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Laws Regulating Certain Types of Interstate Business Transactions May Be Up for Supreme Court Review

shopping basketThe internet has given businesses the ability to reach customers across the country, or even across the world. Doing business across state lines can involve different legal issues from keeping one’s business activities within California, and understanding state and federal regulations of business activities that cross state lines is crucial to operating a successful business. A petition for certiorari to the U.S. Supreme Court is asking for clarification on two constitutional doctrines that appear to conflict with each other. Texas Package Stores Assoc., Inc. v. Fine Wine and Spirits of North Texas, LLC, No. 16-242, pet. for cert. (Sup. Ct., Aug. 19, 2016). A doctrine known as the “dormant Commerce Clause” limits the ability of any one state to enact laws restricting interstate commerce, while the Twenty-First Amendment to the U.S. Constitution gives the states broad authority to regulate commerce involving alcohol.

The Commerce Clause, U.S. Const. art I, § 8, cl. 3, empowers Congress “to regulate Commerce…among the several States.” The Supreme Court has interpreted this authority very broadly. It has also recognized a negative converse to this doctrine, known as the dormant Commerce Clause, which bars state laws that discriminate against out-of-state businesses or otherwise unreasonably interfere with interstate commerce. The dormant Commerce Clause has been used, for example, to invalidate a state law that imposed an assessment on all milk sold within the state but only distributed the assessment to in-state dairy farmers. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994). The court held that this amounted to a discriminatory tax on out-of-state dairy farmers.

The Twenty-First Amendment is best known for repealing the Eighteenth Amendment and ending the period from 1919 to 1933, known as Prohibition, when alcohol was banned throughout the country. Section 2 of the Twenty-First Amendment gives the states the authority to regulate alcohol, including “the transportation or importation into” a state.

The Supreme Court ruled on the conflict between the dormant Commerce Clause and the Twenty-First Amendment in Granholm v. Heald, 544 U.S. 460 (2005). A group of small wineries challenged state laws that allowed in-state wine producers to sell directly to consumers but required out-of-state wineries to sell to in-state distributors. The plaintiffs argued that this violated the dormant Commerce Clause, while the state defendants claimed that § 2 of the Twenty-First Amendment authorized the laws. The court ruled for the plaintiffs, holding that the Twenty-First Amendment does not override the dormant Commerce Clause.

The dispute presented in Tex. Package Stores Assoc. arises from conflicting federal appellate circuit interpretations of Granholm. The petitioner argues that two circuits have found that Granholm only prohibits laws discriminating against out-of-state alcohol “producers and products.” Tex. Package Stores Assoc., pet. at 8, citing Southern Wine & Spirits of Am., Inc. v. Division of Alcohol & Tobacco Control, 731 F.3d 799 (8th Cir. 2013); Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185 (2d Cir. 2009). The Fifth Circuit, however, has held that Granholm applies to laws discriminating against any out-of-state alcohol-related business, such as a retailer or distributor. Cooper v. Tex. Alcoholic Beverage Comm’n, 820 F.3d 730 (5th Cir. 2016). The petition asks the Supreme Court to resolve the conflict.

For the past 40 years, business litigation attorney James G. Schwartz has advocated on behalf of Bay Area businesses and business owners. Contact us online or at (925) 463-1073 today to schedule a free and confidential consultation with a member of our knowledgeable and experienced team.

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