U.S. v. State of N.D.

• Decision Date: 09 September 1988
• Docket Number: No. 87-5334,87-5334
• Citation: 856 F.2d 1107
• Parties: , 35 Cont.Cas.Fed. (CCH) 75,555 UNITED STATES of America, Appellant, v. STATE OF NORTH DAKOTA, Robert E. Hanson, State Treasurer of North Dakota, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1107

856 F.2d 1107

57 USLW 2172, 35 Cont.Cas.Fed. (CCH) 75,555

UNITED STATES of America, Appellant, v. STATE OF NORTH DAKOTA, Robert E. Hanson, State Treasurer of North Dakota, Appellees.

No. 87-5334.

United States Court of Appeals Eighth Circuit.

Submitted May 10, 1988.

Decided Sept. 9, 1988.

Raymond Hepper, Washington, D.C., for appellant.

Nicholas J. Spaeth, Bismarck, N.D., for appellees.

Before LAY, Chief Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

HENLEY, Senior Circuit Judge.

In this appeal we must pass upon the constitutionality of North Dakota's attempts to regulate the military's purchase of alcoholic liquor from out-of-state suppliers. The State's regulations require out-of-state suppliers to affix a label to each bottle of liquor destined for a military installation in North Dakota stating that the liquor is exclusively for consumption within the federal military enclave. In addition, each supplier must file a monthly report showing the quantity of liquor shipped into the State during the preceding month. ¹ While this is a case in which the parties may appear simply to bicker over liquor stickers, it implicates important constitutional considerations.

The United States brought this suit against the State of North Dakota for a declaration that the State's regulations are unconstitutional and for an injunction against their enforcement. The position of the United States is essentially that the regulations conflict with a federal regulation requiring the military to procure liquor under the most advantageous contract, and are therefore invalid under the supremacy clause of the United States Constitution. North Dakota responds that the twenty-first amendment, which forbids the importation of alcohol into a state in violation of the laws of that state, gives it the power to regulate the importation of liquor to military bases in order to control its unlawful diversion into the state's domestic commerce.

The case was presented to the district court on cross motions for summary judgment. The parties stipulated that the military bases in North Dakota are not exclusive federal jurisdiction enclaves. ²

The outlets for alcoholic beverages on the military installations in North Dakota are clubs and package goods stores denominated non-appropriated fund instrumentalities (NFIs) of the federal government. NFIs are not directly supported with government funds. They exist for the purpose of generating profits to support military recreational activities. They accomplish this largely through the sale of alcoholic beverages to active and retired military personnel and their families. A regulation of the Department of Defense provides that the Department shall cooperate with local authorities but that "the purchase of all alcoholic beverages for resale [at military facilities] ... shall be in such a manner and under such conditions as shall obtain for the government the most advantageous contract, price and other considered factors." 32 C.F.R. Sec. 261.4 (1986). The regulation further provides that neither cooperation with local authorities nor the "other factors" bearing on the most advantageous contract shall be construed as requiring submission to state control, taxation, or requirements that alcoholic beverages be purchased from in-state suppliers. Id.

The trial court record shows that, in response to the State's regulations, one out-of-state supplier informed the Air Force that it would impose price increases ranging from $.85 to $20.50 per case. Five other suppliers refused to sell to military facilities in North Dakota. According to an affidavit from Robert Hanson, the State Treasurer, other suppliers, although we are not told how many, are willing to comply with the regulations.

The United States submitted an affidavit from Kim Keltz, the manager of the joint military service consolidated purchasing program for distilled spirits, stating that if the military is forced to purchase its distilled spirits requirements from local wholesalers, its costs would rise approximately $200,000.00 to $250,000.00 annually. ³ Mr. Hanson's affidavit stated that the labels were necessary to control diversion, and that he was "aware of the diversion of alcoholic beverages from North Dakota federal enclaves into the state's domestic commerce in contravention of the state's established liquor distribution system."

The district judge reasoned that, although the regulations may have indirectly caused an increase in the military's liquor costs, they did not conflict with the regulations requiring the most advantageous contract. Rather, they merely made the most advantageous contract more expensive. United States v. North Dakota, 675 F.Supp. 555, 557 (D.N.D.1987). The court went on to hold that, assuming a conflict between the State and federal interests, the State would prevail, as its interests in regulating the importation of liquor under the twenty-first amendment outweigh those of the government in procuring liquor at the lowest possible price. Id. at 558-59. Accordingly, the court granted the State's motion for summary judgment, and denied the summary judgment motion of the United States. The United States appeals. For the reasons that follow, we reverse.

