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The following article was written by Vijay Shanker, a Juris Doctor candidate at the University of Virginia School of Law, who received an award for this article and also an award as the best writer in his class. He graduated in May. This article is an outstanding summation of the entire wine-shipping issue. It is re-published with Mr. Shanker's permission.

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DATE: MAY 24, 1999

CLIENT: CLU

LIBRARY: LEXSEE

CITATION: 85 Va. L. Rev. 353

Copyright (c) 1999 Virginia Law Review Association

Virginia Law Review

March, 1999

85 Va. L. Rev. 353

LENGTH: 19786 words

NOTE: ALCOHOL DIRECT SHIPMENT LAWS, THE COMMERCE CLAUSE, AND THE TWENTY-FIRST AMENDMENT

Vijay Shanker*

* J.D. Candidate, 1999, University of Virginia School of Law. The author thanks Professor Clayton P. Gillette of the University of Virginia School of Law for his guidance.

SUMMARY: ... Wine maketh merry: but money answereth all things. ... States thus passed direct shipment laws to protect the three-tier system, which otherwise could be bypassed by interstate shipment of alcohol from producers directly to consumers. ... Direct shipment legislation is thus a collective good for the wholesaler/retailer industry. ... Similarly, in North Carolina, Representative Leo Daughtry, a wine wholesaler himself, supported that state's direct shipment law. ... Coalition for Free Trade, Family Winemakers of California, American Vintners Association, and The Wine Institute all represent wineries in the fight against direct shipment regulation. ... Pro-consumer interest groups do exist, but these organizations usually focus on larger issues than access to wine. ... As states repeal their reciprocity statutes and turn toward stricter enforcement of direct shipment restrictions, interstate commerce in alcohol is severely harmed. ... Thus, as courts have recently been holding, any state regulation over alcohol that was not passed to promote temperance does not fall within the purpose of the Twenty-First Amendment and, to the extent it interferes with interstate commerce, should not escape Commerce Clause invalidation. ...

TEXT: [*353]

Wine maketh merry: but money answereth all things. n1

You can get just about anything delivered to your doorstep these days. From underwear to pornography to weapons, the modern shopper is able to satisfy his every desire with the touch of a few telephone buttons or the click of a mouse. An individual in Georgia, for example, can place a telephone order for a computer from a manufacturer in South Dakota. Such interstate sales are part of a vast "national market" that is vital for a healthy national economy and protected by federal control over interstate commerce.

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n1. Ecclesiastes 10:19.

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Yet residents of many states are unable to enjoy such a privilege with respect to one commodity: alcohol. Wine connoisseurs around the country have long relied on the mail system to obtain their favorite rare vintages from small family wineries in other states. Because of state laws promulgated under the Twenty-First Amendment, however, wineries are increasingly facing strict sanctions if they fill their out-of-state customers' orders.

The Twenty-First Amendment to the United States Constitution, n2 ratified in 1933, ended nationwide Prohibition and granted to the states broad powers over the transportation and importation of alcohol. States responded with comprehensive regulatory schemes affecting all aspects of the liquor industry. All fifty states now regulate to some degree the interstate shipment of alco [*354] hol directly to consumers within their borders. n3 Such regulations are called "direct shipment laws," n4 and they come in various forms. In recent years, as the dramatic growth of the Internet and increased reliance on home shopping have resulted in a boom in the direct shipment business, n5 states have begun moving toward stricter enforcement of direct shipment laws. The most dramatic move has been the upgrading of direct shipment violations to felony status. So far, seven states have passed such legislation. n6

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n2. The Amendment states, in relevant part:

Section 1. The eighteenth article of amendment to the Constitution of the United States is hereby repealed.

Section 2. 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, 1, 2. The Eighteenth Amendment established nationwide Prohibition: "After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States... for beverage purposes is hereby prohibited." U.S. Const. amend. XVIII, 1.

n3. See Anne Faircloth, The Crackdown on Booze-of-the-Month Clubs: Mail-Order Wine Buyers, Beware!, Fortune, Feb. 16, 1998, at 46; Kim Marcus, When Winemakers Become Criminals, Wine Spectator, May 15, 1997 (visited March 3, 1999) <http://www.winespectator.com>.

n4. See, e.g., Ellen Rettig, No More Mail-Order Beer, Wine, Indianapolis Bus. J., June 29, 1998, at 1A, available in 1998 WL 9784684.

