Arnold's Wines, Inc. v. Boyle, 06 Civ. 3357 (RJH).

Decision Date05 September 2007
Docket NumberNo. 06 Civ. 3357 (RJH).,06 Civ. 3357 (RJH).
PartiesARNOLD'S WINES, INC. d/b/a Kahn's Fine Wines & Spirits, et al., Plaintiffs, v. Daniel B. BOYLE, et al., Defendants, and Charmer Industries, Inc., et al., Intervenor-Defendants.
CourtU.S. District Court — Southern District of New York

Michael Robert Reese, Sanford P. Dumain, Peter Edward Seidman, Milberg Weiss Bershad & Schulman LLP, New York, NY, Robert David Epstein, Epstein Cohen Donahoe & Mende, Indianapolis, IN, James Alexander Tanford, Indiana Univ. School of Law Bloomington, IN, for Plaintiffs.

Eugene Benger, New York State Office of the Attorney General, New York, NY, for Defendants.

John F. O'Mara, Davidson & O'Mara, P.C., Elmira, NY, Steven Jay Rice, Harris Beach, PLLC, Deborah A. Skakel, Howard Graff, Lindsay A. Bush, Dickstein, Shapiro, Morin & Oshinsky, LLP, Alan Jerome Gardner, Verini & Gardner, New York, NY, for Intervenor-Defendants.

MEMORANDUM OPINION AND ORDER

RICHARD J. HOLWELL, District Judge.

Plaintiffs brought this action pursuant to 42 U.S.C. § 1983 (2006) seeking to invalidate certain provisions of New York's Alcoholic Beverage Control Law ("ABC Law") that reserve to in-state retailers the exclusive right to sell, deliver, and transport wine directly to New York consumers. Plaintiffs seek a declaratory judgment that this statutory scheme discriminates against interstate commerce in violation of the Commerce Clause of the United States Constitution, Article I, Section 8, Clause 3. State defendants and intervenor-defendants have moved pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the Amended Complaint. For the reasons set forth below, the Court grants defendants' motions [36, 40].

DISCUSSION

Plaintiff Arnold's Wines, Inc., doing business as Kahn's Fine Wines & Spirits ("Kahn's"), is an out-of-state (Indiana) wine retailer that would like to sell its products directly to New York consumers. Plaintiffs Joshua T. Block and Sharon Silber, New York residents, would like to be able to buy and receive wine from out-of-state retailers. Defendants are the New York State Liquor Authority and individual officials of the New York State Liquor Authority. In addition, two licensed New York wholesalers and an association of licensed New York retailers have been granted leave to appear as intervenor-defendants.

Plaintiffs, who are here concerned only with retail sales of wine, challenge the constitutionality of sections 100(1), 102(1)(a), and 102(1)(b) of the ABC Law. Together, these provisions require that all liquor sold, delivered, shipped, or transported to a New York consumer first pass through an entity licensed by the State of New York. Section 100(1) states, "No person shall manufacture for sale or sell at wholesale or retail any alcoholic beverage within the state without obtaining the appropriate license therefor required by this chapter." N.Y. Alco. Bev. Cont. Law § 100(1) (McKinney 2000 & Supp.2006). Wine retailers in New York may apply for an off-premises license that will permit that retailer to ship wine directly to the residences of customers in New York, but out-of-state wine retailers are not eligible for such licenses.1 (Compl. ¶ 14; State Defs.' Mot. to Dismiss 13.) The other two provisions of the ABC Law challenged by plaintiffs make it illegal to ship wine into the State to an unlicensed entity (such as a consumer).2

These provisions are part of the three-tier licensing structure established in New York for the sale and distribution of alcoholic beverages. The three tiers refer to: (1) the producer; (2) the distributor or wholesaler; and (3) the retailer. Under the three-tier system, a producer sells its wine to a licensed in-state wholesaler, who pays excise taxes and delivers the wine to a licensed in-state retailer. The retailer, in turn, sells the wine to consumers and, where applicable, collects sales taxes. See Federal Trade Commission, Possible Anti-competitive Barriers to E-Commerce: Wine 5 (July 2003) ("FTC Wine Report"), available at http://www.ftc.gov/os/2003/07/ winereport2.pdf. In New York, out-of-state wineries and in-state wineries are permitted to bypass the three-tier system to ship directly to consumers. See N.Y. Alco. Bev. Cont. Law §§ 79-c, 79-d.3 The ABC Law requires that all other out-of-state producers and sellers ship to State-licensed wholesalers within the three-tier system.

I. Dormant Commerce Clause

Plaintiffs argue that this ban on direct sales to consumers by out-of-state wine retailers discriminates against interstate commerce in violation of the Commerce Clause. (See Compl. ¶¶ 11-17, 23; Pls.' Opp'n to Intervenor-Defs.' Mot. to Dismiss 1-2.) The Commerce Clause provides Congress the power "Rio regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." U.S. Const. Art. I, § 8, cl. 3. It is well established that this affirmative grant of authority implies a "negative" or "dormant" constraint on the power of the States to enact legislation that interferes with or burdens interstate commerce. See Dennis v. Higgins, 498 U.S. 439, 447, 111 S.Ct. 865, 112 L.Ed.2d 969 (1991) (holding that the Commerce Clause is "also a substantive restriction on permissible state regulation of interstate commerce" (internal quotation marks omitted)). The Supreme Court has held that "the first step in analyzing any law subject to judicial scrutiny under the negative Commerce Clause is to determine whether it regulates evenhandedly with only incidental effects on interstate commerce, or discriminates against interstate commerce." Or. Waste Sys. v. Dep't of Envtl. Quality, 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994) (internal quotation marks omitted). A state law discriminates against interstate commerce if it mandates "differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter"; such laws are "virtually per se invalid." Id.; see New Energy Co. v. Limbach, 486 U.S. 269, 274, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988) (noting that "state statutes that clearly discriminate against interstate commerce are routinely struck down"). A facially discriminatory law may be redeemed only if the State can "show that it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." New Energy, 486 U.S. at 278, 108 S.Ct. 1803; Hughes v. Oklahoma, 441 U.S. 322, 337, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979) ("Facial discrimination by itself may be a fatal defect" and "at a minimum ... invokes the strictest scrutiny").

