Jelovsek v. Bredesen, 07-5443.

• Decision Date: 24 October 2008
• Docket Number: No. 07-5524.,No. 07-5443.,07-5443.,07-5524.
• Citation: 545 F.3d 431
• Parties: Frederick JELOVSEK (07-5443); S.L. Thomas Family Winery, Inc. dba Thomas Family Winery; Martin Reddish (07-5524), Plaintiffs-Appellants, v. Phil BREDESEN, in his official capacity as Governor of the State of Tennessee; Paul Summers, in his official capacity as Attorney General of the State of Tennessee; Shari Elks, in her official capacity as Executive Director, Tennessee Alcoholic Beverage Commission, Defendants-Appellees, Wine and Spirits Wholesalers Of Tennessee, Intervening Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

545 F.3d 431

Frederick JELOVSEK (07-5443); S.L. Thomas Family Winery, Inc. dba Thomas Family Winery; Martin Reddish (07-5524), Plaintiffs-Appellants, v. Phil BREDESEN, in his official capacity as Governor of the State of Tennessee; Paul Summers, in his official capacity as Attorney General of the State of Tennessee; Shari Elks, in her official capacity as Executive Director, Tennessee Alcoholic Beverage Commission, Defendants-Appellees, Wine and Spirits Wholesalers Of Tennessee, Intervening Defendant-Appellee.

No. 07-5443.

No. 07-5524.

United States Court of Appeals, Sixth Circuit.

Argued: April 29, 2008.

Decided and Filed: October 24, 2008.

ARGUED: Sandra B. Jelovsek, Johnson City, Tennessee, James A. Tanford, Indiana University School of Law, Bloomington, Indiana, for Appellants. Lyndsay Fuller, Office of the Attorney General, Nashville, Tennessee, Andrew L. Colocotronis, Baker, Donelson, Bearman, Caldwell & Berkowitz, Knoxville, Tennessee, for Appellees. ON BRIEF: Sandra B.

Jelovsek, Johnson City, Tennessee, James A. Tanford, Indiana University School of Law, Bloomington, Indiana, for Appellants. Lyndsay Fuller, Office of the Attorney General, Nashville, Tennessee, Andrew L. Colocotronis, Baker, Donelson, Bearman, Caldwell & Berkowitz, Knoxville, Tennessee, J. Forrest Hinton, Jr., Baker, Donelson, Bearman, Caldwell & Berkowitz, Birmingham, Alabama, Michael A. Meyer, Tennessee Attorney General & Reporter, Nashville, Tennessee, Henry E. Hildebrand III, Lassiter Tidwell Davis Keller & Hogan PLLC, Nashville, Tennessee, for Appellees. Carter G. Phillips, Sidley Austin, Washington, D.C., for Amici Curiae.

Before: NORRIS, GIBBONS, and GRIFFIN, Circuit Judges.

OPINION

ALAN E. NORRIS, Circuit Judge.

These consolidated cases ask the question whether Tennessee laws governing the wine industry violate the dormant commerce clause of the Constitution. This is one of several lawsuits filed across the country after the Supreme Court invalidated wine-related laws in Michigan and New York which allowed only in-state wineries to sell and ship wine directly to consumers. Granholm v. Heald, 544 U.S. 460, 125 S.Ct. 1885, 161 L.Ed.2d 796 (2005).

The plaintiffs-appellants include Tennessee residents Frederick Jelovsek and Martin Reddish, individual oenophiles who would like better access to wine produced outside of Tennessee, and a winery based in the state of Indiana, S.L. Thomas Family Winery, Inc., which would like to sell directly to Tennessee residents. Plaintiffs sued the Governor, Attorney General, and Executive Director of the Tennessee Alcoholic Beverage Commission, in their official capacities. In addition, the Wine and Spirits Wholesalers of Tennessee ("WSWT") successfully intervened as a defendant. For convenience sake, as the Court did in Granholm, the appellants will collectively be referred to as "the wineries," unless distinguishing them is appropriate, and the appellees will be referred to as "the state."

The district court granted defendants' Fed.R.Civ.P. 12(c) motion for judgment on the pleadings. Jelovsek v. Bresden, 482 F.Supp.2d 1013, 1023 (E.D.Tenn.2007).¹ The district court concluded that since both in- and out-of-state wineries are prohibited from selling and shipping wine directly to Tennessee consumers, this case is distinguishable from Granholm. The invalidated laws in Granholm denied only out-of-state wineries the ability to ship to consumers, a disparate treatment that the Supreme Court ruled unconstitutional.

We agree with the district court that the Tennessee shipping restrictions are distinguishable from those struck down in Granholm and affirm the district court's judgment as to the Tennessee ban on the direct shipment of alcohol to consumers, including wine. However, the wineries make a broader challenge to the Tennessee regulatory scheme for alcohol, specifically wine. As discussed below, we conclude that certain other challenged laws are discriminatory on their face, and thus vacate the district court judgment as to those laws, and remand for further proceedings.

I.