n5. The annual business of direct shipments is estimated at between $300 million, see Bureau of Alcohol, Tobacco & Firearms, U.S. Dep't of the Treasury, Industry Circular No. 96-3, Direct Shipment Sales of Alcoholic Beverages (1997) (citing the National Conference of State Liquor Administrators), and $1 billion, see Tim W. Ferguson & James Samuelson, Felonious Shopping, Forbes, Apr. 22, 1996, at 154 (citing Rich Cartiere, editor of Wine Business Publications); see also W. John Moore, Sour Grapes on Capitol Hill, 29 Nat'l J. 2424, 2424 (1997) (calling direct shipments a "$1 billion-a-year business"); James Plummer, Fine Wines and Wine Fines, Reason, Nov. 1, 1997, at 47 (citing Bob Frohling, head staffer of the National Council of State Legislatures' wine industry task force, who estimates that the mail-order alcoholic beverage business has taken in $500 million to $1billion annually).

n6. See Wine Institute, Analysis of State Laws (last modified Oct. 11, 1998) <http://www.wineinstitute.org/shipwine/analysis/intro<uscore>analysis.htm>. The seven states are Florida, Georgia, Indiana, Kentucky, North Carolina, Oklahoma, and Tennessee. See Fla. Stat. Ann. 561.545 (West 1998); Ga. Code Ann. 3-3-31, 3-3-32 (1997); Ind. Code Ann. 7.1-5-1-9.5, 7.1-5-11-1.5 (West 1998); Ky. Rev. Stat. Ann. 244.165 (Michie 1996); N.C. Gen. Stat. 18B-102.1 (1997); Okla. Stat. Ann. tit. 37, 505 (West 1998); Tenn. Code Ann. 57-3-401, 57-3-402, 57-3-404 (1997).

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This Note examines direct shipment legislation and addresses the validity of such laws under the Commerce Clause and the Twenty-First Amendment. It argues that direct shipment laws are a clear example of protectionist legislation that detrimentally impacts interstate commerce. As such, they are per se violations of the Commerce Clause.

Moreover, direct shipment laws cannot be saved by the Twenty-First Amendment. The Twenty-First Amendment granted states broad, but not unlimited, powers. n7 Recent cases have indicated that the states' Twenty-First Amendment powers, when presenting a conflict with the Commerce Clause, are bounded by the concept of "core" Twenty-First Amendment powers. This Note suggests that direct shipment laws have not been promulgated under "core" Twenty-First Amendment powers and thus are unconstitutional.

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n7. See infra text accompanying notes 133-65.

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Part I describes direct shipment statutes and discusses the passage of new direct shipment legislation and the movement in many states toward stricter enforcement of existing regulation. Part II then compares the political standing [*355] of the various parties with interests in the direct shipment debate. This Note suggests that in-state wholesalers and retailers, who benefit from direct shipment legislation, possess advantages in the political process compared to parties who are harmed by direct shipment legislation. This analysis explains why states are passing new direct shipment laws and are more strictly enforcing the ones they have.

Part III discusses the history of the Supreme Court's interpretation of the Twenty-First Amendment and its relation to the Commerce Clause. Specifically, Part III tracks the development of Twenty-First Amendment jurisprudence to today's accommodation test, which seeks to balance state and federal interests by requiring that a state alcohol regulation serve a "core" Twenty-First Amendment purpose.

Finally, Part IV applies the public choice lessons learned in Part II in the context of the Twenty-First Amendment jurisprudence discussed in Part III. It suggests that, in light of current Supreme Court thinking, direct shipment laws are unconstitutional: They present a serious Commerce Clause violation because they are being passed for a protectionist purpose, and they cannot be saved by the Twenty-First Amendment because they do not involve a "core" Amendment power.

I. Direct Shipment Laws

A. Background

Interstate direct shipment laws restrict the shipment of alcoholic beverages directly from out-of-state producers and retailers to in-state consumers. n8 These laws have existed for decades, in many states since the repeal of Prohibition. n9 After Prohibition, most states adopted the "three-tier system" of alcohol sales, n10 under which alcohol producers must go through wholesalers and distributors, who must in turn go through retailers, who can then sell to consumers. n11 The three-tier system developed to displace the alcohol distribution system that existed before Prohibition, in which producers owned retail [*356] outlets where they sold their products. n12 Proponents of the three-tier system claimed that the pre-Prohibition system fostered organized crime, monopolistic sales practices, and greater alcohol abuse. n13 They also claimed that requiring producers to sell through wholesalers would allow states to collect taxes more efficiently and would decrease the sale of alcohol to minors. n14

