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A ruling by the U.S. Court of Appeals for the 2nd Circuit upholding a New York state ban on the direct shipment of out-of-state wines to residents has “teed up the issue for the U.S. Supreme Court,” according to the lawyer leading the charge against such bans. “If we didn’t have divided circuits before, we sure do now,” says Clint Bolick of the Institute for Justice, the libertarian legal group that has filed suits nationwide seeking to overturn bans on direct interstate wine shipment. “It’s as ripe for Supreme Court consideration as any case I’ve seen.” The issue points to a conflict within the U.S. Constitution. Such direct interstate shipment bans might appear to be illegal under the interstate commerce clause, which reserves to Congress the regulation of trade between states. But the 21st Amendment, which ended Prohibition, also gave the states the authority to regulate the sale and distribution of alcoholic beverages. The 2nd Circuit’s decision on Feb. 12 in Swedenburg v. Kelly, 02-9511, overturned a November 2002 ruling by Southern District of New York Judge Richard Berman, who found that New York’s direct shipment ban was an unconstitutional burden on interstate commerce. Other federal appeals courts have taken different views. In August, the 6th Circuit in Michigan overturned a direct shipment ban. The 5th and 4th circuits have taken similar positions, while the 7th Circuit has upheld such a ban in Indiana. The unanimous 2nd Circuit opinion, written by Judge Richard Wesley, took the view that the 21st Amendment “is unequaled in our constitutional experience — it repeals one constitutional provision and creates an exception to another.” New York’s Alcoholic Beverage Control (ABC) laws, like those of many other states, require that all alcoholic beverages shipped into the state be first consigned to licensed wholesalers. But licensed wineries within New York state are permitted to sell directly to New Yorkers. Two wineries in California and Virginia, as well as three New York consumers, sued the New York State Liquor Authority, claiming the primary purpose for the direct shipment ban was economic protectionism for local wineries and wholesalers. Judge Berman agreed and found that New York’s ABC laws were not excepted from commerce clause scrutiny under the 21st Amendment because their discriminatory purpose did not reflect the “core concerns” of the amendment. But the appellate court found that the state had a legitimate interest in monitoring the flow of alcohol into the state by regulating its physical presence. New York state wineries are licensed by the state and subject to inspection, as are state wholesalers. Out-of-state wineries are not. The 2nd Circuit did uphold Berman’s decision that a New York ban on advertising by out-of-state wineries was overly broad, affecting Internet ads not illegal in other states, and therefore violated First Amendment guarantees of freedom of commercial speech. Judges Jon Newman and Sonia Sotomayor joined in Wesley’s opinion. The U.S. Supreme Court has previously invalidated state taxes and other controls on liquor sales it determined were only intended to serve protectionist purposes. Bolick says the 2nd Circuit’s decision was in defiance of that jurisprudence. In a statement issued Feb. 12, Juanita Duggan, president of the Wine & Spirits Wholesalers of America, called the 2nd Circuit’s decision “a clear victory for the people of New York and for common sense.” “It reaffirms the state’s constitutional right to ensure out-of-state alcohol providers comply with state alcohol laws,” she said, accusing the wine industry of seeking to create “alcohol anarchy.” The Michigan attorney general has filed a petition for writ of certiorari asking the U.S. Supreme Court to reverse the 6th Circuit decision, and the 2nd Circuit decision lends the matter momentum. But the New York case itself may be mooted before it gets to the high court. Bolick says that New York Gov. George Pataki, who earlier vetoed a bill in the state Legislature that would ease the direct shipment ban, has indicated he no longer opposes a change in the state ABC laws. Though the distributors are the “800-pound gorilla in the fight,” says Bolick, the governor is under pressure from the New York wine industry, the second-largest in the nation after California. “New York wineries want to ship to other markets as well,” he notes. Anthony Lin is a reporter for the New York Law Journal, an American Lawyer Media daily newspaper, where this article first appeared.

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