Section 2 of the twenty-first amendment provides: "The transportation or importation into any State ... for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." The "core power" conferred on the states in Sec. 2 is "that of exercising 'control over whether to permit importation or sale of liquor and how to structure the liquor distribution system.' " Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 713, 715, 104 S.Ct. 2694, 2704, 81 L.Ed.2d 580 (1984) (quoting California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 110, 100 S.Ct. 937, 945-46, 63 L.Ed.2d 233 (1980)). While the principal effect of Sec. 2 is to free the states from the normal constraints imposed by the commerce clause, this freedom is not without limits, Craig v. Boren, 429 U.S. 190, 207, 97 S.Ct. 451, 462, 50 L.Ed.2d 397 (1976); South Dakota v. Dole, 791 F.2d 628, 633 (8th Cir.1986), aff'd, --- U.S. ----, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987), since the twenty-first amendment does not give the states the exclusive power to regulate liquor. Dole, 791 F.2d at 633. Determining the precise contours of state and federal power in this area is not necessarily a simple task, however. South Dakota v. Dole, --- U.S. ----, 107 S.Ct. 2793, 2795, 97 L.Ed.2d 171 (1987) (bounds of the amendment "have escaped precise definition"); Midcal Aluminum, 445 U.S. at 110, 100 S.Ct. at 946 ("no bright line between state and federal powers over liquor"). In this case, we must decide whether State power extends so far as to enable the State here to regulate instrumentalities of the United States over which the State exercises concurrent jurisdiction. ⁴

The ability of a state to regulate liquor purchases by the military was the subject of two related Supreme Court decisions, United States v. State Tax Commission of Mississippi, 412 U.S. 363, 93 S.Ct. 2183, 37 L.Ed.2d 1 (1973) ("Tax Commission I") and United States v. State Tax Commission of Mississippi, 421 U.S. 599, 95 S.Ct. 1872, 44 L.Ed.2d 404 (1975) ("Tax Commission II"). The Mississippi Tax Commission had promulgated a regulation requiring distillers to collect a "wholesale markup," which the Court determined was a tax, from military purchasers. The Court held that, the twenty-first amendment notwithstanding, Art. I, Sec. 8, cl. 17, of the Constitution ⁵ prohibited the state from regulating in any manner transactions occurring on those bases over which the military exercised exclusive jurisdiction. 412 U.S. at 369-71, 375, 93 S.Ct. at 2190-91. The Court rested its analysis on the language of the twenty-first amendment forbidding the unlawful "importation into any state," observing that an exclusively federal enclave is not within any state's territory. Id. at 375, 93 S.Ct. at 2190-91.

As noted, the parties to this case stipulate that the bases in North Dakota are not under exclusive federal jurisdiction, and the United States makes no argument for the application of Art. I, Sec. 8, cl. 17. In Tax Commission I, however, the Court was faced also with determining the validity of state regulation in the context of concurrent state and federal jurisdiction over military installations. That issue was the subject of a remand and a subsequent appeal to the Supreme Court. In Tax Commission II, the United States attacked the state tax on the ground that it violated the principle, first set forth in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819), that the national government enjoys immunity from state taxation by virtue of the supremacy clause. ⁶ 421 U.S. at 612-13, 95 S.Ct. at 1880-81. The Court agreed, citing Department of Revenue v. James B. Beam Distilling Co., 377 U.S. 341, 84 S.Ct. 1247, 12 L.Ed.2d 362 (1964), and Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 84 S.Ct. 1293, 12 L.Ed.2d 350 (1964). In James Beam, the Court had invalidated Kentucky's tax on the import of whiskey from Scotland on the ground that the tax violated the Export-Import Clause, Art. I Sec. 10, cl. 2, and held that the twenty-first amendment had not repealed that clause. In Hostetter the Court held that the twenty-first amendment did not override the commerce clause to the extent that New York could prohibit the sale of liquor, under United States Customs supervision, to airline passengers departing for other countries. The Court concluded that "[s]imilarly, it is a 'patently bizarre' and 'extraordinary conclusion' to suggest that the Twenty-First Amendment abolished federal immunity as respects taxes on sales to bases where the United States and Mississippi exercise concurrent jurisdiction...." 421 U.S. at 614, 95 S.Ct. at 1881 (quoting Hostetter, 377...