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n8. Direct shipment laws target the seller and/or the carrier of the product as opposed to the consumer. Kentucky's statute is an example of a law expressly prohibiting direct shipments: "It shall be unlawful for any person in the business of selling alcoholic beverages in another state or country to ship or cause to be shipped any alcoholic beverage directly to any Kentucky resident who does not hold a valid wholesaler or distributor license issued by the Commonwealth of Kentucky." Ky. Rev. Stat. Ann. 244.165(1) (Michie 1996).

n9. See Faircloth, supra note 3, at 46.

n10. See id.; Ferguson & Samuelson, supra note 5, at 154; Marcus, supra note 3.

n11. See North Dakota v. United States, 495 U.S. 423, 428 (1990) (explaining the three-tier system in North Dakota). See also Frank J. Prial, Big Wine Sellers Enlist States in Fighting Tiny Foes, N.Y. Times, Jan. 14, 1998, at F1 (explaining the three-tier system in the context of tax collection); Faircloth, supra note 3, at 46 (listing some groups opposed to the three-tier system).

n12. See Marcus, supra note 3.

n13. See id.

n14. See id.

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States thus passed direct shipment laws to protect the three-tier system, which otherwise could be bypassed by interstate shipment of alcohol from producers directly to consumers. n15 But for decades the laws were not aggressively enforced. n16 Recent years, however, have seen a boom in the direct shipment business, due in large part to the Internet and an increased use of mail order. n17 Wholesalers and retailers are consequently concerned about a potential drop in revenues and, because sales taxes for alcohol are generally collected at the wholesale point, states are foreseeing lost tax revenues. As a result, states have been amending their direct shipment laws, either by imposing greater restrictions or by increasing sanctions for violations. n18

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n15. See Prial, supra note 11.

n16. See Faircloth, supra note 3, at 46.

n17. See Plummer, supra note 5, at 47.

n18. In addition to a move to felony status, thirteen states introduced legislation in 1997 to tighten restrictions on direct shipping. See Faircloth, supra note 3, at 48.

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Jurisdictions with direct shipment laws can be arranged into three general categories. n19 First, "reciprocity" states allow shipments only from states that afford the same reciprocal privilege. n20 Reciprocity statutes generally share four features: (1) shipments can be made only between states that afford each other reciprocal privileges; (2) sales must be made only to persons over 21 years of age, and the shipping container must be clearly marked to indicate that it cannot be delivered to a minor or an intoxicated person; (3) the alcohol must be for personal consumption only and not for resale; and (4) a case can contain no more than nine liters of beverage. n21 Second, "limited personal importation" states regulate shipments to varying degrees but do not com [*357] pletely prohibit them. n22 Usually the limited importation regulations restrict the volume of alcohol that may be ordered. n23 Finally, "express prohibition" states expressly outlaw direct shipments. n24 Within these three categories, seven states authorize felony punishment of suppliers who violate their direct shipment laws. n25

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n19. For a detailed, state-by-state analysis of regulatory provisions on direct interstate wine shipments, see Wine Institute, supra note 6.

n20. See Wine Institute, Answers to Frequently Asked Questions About Direct Interstate Wine Shipments (last modified July 28, 1997) <http://www.wineinstitute.org/shipwine/faq/faq.htm>. There are currently twelve reciprocity states: California, Colorado, Idaho, Illinois, Iowa, Minnesota, Missouri, New Mexico, Oregon, Washington, West Virginia, and Wisconsin. See Wine Institute, supra note 6. This list of reciprocity states has shrunk in recent years and several states, including Minnesota, West Virginia, and Wisconsin, are considering repealing their reciprocity statutes. See Marcus, supra note 3. Maine repealed its reciprocity provision in late 1997. See Wine Institute, supra note 6.

n21. See Wine Institute, supra note 6.

n22. See id. There are currently twenty limited personal importation states: Alabama, Alaska, Connecticut, District of Columbia, Florida, Hawaii, Louisiana, Massachusetts, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Wyoming. See id.

n23. See, e.g., D.C. Code Ann. 25-137 (1996) (limiting direct shipment to one quart per month); Haw. Rev. Stat. Ann. 281.33.1 (Michie 1996) (limiting direct shipment to five gallons per year); Neb. Rev. Stat. Ann. 53-194.03 (Michie 1995) (limiting direct shipment to nine liters per month).

n24. There are currently nineteen express prohibition states: Arizona, Arkansas, Delaware, Georgia, Indiana, Kansas, Kentucky, Maine, Maryland, Mississippi, Montana, New York, North Carolina, North Dakota, South Dakota, Tennessee, Texas, Utah, and Virginia. See Wine Institute, supra note 6.

n25. The seven felony states are Florida, Georgia, Indiana, Kentucky, North Carolina, Oklahoma, and Tennessee. See id.; see also supra note 6 (citing the relevant statutory provisions).

