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A federal judge from the U.S. District Court for the Southern District of New York refused Wednesday to dismiss a challenge to New York State’s ban on direct shipment of wine and advertising by out-of-state wineries to New York consumers. The Twenty-First Amendment to the U.S. Constitution, which authorizes the states to regulate the importation of alcoholic beverages, no longer supports regulation that is purely protectionist in nature, District Judge Richard M. Berman said. The power to govern alcohol sales, he reasoned, does not authorize violations of the Commerce Clause, which prohibits the states from placing undue burdens on interstate commerce. Berman said the plaintiffs had stated a colorable challenge to the state law and should be given a chance to produce evidence to prove their case. In Swedenburg v. Kelly, 00 Civ. 0778 (RMB), the plaintiffs said the prohibition on direct sales of wine violates the Interstate Commerce Clause of the U.S. Constitution by being invalid, protectionist legislation, and also violates the free speech rights of winemakers and consumers. The defendants included the chairman and commissioner of the New York State Liquor Authority, Division of Alcoholic Beverage Control. State officials argue that the ban on direct sales to consumers by wine and liquor manufacturers is designed to make sure that those who sell spirits in New York are licensed by the state and accountable to it. In a 23-page decision, Berman said that the plaintiffs — two wineries, one in Virginia and the other in California, and three consumers living in New York — have stated a potentially valid constitutional challenge to sections of the Alcohol and Beverage Control Act, which prevent sales of wine by mail order and over the Internet. CHANGING TIMES “[I]t would be inappropriate to deny plaintiffs here the opportunity to adduce evidence in support of their claims,” Berman wrote, noting changing legal standards and economic conditions. The power to regulate alcohol distribution in New York State is expressly allowed by the Twenty-First Amendment, said state officials and several intervenors, who include in-state liquor distributors, the labor union representing liquor store workers, and the Reverend Calvin Butts. In his key holding, Berman said the Twenty-First Amendment, which includes language prohibiting transportation of liquor into the states in violation of state laws, does not automatically override the Commerce Clause and free speech guarantees included elsewhere in the Constitution. While a Southern District court in 1970 said the Twenty-First Amendment “is dispositive” in a challenge to state liquor regulations, Berman remarked that “there has been considerable change and evolution in Twenty-First Amendment jurisprudence since” that time. Federal courts have, over the last three decades, upheld some challenges to state liquor laws, and the U.S. Supreme Court in 1984 said the “central purpose of the [Twenty-First Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition.” Protectionist measures that violate the Commerce Clause cannot be “saved” by the Twenty-First Amendment, Berman concluded, quoting a 1985 decision of the U.S. 2nd Circuit Court of Appeals, Loretto Winery Ltd. v. Duffy, 761 F2d 140. The Loretto Winery decision, Berman noted, holds that state liquor control regulation may be permissible only to “directly promote temperance.” Since the plaintiffs in the case before him aver that the state regulatory scheme is designed to protect New York retailers at the expense of interstate commerce, that allegation must be tested in litigation, Berman said. The court must also address the plaintiffs’ claim of a First Amendment violation in the ban on advertisement to New Yorkers by out-of-state sellers of wine, he added. The plaintiffs say the regulation precludes lawful commercial speech, such as providing information to New Yorkers about tours of out-of-state wineries. But state officials claim that the ban only encompasses advertising soliciting orders for alcoholic beverages from an out-of-state retailer — an unlawful activity. Berman said he would need a more “thoroughly developed record” before dismissing the case or granting relief to plaintiffs. The plaintiffs were represented at oral argument by Clint Bolick and Miranda Perry of the Washington, D.C.-based Institute for Justice. Assistant Attorney General Bruce A. Brown argued on behalf of the New York State Liquor Authority. The labor union was represented by Henry Martuscello of Kalmus & Martuscello in Manhattan. The trade association for New York liquor retailers was represented by Alan Gardner of Verini & Gardner. Intervenor-defendant Charmer Industries Inc. was represented by Howard Graff of New York’s Baer Marks & Upham; and intervenor-defendant Peerless Importers Inc. was represented by Randy M. Mastro of Gibson, Dunn & Crutcher’s New York office.

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