Inc. v, Bernardi, 730 F.2d 486, 496 (7th Cir. 1984).
Top of Page Chapter 10 Title Page Email Listserve