Kentucky's felony provision states:

Any person who violates subsection (1) of this section shall, for the first offense, be mailed a certified letter by the department ordering that person to cease and desist any shipments of alcohol beverages to Kentucky residents, and for the second and each subsequent offense, be guilty of a Class D felony.

Ky. Rev. Stat. Ann. 244.165(2) (Michie 1996). In Kentucky, a Class D felony is punishable by imprisonment up to five years. See Ky. Rev. Stat. Ann. 532.020(1)(a) (Michie 1996).

Georgia's felony provision states:

Any person found...to be in violation of subsection (a) of this Code section shall be issued a cease and desist order by certified mail. Any person who, after receiving a cease and desist order, is found...to be in violation of subsection (a) of this Code section for a second or subsequent occurrence, within a two-year period of the first violation, shall be guilty of a felony and, upon conviction thereof, shall be punished by a fine not to exceed $10,000.00.

Ga. Code Ann. 3-3-32(b) (1997).

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State legislatures generally offer two rationales for direct shipment restrictions. n26 First, they claim that the laws will enable states to collect tax revenue from alcohol sales. In-state sales (i.e., transactions that go through the three-tier system) are subject to sales tax at the wholesale tier, n27 while out-of-state suppliers who ship directly to consumers need not charge sales tax. n28 Second, [*358] legislators and supporters of direct shipment laws claim that restrictions on mail-order and Internet sales will prevent minors from obtaining access to alcohol. n29

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n26. Cf. Mike Winters, Mail the Wine, Face the Time, Wine Bus. Monthly, Aug. 1997, at 1, 9 (attributing the two rationales to Midwest and Southern states).

n27. States collect $8.7 billion in alcohol excise taxes. See Faircloth, supra note 3, at 46. New York State Attorney General Dennis C. Vacco estimated that the state loses up to $100 million per year in state sales and excise tax losses due to direct shipments. See NY Declares War on Online "Bootleggers," Media Daily, Dec. 15, 1997, available in 1997 WL 14506771. Some states estimate excise tax losses as high as $600 million. See Moore, supra note 5, at 2424.

n28. A state law allowing direct shipment can, of course, require sellers to collect sales tax and forward the revenues to the state. Louisiana's new direct shipment law contains such a provision. See Garry Boulard, A Toast to Compromise, The Greater Baton Rouge Bus. Rep., Jan. 6, 1998, at 28, available in 1998 WL 10297951.

n29. Proponents of direct shipment restrictions point to recent "sting" investigations as evidence that minors can obtain alcohol through direct shipments. One such investigation took place in New York, organized by New York Attorney General Vacco and Americans for Responsible Alcohol Access, an interest group funded by wine and liquor wholesalers. The sting involved teenagers successfully using the Internet and telephone to order eleven cases of wine, two shipments of beer, and a case of scotch from twelve out-of-state distributors. See Deborah Porterfield, Technology and Trends Column, Gannett News Serv., Dec. 19, 1997, available in 1997 WL 8843538; Group Agitating for End to Internet Beer Sales, Mod. Brewery Age, Jan. 5, 1998, at 1, available in 1998 WL 10247843. Another sting was conducted by a Kentucky retailer who had his 14-year-old son place a telephone order for beer, wine, and whiskey from a California retailer. See Marcus, supra note 3. Proponents of the laws also point to a poll sponsored by Americans for Responsible Alcohol Access that found that 85% of Americans believe direct shipment would give minors easier access to alcohol. See Faircloth, supra note 3, at 46.

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Closer analysis reveals, however, that the revenue and access to minors rationales are not convincing. In terms of tax revenue, direct shipments of all types of commodities, from clothing to furniture, are commonplace. States do not seem to decry the loss of those tax revenues or assert the right to outlaw all mail-order business. Furthermore, while a state cannot require an out-of-state vendor to collect sales taxes unless the vendor has a "substantial nexus" with the state, n30 compromise legislation could authorize direct shipment on the condition that vendors collect and remit state sales taxes. Many direct shipping suppliers have expressed support for such legislation. n31 Indeed, Louisiana, which in 1997 passed a ground-breaking law allowing limited direct shipments, requires direct shipping producers to file annual reports with the Louisiana Department of Revenue and Taxation and to pay taxes. n32

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n30. See Quill Corp. v. North Dakota, 504 U.S. 298, 311 (1992).

n31. Peter Granoff of Virtual Vineyards, an Internet wine supplier, has said, "We can collect [state] taxes and have them in a designated state bank within minutes." Melanie Wells, Fined Wine?: Small Winemakers Fear Sour Economic Future, USA Today, Aug. 25, 1997, at B1. See also Ferguson & Samuelson, supra note 5, at 154 (stating that many sellers would "gladly pay" any taxes).

n32. See Boulard, supra note 28. Louisiana's law, called the "Louisiana Compromise," is supported by wineries, wholesalers, and retailers and is widely heralded as landmark legislation. See id.; see also Direct Shipping Legislation in California is Focus for Next Year, Food & Drink Wkly., Nov. 17, 1997, available in 1997 WL 15069036 (describing the Louisiana law). New Hampshire also recently passed legislation allowing direct shipment and requiring direct shippers to pay state sales taxes. See Wine Institute, Current Events (last modified July 24, 1998) <http://www.wineinstitute.org/shipwine/current<uscore>events/new<uscore>hamp.htm >.

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Access by minors can likewise be prevented by protective mechanisms, such as requiring adult signatures upon delivery and warning labels on packages. n33 Suppliers can also require buyers to provide their driver's license [*359] number and to use credit cards to make their purchases. n34 Such requirements could solve the problem in a much less restrictive way than outright prohibition of direct shipments. Laws that interfere with interstate commerce for purposes of legitimate state interests should be narrowly tailored to achieve those interests. n35 Moreover, it seems disingenuous to claim that a minor who wishes to obtain alcohol would order expensive wine or beer and wait several days for shipment. n36 While "skipping the middleman" is usually equated with lower prices, consumers who rely on direct shipments do not do so to save money. Directly-shipped wines tend to be more expensive because the purchasers, usually wine connoisseurs, rely on direct shipping to obtain rare wines produced by small wineries. n37 The evidence simply does not bear out the claims of the proponents of direct shipment restrictions. n38

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n33. In fact, most reciprocity statutes include these requirements. See supra notes 20-21 and accompanying text.

n34. See Group Agitating for End to Internet Beer Sales, supra note 29, at 1; Plummer, supra note 5, at 47.

n35. See Maine v. Taylor, 477 U.S. 131, 138 (1986); Lewis v. BT Inv. Managers, 447 U.S. 27, 36-37, 43 (1980); see also infra note 191 and accompanying text (discussing the requirement that laws that impact interstate commerce be narrowly tailored); cf. Susan E. Brownlee, Economic Protection for Retail Liquor Dealers: Residency Requirements and the Twenty-First Amendment, 1990 Colum. Bus. L. Rev. 317, 329 ("Because a residency requirement imposes a direct burden on interstate commerce, a state must also show that the statute's purpose cannot be promoted with a lesser impact on interstate commerce."); id. at 336-37 ("There must be no other less discriminatory means of accomplishing the state's purpose than the absolute ban on out-of-state liquor competition.").

n36. See Group Agitating for End to Internet Beer Sales, supra note 29, at 1; Prial, supra note 11; Editorial, Booze Busters, Wall St. J., Sept. 26, 1997, at A22.

n37. See Boulard, supra note 28 ("[Buyers] are mostly upper-income shoppers or wine connoisseurs.").

n38. For example, New York Attorney General Vacco could point to no evidence of a problem involving sales to minors, other than the sting that he organized with the help of a wholesale industry group. See Porterfield, supra note 29.