Although the challenged provisions of the ABC Law are not discriminatory in the sense that they treat liquor manufactured in-state (domestic liquor) and out-of-state (imported liquor) the same, the provisions mandate "differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter" by blocking out-of-state retailers' access to the retail wine market in New York. Or. Waste Sys., 511 U.S. at 99, 114 S.Ct. 1345; see Lewis v. BT Inv. Managers, 447 U.S. 27, 39, 100 S.Ct, 2009, 64 L.Ed.2d 702 (1980) (holding that a statute burdens interstate commerce if "it overtly prevents foreign enterprises from competing in local markets"). "For more than a century the Supreme Court has treated the grant of commerce power to Congress as a prohibition against border-closing laws and other efforts by states to discriminate against interstate commerce." Bridenbaugh v. Freeman-Wilson, 227 F.3d 848, 851 (7th Cir.2000); see Cooley v. Board of Wardens of Port of Philadelphia, 53 U.S. (12 How.) 299, 319, 13 L.Ed. 996 (1851); Welton v. Missouri, 91 U.S. 275, 280, 23 L.Ed. 347 (1875); Dean Milk Co. v. Madison, 340 U.S. 349, 354, 71 S.Ct. 295, 95 L.Ed. 329 (1951); General Motors Corp. v. Tracy, 519 U.S. 278, 287, 117 S.Ct. 811, 136 L.Ed.2d 761 (1997). When viewed through the lens of traditional Commerce Clause principles, then, the challenged provisions appear to "directly burden[ ] interstate commerce in a manner that contravenes the Commerce Clause's implicit limitation on state power." Lewis, 447 U.S. at 44, 100 S.Ct. 2009; see Bridenbaugh, 227 F.3d at 851 ("If the product were cheese rather than wine, Indiana would not be able either to close its borders to imports....").

Ordinarily, "once a state law is shown to discriminate against interstate commerce `either on its face or in practical effect,' the burden falls on the State to demonstrate both that the statute `serves a legitimate local purpose,' and that this purpose could not be served as well by available nondiscriminatory means." Maine v. Taylor, 477 U.S. 131, 138, 106 S.Ct. 2440, 91 L.Ed.2d 110 (1986) (quoting Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979)). At this motion-to-dismiss stage, however, defendants argue that, as a matter of law, the ban on direct shipment of wine by out-of-state retailers is a valid exercise of New York's power under Section 2 of the Twenty-first Amendment. If the Court were to decide that the Twenty-first Amendment does not immunize the statute from dormant Commerce Clause attack, plaintiffs' claim would survive the motion to dismiss. See Peoples Super Liquor Stores, Inc. v. Jenkins, 432 F.Supp.2d 200 (D.Mass.2006) (proceeding with a similar analysis).

II. Twenty-first Amendment

Section 2 of the Twenty-first Amendment states: "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. Although Section 2 "gives the States wide latitude to regulate the importation and distribution of liquor within their territories," Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 584, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986) (citing California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445...

To continue reading

Request your trial
5 cases
  • Arnold's Wines, Inc. v. Boyle
    • United States
    • U.S. Court of Appeals — Second Circuit
    • July 1, 2009
    ...alcohol regulatory system consistent with the authority granted to New York by the Twenty-first Amendment. Arnold's Wines, Inc. v. Boyle, 515 F.Supp.2d 401, 413-14 (S.D.N.Y.2007). Appellants timely filed this A. New York's Regulatory Scheme Sections 100(1), 102(1)(a), and 102(1)(b) of New Y......
  • Siesta Village Market, LLC v. Perry
    • United States
    • U.S. District Court — Northern District of Texas
    • January 14, 2008
    ...warrant a different result. 19. The court recognizes that this conclusion differs from the recent decision in Arnold's Wines, Inc. v. Boyle, 515 F.Supp.2d 401 (S.D.N.Y.2007). The Arnold's Wines court concluded, based on the Twenty-first Amendment alone, and without conducting a dormant Comm......
  • Pearson Educ., Inc. v. Liu
    • United States
    • U.S. District Court — Southern District of New York
    • September 25, 2009
    ...602(a). As this Court has reasoned previously, "if dicta this be, it is of the most persuasive kind." Arnold's Wines, Inc. v. Boyle, 515 F.Supp.2d 401, 412 (S.D.N.Y. 2007) (Holwell, J.), aff'd, 571 F.3d 185 (2d Cir.2009). When the Supreme Court addresses an unsettled question of federal law......
  • Daniels v. Sutton
    • United States
    • U.S. District Court — Southern District of Florida
    • March 8, 2022
    ...commerce, courts are reluctant to dismiss such claims for failure to state a claim. See, e.g., Arnold's Wines, Inc. v. Boyle, 515 F.Supp.2d 401, 405 (S.D.N.Y. 2007), aff'd, 571 F.3d 185 (2d Cir. 2009) (“Ordinarily, once a state law is shown to discriminate against interstate commerce either......
  • Request a trial to view additional results
1 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT