Supreme Court Asked to Review State Law that Restricts Businesses from Crossing State Lines

highway signsThe Commerce Clause of the U.S. Constitution gives Congress the power “to regulate Commerce…among the several States.” U.S. Const. art. I, § 8, cl. 3. Federal laws can therefore regulate business activities if they affect interstate commerce. This authority has led courts to identify a converse legal principle, known as the “dormant” Commerce Clause, which holds that state laws may not discriminate against out-of-state businesses in a way that impedes interstate commerce. A petition for certiorari currently before the U.S. Supreme Court could lead to changes in how states may regulate interstate commerce. 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). The petitioner is asking for clarification about the scope of the dormant Commerce Clause in relation to the rarely-discussed Twenty-First Amendment, which ended Prohibition and gave broad authority to the states to regulate alcohol.

The U.S. Supreme Court has given Congress very wide authority under the Commerce Clause. The dormant Commerce Clause is essentially the negative converse of this authority. If Congress can regulate interstate commerce, the states cannot unreasonably impede it, nor can they discriminate against out-of-state businesses in favor of in-state businesses. For example, the Supreme Court found that a Massachusetts law imposing a tax on milk produced out of state, while providing a subsidy for in-state milk producers, violated the dormant Commerce Clause. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994).

The Twenty-First Amendment ended the period of American history known as Prohibition, when alcohol was banned nationwide, in 1933. The Eighteenth Amendment, ratified in 1919, had started Prohibition. Section 1 of the Twenty-First Amendment officially repealed the Eighteenth Amendment. Section 2 states that transporting, importing, or possessing alcohol in any U.S. state or territory is prohibited if it is done “in violation of the laws thereof.” This has generally been construed to mean that the states have broad authority to regulate alcohol within their own jurisdictions. Courts have had to address the apparent conflict between § 2 and the dormant Commerce Clause on several occasions.

The U.S. Supreme Court ruled on the intersection of these two legal doctrines in Granholm v. Heald, 544 U.S. 460 (2005). That case involved a New York state law, as well as a law in Michigan, that allowed wineries located within the state to ship wine directly to consumers but required out-of-state wineries to ship to in-state distributors. Several small wineries challenged the laws under the dormant Commerce Clause, while the states claimed authority under the Twenty-First Amendment. The Supreme Court held that the laws were unconstitutional, finding that the dormant Commerce Clause prohibits state laws “that discriminate in favor of in-state producers.” Id. at 476.

Several appellate courts have interpreted Granholm in a limited sense, holding that the Twenty-First Amendment limits the scope of the dormant Commerce Clause to laws directly affecting alcohol producers and products. The petition in Texas Package Stores Assoc., however, arises from a Fifth Circuit ruling that did not limit Granholm’s reach, Cooper v. Tex. Alcoholic Beverage Comm’n, 820 F.3d 730 (5th Cir.). The petitioner is asking the Supreme Court to address the conflict between the circuits.

Business transaction attorney Samuel C. Berger represents entrepreneurs, small business owners, and businesses in New York City and Northern New Jersey, offering fixed-fee legal-service packages covering a wide variety of legal matters and needs. Contact us online, at (201) 587-1500, or at (212) 380-8117 today to schedule a confidential consultation with a member of our team of business advocates.

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Photo credit: Famartin (Own work) [CC BY-SA 3.0], via Wikimedia Commons.