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B. Case Law

No Supreme Court case has addressed the validity of direct shipment laws. However, one district court case, House of York v. Ring, n39 upheld a direct shipment law on Twenty-First Amendment grounds. The district court did not conduct a Commerce Clause analysis, ruling that the Twenty-First Amendment was "dispositive of plaintiffs' claim that the disputed statute violates the Commerce Clause." n40 House of York, however, was decided in 1970, well before the Supreme Court moved toward a stricter reading of the Twenty-First Amendment and before the Court adopted the practice of analyzing the validity of state regulation under the Commerce Clause as a prerequisite to determining whether the Twenty-First Amendment can save [*360] the law. n41 In addition, the district court relied upon taxation and competition arguments in upholding the law, n42 justifications not likely to survive under modern Twenty-First Amendment analysis. n43

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n39. 322 F. Supp. 530 (S.D.N.Y. 1970).

n40. Id. at 533.

n41. See infra note 128 and accompanying text.

n42. The court stated that the conduct of direct shippers had "assertedly resulted in an avoidance of New York state taxes as well as license fees and regulations." House of York, 322 F. Supp. at 533. In addition, the court looked favorably upon defendant's argument that businesses within New York state "have been adversely affected by the expansion of the businesses of the mail order concerns." Id.

n43. See infra Part III.

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The Court of Appeals for the Eleventh Circuit recently heard a case in which Florida sought to enjoin four out-of-state mail-order wine distributors from violating Florida's direct shipment laws. n44 The court did not reach the Twenty-First Amendment/Commerce Clause analysis, disposing of the matter on jurisdictional grounds. Specifically, the court found subject matter jurisdiction lacking, as the state had no implied federal cause of action under the Webb-Kenyon Act, n45 a federal legislative precursor to the Twenty-First Amendment. n46 A similar action was dismissed in Florida state court, on the grounds that Florida lacked personal jurisdiction over out-of-state sellers and that the sellers lacked the "substantial nexus" with the state necessary to require the sellers to collect and remit Florida excise taxes. n47

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n44. See Florida Dep't of Bus. Regulation v. Zachy's Wine & Liquor, 125 F.3d 1399 (11th Cir. 1997), cert. denied, 118 S. Ct. 1402 (1998). Florida's action was brought prior to its enacting felony direct shipment legislation. See Fla. Stat. Ann. 561.545 (West 1998) (noting effective date of May 30, 1997).

n45. 27 U.S.C. 122 (1994). Passed in 1913, the Webb-Kenyon Act provides: "The shipment or transportation... of any... intoxicating liquor of any kind, from one State... into any other State... which said... intoxicating liquor is intended, by any person interested therein, to be received, possessed, sold, or in any manner used, either in the original package or otherwise, in violation of any law of such State,... is hereby prohibited." Id.

n46. See Zachy's, 125 F.3d at 1405.

n47. See Florida Dep't of Bus. Regulation v. Sam's Wines & Liquors, No. 96-3602 (Fla. Cir. Ct. Sept. 3, 1997) (order granting motion to dismiss) (on file with the Virginia Law Review Association).

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The United States District Court for the District of Massachusetts also recently dismissed a suit brought by Wine & Spirits Wholesalers of Massachusetts against Virtual Vineyards, a California retailer. n48 The plaintiff sought injunctive relief against Virtual Vineyards for tortious interference with business relations caused by alleged direct shipment violations. n49 In dismissing the claim, the court noted that a criminal statute enacted for the benefit and protection of the public generally cannot be enforced by injunctive relief. n50 Moreover, the court added, Massachusetts's direct shipment statute "does not confer upon the plaintiff, either expressly or implicitly, any right to re [*361] strain Virtual Vineyard's activities, even if they violate its provisions." n51 The law, according to the court, does not "evidence any special legislative concern for protecting duly licensed wholesalers from competition." n52

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n48. See Wine & Spirits Wholesalers v. Net Contents, 10 F. Supp. 2d 84 (D. Mass. 1998).

n49. See id. at 85.

n50. See id. at 86.

n51. Id. at 86-87.

n52. Id. at 87.

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Thus, while states and wholesalers have been attempting to crack down on direct shippers through state laws, their efforts in the courts have so far been unsuccessful. Nonetheless, enforcement efforts have had an impact on wineries, as many fear the prospect of litigation and have consequently curtailed their sales to out-of-state consumers. n53 Thus, analysis of the constitutionality of direct shipment laws, in light of the Commerce Clause and the Twenty-First Amendment, will be pivotal.

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n53. See Wells, supra note 31; Chris Knap, Wine Wars, Orange County Reg., Oct. 23, 1997, at C1, available in 1997 WL 14880381.

