IJ Harvests First-Round Victories in New York Wine Suit

 

IJ Harvests First-Round Victories in New York Wine Suit

By Miranda Perry and Deborah Simpson

Just as wineries around the country began preparing for the fall grape harvest, the Institute for Justice produced two opening-round victories in its challenge to New York’s protectionist wine-shipping laws. On September 5, Judge Richard Berman of the U.S. District Court for the Southern District of New York denied the defendants’ motion to dismiss the lawsuit, clearing the way for IJ to file a summary judgment motion and conduct a trial if necessary. Ten days later, Judge Berman handed the defendants yet another defeat, rejecting their motion to reconsider his previous ruling or certify it for immediate appeal to the Second Circuit. The defendants argued that a subsequent Seventh Circuit opinion in a similar lawsuit had a direct impact and required the judge to reexamine his decision.

IJ’s lawsuit, Swedenburg v. Kelly, pits two small wineries in Virginia and California and three New York wine lovers against New York’s State Liquor Authority and seven intervening private parties, including four large wholesalers. New York’s laws forbid out-of-state wineries from shipping directly or even advertising to New York consumers, although in-state wineries may both ship and advertise directly to customers. The laws are designed to preserve the monopoly by which wholesalers control the distribution and sale of all out-of-state wine in the State of New York, allowing them to impose high mark-ups. After California, New York is the second-largest wine market in the country.

The lawsuit, filed on February 3 of this year, argues that the direct shipping ban violates the Commerce Clause and the Privileges and Immunities Clause of the U.S. Constitution. The Commerce Clause is intended to prevent states from erecting protectionist trade barriers; the Privileges and Immunities Clause prevents states from discriminating against out-of-state citizens in favor of in-state citizens. The lawsuit also contends that the advertising ban violates the First Amendment.

In May, the state and the wholesalers countered our challenge by asking the court to dismiss the lawsuit, alleging that the Twenty-First Amendment granted states total plenary authority to regulate alcohol—including the power to discriminate against out-of-state liquor in favor of local interests. Never mind that several recent Supreme Court cases have rejected this proposition. On July 21, IJ lead attorney Clint Bolick participated in a spirited oral argument on the Motion to Dismiss that pitted Bolick against three lawyers arguing for the other side. In fact, there was a total of 14 lawyers for the defendants crowded around their counsel table versus IJ’s two lawyers—a classic David vs. Goliath situation.

On September 5, Judge Richard Berman rejected the wholesalers’ arguments in their entirety, allowing the case to go forward. In a 23-page opinion, he observed that “technological advancements facilitate—as never before—the commerce between and among states.” He detailed the evolution in Twenty-First Amendment jurisprudence in which several recent cases have limited the states’ power to regulate alcohol. He concluded that laws that promote “mere economic protectionism” violate the federal constitution and that the Institute should have a chance to prove that New York’s wine laws constitute such protectionism.

Unfortunately, the Seventh Circuit dealt a small setback soon after, when it held on September 13 that Indiana’s direct shipping ban was constitutional. The Seventh Circuit reasoned that Indiana’s ban facilitated the collection of taxes and was not intended to foster economic protectionism, thus justifying any consequential discrimination against out-of-state wine. An Indiana federal trial court had previously held that the State’s ban violated the Commerce Clause, but the Seventh Circuit ruling reversed that determination. A Texas federal trial court has also held a direct shipping ban unconstitutional, and supporters of direct shipping had hoped that both decisions signaled a shift in Twenty-First Amendment jurisprudence.

Buoyed by the Seventh Circuit ruling, on the eve of a routine scheduling conference in New York, the wholesaler-interveners brought that decision to Judge Berman’s attention. Without prior notice to IJ, they moved the court to either reconsider its earlier ruling on the motion to dismiss or certify that ruling for immediate appeal to the Second Circuit. While pro-shipping forces obviously had been pleased with the Indiana trial court victory, the reversal on appeal was not unexpected. It was well known that the case was going to have a tough time on appeal due to some technical legal flaws and the fact that the case presented limited factual and legal arguments.

After holding an impromptu oral argument on September 15 in which Bolick ably defended the earlier ruling, Judge Berman denied the motion later that afternoon. Among other things, he found that the law in New York governing IJ’s case is different than the law that formed the basis of the Seventh Circuit decision. Under New York law, the only legitimate basis for limits on interstate commerce is temperance and so the tax argument central to the Seventh Circuit decision could not save the New York law. He also noted that the law in this area is constantly evolving and that our case raises not only interstate commerce, but also First Amendment and Privilege and Immunities claims, which were not addressed by the Seventh Circuit. He therefore concluded that this case requires a fully developed factual record.

Judge Berman’s ruling quickly limited the impact of the Seventh Circuit ruling and indicated that once again, the wholesalers overplayed their hand. The case now proceeds to an intense four-month discovery period, followed by a status conference at which time summary judgment and trial dates will be set. We expect to be arguing the case to the court by early next summer.

As we charge ahead, we look forward to unveiling the monopolistic and protectionist intent behind New York’s regime!

Miranda Perry is an Institute for Justice staff attorney. Deborah Simpson is the Institute’s managing director.

 

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