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SWEDENBURG v. KELLY

November 12, 2002

JUANITA SWEDENBURG, IN HER OWN CAPACITY AND AS PROPRIETOR OF SWEDENBURG WINERY, A VIRGINIA PARTNERSHIP; DAVID LUCAS, IN HIS OWN CAPACITY AND AS PROPRIETOR OF THE LUCAS WINERY, A CALIFORNIA SOLE PROPRIETORSHIP; PATRICK FITZGERALD; CORTES DERUSSY; AND ROBIN BROOKS PLAINTIFF,
V.
EDWARD F. KELLY, CHAIRMAN, AND LAWRENCE J. GEDDA AND JOSEPH ZARRIELLO, COMMISSIONERS, OF THE STATE LIQUOR AUTHORITY, DIVISION OF ALCOHOLIC BEVERAGE CONTROL, STATE OF NEW YORK, IN THEIR OFFICIAL CAPACITIES, DEFENDANTS, AND 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 INTERVENOR-DEFENDANTS.



The opinion of the court was delivered by: Berman, District Judge.

DECISION AND ORDER

I. Introduction

This case is one of a series of recent constitutional challenges to state alcoholic beverage control laws, particularly as they relate to the direct shipment of wine. What the cases all have in common is the relationship (and tension) between the Commerce Clause of the United States Constitution, which empowers Congress to regulate commerce among the several states, and the Twenty-first Amendment to the Constitution, which grants to the states the power to regulate the importation and distribution of alcoholic beverages within their borders. The Court concludes that the New York ban on the direct shipment of out-of-statewine is unconstitutional.

On February 3, 2000, Plaintiffs Juanita Swedenburg ("Swedenburg") and David Lucas ("Lucas"), proprietors of two out-ofstate wineries, and Patrick Fitzgerald ("Fitzgerald"), Cortes DeRussy ("DeRussy"), and Robin Brooks ("Brooks"), three New York State consumers of wine (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(l)(a), (c), and (d) [`ABC Law'] . . . unconstitutional, void, and of no effect[.]"*fn1 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," id. ¶ 38, "the economic liberty of the plaintiffs Swedenburg and Lucas under the privileges and immunities guarantee," id. ¶ 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." Id. ¶ 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 O. 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). Plaintiffs, including amici Coalition to Preserve Consumer Access to Wine, Arcadian Estate Vineyards and Cascata Winery at the Professor's Inn, and Consumer Alert, opposed Defendants' motion.*fn2 Oral argument was held on July 21, 2000. By Decision and Order dated September 5, 2000 ("September 5, 2000 Decision"), the Court denied Defendants' motion to dismiss. "No evidence has been presented here regarding the purpose(s) and effect(s) of New York's ABC Laws and it would be precipitous to make a determination foreclosing Plaintiffs' cause upon the existing record. At this stage, the Court is constrained to assume that a `principal purpose of the Direct Shipment and Advertising Ban is economic protectionism[.]'" Swedenburg v. Kelly, 00 Civ. 778(RMB), 2000 WL 1264285, at *10 (S.D.N.Y. Sept. 5, 2000) (citing Compl. ¶ 36) (emphasis in original).

Discovery ensued, and on June 7, 2001, Plaintiffs moved for summary judgment pursuant to Fed.R.Civ.P. 56(c).*fn3 "The law is discriminatory on its face and burdens interstate commerce by making it all but impossible for many small wineries to sell their products to New York consumers." Plaintiffs' Memorandum of Law in Support of Motion for Summary Judgment ("Pl. Mem.") at 2.*fn4 Defendants cross-moved for summary judgment on August 17, 2001, asserting that "state regulations . . . that prohibit shipments from out-of-state wineries to anyone other than in-state licensed wholesalers `fall within the core of the State's power under [Section 2 of] the Twenty-first Amendment' and are `unquestionably legitimate'."*fn5 Defendants' Memorandum of Law in Support of Motion for Summary Judgment ("Def.Mem.") at 2-3. Plaintiffs and Defendants filed reply briefs dated October 13, 2001 and November 13, 2001, respectively. See Pl. Reply; Def. Reply. Oral argument — which was enormously helpful to the Court — was held on April 17, 2002. Supplemental briefs were, thereafter, filed at the Court's request on April 19, 2002.*fn6

II. Background*fn7

Like other states, New York has a "three-tier" system of alcohol sales. Alcohol producers must go through licensed wholesalers and distributors who must, in turn, go through licensed retailers who then sell to consumers. See Vijay Shanker, Note, Alcohol Direct Shipment Laws, the Commerce Clause, and the Twenty-First Amendment, 85 Va.L.Rev. 353, 355 (1999). All alcoholic beverages (not just wine) must be distributed through this three-tiered system. The ABC Law does not allow out-of-state wineries to ship their products directly to New York consumers. See N.Y. ABC Law § 102(1)(c).*fn8

Plaintiffs, who are here concerned only about the distribution of wine, contend, inter alia, that the direct shipment ban violates both the Commerce Clause and the Privileges and Immunities Clause of the United States Constitution.*fn9 "New York's ABC Law on its face regulates interstate commerce and creates discriminatory burdens." Pl. Mem. at 12. Plaintiffs argue that Defendants' explanations of New York's direct shipping ban do not "justify the economic protectionism of [the law]." Pl. Reply at 7. Plaintiffs also contend that New York law "forbids certain advertising of lawful products and thereby deprives all plaintiffs of the free flow of communications guaranteed by the First Amendment." Id. at 3.