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II. The Interests at Stake

An examination of the interests at stake and players involved in the direct shipment debate should demonstrate who is behind direct shipment legislation, and thus why these laws are being passed and enforcement efforts are increasing. This Note suggests that the parties in favor of direct shipment laws possess tremendous advantages in the ability to organize and thus to influence the political process.

Wholesalers/distributors n54 and retailers of alcoholic beverages share a common interest in direct shipment legislation; they have the most to gain from strict regulation. n55 Because of the three-tier system, these parties currently enjoy a monopoly over alcohol sales in most states. Consumers cannot purchase alcohol from any other source. As a result, wholesalers/distributors and retailers enjoy increased revenues from inflated monopoly prices. n56 [*362] Moreover, large distributors in recent years have been squeezing out their competition and consolidating, resulting in "exclusive distributorships." n57 Because wineries are forced to sell through these exclusive distributorships, the distributors can extract monopoly rents. Many wholesalers will not carry the wines of some small wineries because their production volumes and consumer bases are too small. n58 Distributors, therefore, are in essence eating at both ends - they increase revenue at both the incoming and outgoing points. n59

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n54. Generally, under the three-tier system, wholesalers are the middlemen between wine producers and retailers. They distribute wine to retailers. See, e.g., Wine & Spirits Wholesalers v. Net Contents, 10 F. Supp. 2d 84, 85 (D. Mass. 1998) (describing Massachusetts's alcohol regulatory scheme); see also Wine & Spirits Wholesalers of America, What is Wholesaling? (visited Nov. 7, 1998) <www.wswa.org/whole/whatwhol.htm> (explaining the functions of wine wholesalers). This Note will use the terms "wholesalers," "distributors," and "wholesalers/distributors," all in reference to the same tier in the three-tier system.

n55. It is admittedly somewhat unfair to group all retailers with wholesalers. Many alcohol retailers, including Virtual Vineyards, see Wells, supra note 31, directly ship and thus are harmed by restrictions on direct shipment. Nonetheless, most retailers benefit from their position in the three-tier system and are involved in the lobbying effort for direct shipment legislation. For the sake of simplicity, this Note will not attempt to distinguish pro- from anti-direct shipment retailers and will group them with wholesalers.

n56. The basic theory behind monopolistic behavior is that a decrease in supply causes prices to rise, leading to greater profits for monopoly sellers. See Donald Dewey, Monopoly in Economics and Law 1 (1959). Most observers of the direct shipment debate note that in-state distributors enjoy monopoly status under the three-tier system. See Ferguson & Samuelson, supra note 5, at 154-55 (""The real purpose of ""[Kentucky's] bill'" was to ensure that every sip of alcoholic beverage consumed in this state put money in the bank for the monopolistic distributorships that control sales throughout Kentucky.'") (quoting a Lexington Herald Leader editorial); Fred LeBrun, Outdated Laws Hurt Wineries, Alb. Times Union, Jan. 17, 1998, at B1 ("[The three-tier system] is a retrograde avenue conspicuously favored by wholesalers, who, not incidentally, are bountiful political contributors. It gives them a monopoly.").

n57. In California there were twenty distributors fifteen years ago; today there are only two major ones: Southern Wine & Spirits (over $2 billion in revenues) and Young's Market Co. ($1 billion in revenues). See Ferguson & Samuelson, supra note 5, at 155; see also Faircloth, supra note 3, at 46 (stating that because the number of wholesalers has dropped dramatically, the 1800 wineries in the United States have difficulty finding someone to distribute their product). This consolidation phenomenon is exacerbated in states that succumb to large wholesaler political pressure and grant exclusive franchises to certain wholesalers, thereby preventing new competitors from entering the market. See Knap, supra note 53.

n58. See Prial, supra note 11.

n59. The state-by-state liquor distribution industry does $47.5 billion worth of business. See Ferguson & Samuelson, supra note 5, at 155. Since 1950 the number of wholesalers has plummeted from 5000 nationwide to fewer than 250 today; meanwhile, in the last 30 years the number of wineries has skyrocketed from fewer than 100 to 2000 today. See Marcus, supra note 3.

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Direct shipment legislation is thus a collective good for the wholesaler/retailer industry. n60 The question becomes whether the members of this industry are able to organize in order to procure this collective good.

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n60. A collective good is, to the relevant community, a public good - it possesses both jointness of supply and impossibility of exclusion. See Russell Hardin, Collective Action 17 (1982). Rational actors, because they can consume a public good without contributing to its procurement, have no incentive to assume any cost of obtaining the good. See Mancur Olson, The Logic of Collective Action 2 (1971). Group organization can serve to ensure the attainment of a collective good. See id. at 15 ("The provision of public or collective goods is the fundamental function of organizations generally.").