Tennessee employs what is commonly referred to as a three-tier system of alcohol regulation. The Tennessee Alcoholic Beverage Commission ("TABC") issues separate classes of licenses to manufacturers and distillers, wholesalers, and liquor retailers. Tenn.Code Ann. § 57-3-201. Unlicensed sales of alcohol are not permitted. Id. § 404(a). Manufacturers are limited to selling to wholesalers; wholesalers may sell to retailers, or in some cases other wholesalers; consumers are required to buy only from retailers. Id. § 404(b)-(d).

Statutes curtail the importation of alcoholic beverages, including wine, into the state, as well as the transportation of alcoholic beverages by individuals who are not licensees. These statutes seem to contradict each other, which creates a confusing web of seemingly applicable laws, and in its briefing and argument to the court the state did little to unravel the mystery.² The district court found, and the state concedes, that a Tennessee resident may transport a greater quantity of wine purchased from a Tennessee winery as compared to wine purchased in another state.

Tennessee wineries are also subject to the three-tier system, and have their own class of license. Id. § 201(4). However, wineries are subject to further regulation, as well as being afforded some exceptions from the general liquor control statutes, through Tennessee's Grape and Wine Law. Id. § 207. The Grape and Wine Law, inter alia, restricts winery licenses to individuals who have been Tennessee residents for at least two years, or to corporations whose stock is wholly owned by Tennessee residents of at least two years; and permits Tennessee wineries which use a sufficient percentage of Tennessee-grown grapes in their wine production to serve complimentary samples to patrons, and to sell at retail directly to customers without any additional license. Id. § 207(d), (f). The Grape and Wine Law also provides that, notwithstanding the transportation restrictions in other statutes, wine purchased at a Tennessee winery may be transported within the state of Tennessee. Id. § 207(i).

II.

"We review a district court's grant of a motion for judgment on the pleadings de novo." Roger Miller Music, Inc. v. Sony/ATV Publ'g, LLC, 477 F.3d 383, 389 (6th Cir.2007) (citing EEOC v. J.H. Routh Packing Co., 246 F.3d 850, 851 (6th Cir.2001)). "The manner of review under [Fed.R.Civ.P.] 12(c) is the same as a review under Rule 12(b)(6); we must `construe the complaint in the light most favorable to the plaintiff, accept all of the complaint's factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of the claims that would entitle relief.'" Vickers v. Fairfield Med. Ctr., 453 F.3d 757, 761 (6th Cir.2006) (quoting Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir.1998)).

Plaintiffs allege that the challenged statutes impermissibly discriminate against out-of-state wineries, and favor in-state wineries, in violation of the Commerce Clause. The scope of the Commerce Clause, which grants the exclusive power to Congress to regulate interstate commerce, recently has been summarized by the Supreme Court:

The Commerce Clause empowers Congress "[t]o regulate Commerce ... among the several States," Art. I, § 8, cl. 3, and although its terms do not expressly restrain "the several States" in any way, we have sensed a negative implication in the provision since the early days, see, e.g., Cooley v. Board of Wardens of Port of Philadelphia ex rel. Soc. for Relief of Distressed Pilots, 53 U.S. 299, 12 How. 299, 318-319, 13 L.Ed. 996 (1851); cf. Gibbons v. Ogden, 22 U.S. 1, 9 Wheat. 1, 209, 6 L.Ed. 23 (1824) (Marshall, C.J.) (dictum). The modern law of what has come to be called the dormant Commerce Clause is driven by concern about "economic protectionism—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors." New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273-274, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). The point is to "effectuat[e] the Framers' purpose to `prevent a State from retreating into [the] economic isolation,'" Fulton Corp. v. Faulkner, 516 U.S. 325, 330, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996) (quoting Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175, 180, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995); brackets omitted), "that had plagued relations among the Colonies and later among the States under the Articles of Confederation," Hughes v. Oklahoma, 441 U.S. 322, 325-326, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979).

....

Under the resulting protocol for dormant Commerce Clause analysis, we ask whether a challenged law discriminates against interstate commerce. See Oregon Waste Systems, Inc. v. Department of Environmental Quality of Ore., 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994). A discriminatory law is "virtually per se invalid," ibid.; see also Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978), and will survive only if it "advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives," Oregon Waste Systems, supra, at 101, 511 U.S. 93, 114 S.Ct. 1345, 128 L.Ed.2d 13 (internal quotation marks omitted); see also Maine v. Taylor, 477 U.S. 131, 138, 106 S.Ct. 2440, 91 L.Ed.2d 110 (1986).

Dep't of Revenue v. Davis, ___ U.S. ___, 128 S.Ct. 1801, 1808, 170 L.Ed.2d 685 (2008).

Applying this constitutional principle to the regulation of alcohol at times has been problematic for courts, due in part to the existence of the Twenty-first Amendment to the Constitution, which repealed prohibition and grants broad authority to the states to regulate alcohol importation and distribution. There was a period following ratification of the Twenty-first Amendment when the states' power to regulate alcohol was thought to be virtually limitless.³ However, more...