Defendants, as noted, rely principally upon the explicit language of the Twentyfirst Amendment and assert "the State has acted within its `core powers' . . . to regulate the `transportation or importation' of alcoholic beverages for `delivery or use' within the State." Def. Mem. at 6. They contend that "where, as here, a state regulation concerns `whether to permit importation or sale of liquor and how to structure the liquor distribution system,' which is the `central power reserved by § 2 of the Twenty-first Amendment,' that ends the inquiry." Id. at 7 (quoting Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 715, 104 S.Ct. 2694, 81 L.Ed.2d 580 (1984)).*fn10 Defendants further contend that the New York Alcoholic Beverage Control "regime" advances and is premised upon legitimate state interests protected by the Twenty-first Amendment, including promoting temperance, ensuring orderly market conditions, and raising revenue. Id.*fn11 With respect to communications, Defendants assert that the ABC Laws includes a "narrowly tailored restriction on commercial advertising for alcoholic beverages . . . plainly aimed at preventing the unlawful solicitation of orders for direct shipments of alcohol to New York residents by unlicensed suppliers." Def. Mem. at 29 (emphasis in original). In his November 4th letter, Defendants' counsel argues (incorrectly in the Court's view) that: "Congress has spoken on the direct shipment of wine, has struck the balance it deems appropriate, and has therefore removed the issue of state direct shipping bans from application of the `dormant' Commerce Clause."

III. Standard of Review

Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show . . . that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Gallo v. Prudential Residential Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994).

The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The burden then shifts to the nonmoving party which "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting Fed.R.Civ.P. 56(e)); accord Brass v. American Film Technologies, Inc., 987 F.2d 142 (2d Cir. 1993). The substantive law governing the case will identify those facts which are material and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); see also Gallo, 22 F.3d at 1223.

When cross-motions for summary judgment are made the standard is the same as that for individual motions for summary judgment. See Morales v. Quintel Entertainment, Inc., 249 F.3d 115, 121 (2d Cir. 2001). Each motion must be considered independently of the other and, when evaluating each, the court must consider the facts in the light most favorable to the non-moving party. See id.*fn12

IV. Recent (Related) Litigation

At the time of the Court's September 5, 2000 Decision, three other district courts had considered constitutional challenges to state alcoholic beverage regulations as they relate to the direct shipment of wine and ruled, inter alia, that the challenged statutes were in violation of the dormant Commerce Clause. See Swedenburg, 2000 WL 1264285, at *3-4 (discussing Bridenbaugh v. O'Bannon, 78 F. Supp.2d 828 (N.D.Ind. 1999) (Indiana statute prohibiting direct shipment of wine from out-of-state to an Indiana residence held unconstitutional on motion for summary judgment); Dickerson v. Bailey, 87 F. Supp.2d 691 (S.D.Tex. 2000) (finding upon summary judgment that ban on direct shipment from out-of-state wineries violates the dormant commerce clause); and Kendall-Jackson Winery, Ltd. v. Branson, 82 F. Supp.2d 844 (N.D.Ill. 2000) (preliminary injunction granted where plaintiffs showed likelihood of success on the merits that the Illinois winery "exemption" violates dormant commerce clause)).*fn13

Eight days after the Court issued its September 5, 2002 Decision, the United States Court of Appeals for the Seventh Circuit reversed the Indiana district court's decision in Bridenbaugh and found the direct shipping ban to be constitutional. See Bridenbaugh v. Freeman-Wilson, 227 F.3d 848, 854 (7th Cir. 2000) (Easterbrook, J.)*fn14 In Bridenbaugh, plaintiffs had challenged Title 7.1 of the Indiana Code which establishes that state's "three tier" alcohol distribution system. 227 F.3d at 851. Among other things, the Indiana Code "permits local wineries, but not wineries `in the business of selling . . . in another state or country', to ship directly to Indiana consumers." Id. The Seventh Circuit noted that Section 2 of the Twentyfirst Amendment "empowers Indiana to control alcohol in ways that it cannot control cheese," id., and also found that Section 2 "enables a state to do to the importation of liquor . . . what it chooses to do to the internal sales of liquor, but nothing more." Id. at 853. "Indiana insists that every ...


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