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Alcohol wholesalers/distributors and retailers do not comprise a large industry. The number of distributors has been shrinking dramatically in recent years. n61 Traditional public choice analysis thus predicts that wholesalers and retailers will have an effective organizational and lobbying effort. n62

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n61. See Prial, supra note 11; supra notes 57 and 59 and accompanying text.

n62. Collective action theory predicts that smaller groups have a more natural ability to provide for common interests. See Olson, supra note 60, at 19-21, 33-34, 52. In small groups in which each member receives a large fraction of the total good, the presumption is that any member would be willing to expend the cost of providing the good; the good is thus provided due to the self-interest of the group members. See id. at 34. Moreover, members of small groups can easily monitor other group members and detect noncooperators; each member's actions are noticeable to the others. See id. at 44 & n.65; Hardin, supra note 60, at 57-59, 171-72.

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[*363] An additional factor contributing to the ease of organization of wholesalers and retailers is the ability to offer noncollective benefits to group members. n63 This is further incentive for industry members to organize. Industry groups such as Wine & Spirits Wholesalers of America, the National Beer Wholesalers Association, and the National Licensed Beverage Association, for example, provide members with benefits other than lobbying. n64 Moreover, these already-existing groups can solve the problem of noncooperation because the members can more easily contract with each other, tacitly or legally, to contribute their fair shares. n65 The organization can serve a monitoring function and can sanction noncooperators, through dissemination of information or other means. n66

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n63. See Olson, supra note 60, at 145 ("Many trade associations distribute trade statistics, provide credit references on customers, help collect bills, provide technical research and advisory services, and so on... in addition to their political or lobbying duties.").

n64. See Wine & Spirits Wholesalers of America, Mission (visited Nov. 7, 1998) <www.wswa.org/about/mission.htm>; Wine & Spirits Wholesalers of America, Membership (visited Nov. 7, 1998) <www.wswa.org/about/reg.htm>.

n65. See Hardin, supra note 60, at 59.

n66. See id. at 172 ("The problem of collective action is merely put off onto the group need for sanctioning nonconformers.").

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It is therefore no surprise that, with such organizational advantages and so much at stake, wholesalers/distributors are actively involved in the lobbying effort for direct shipment laws. Led by Southern Wine and Spirits of America, the company with the largest market share of any single wholesaler in the nation, n67 the wholesale industry contributed almost $100,000 to Florida legislative candidates and political parties during the 1996 election cycle, when Florida passed its felony legislation. n68 Indeed, Florida's law was written by Florida Wine and Spirits Wholesalers. n69 In addition, Americans for Responsible Alcohol Access, an interest group that has actively lobbied for felony legislation in several states (and emphasizes the underage drinking argument), is funded largely by liquor wholesalers. n70

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n67. See Knap, supra note 53.

n68. See Wine Makers Boycott Florida Charity Festivals, Fla. Today, Sept. 23, 1997, at 9B; Editorial, Law Protects Beverage Interests, Florida's Wine Buffs Pay the Price, Ft. Lauderdale Sun-Sentinel, Sept. 23, 1997, at 10A. Southern Wine & Spirits contributed $32,750 to political campaigns in 1996. See John Kennedy, Liquor Industry Battling Back, Ft. Lauderdale Sun-Sentinel, May 20, 1997, at 6B.

n69. See Knap, supra note 53. Florida's Attorney General, Robert A. Butterworth, opposed the felony law, saying, "The Florida alcoholic-beverage industry... would be allowed to tighten its vise grip on the distribution of alcoholic beverages." Id.

n70. See Group Agitating for End to Internet Beer Sales, supra note 29, at 1; Porterfield, supra note 29.

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In Georgia, House Majority Leader Larry Walker co-sponsored that state's felony legislation; the Georgia Beer Wholesalers Association, which [*364] actively lobbied for the law, is a client of Walker's law firm. n71 Similarly, in North Carolina, Representative Leo Daughtry, a wine wholesaler himself, supported that state's direct shipment law. n72 In California, the Wine and Spirits Wholesalers of California and the California Beer and Wine Wholesaler's Association have contributed $1.2 million to state politicians and campaigns in the past ten years, according to state records. n73

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n71. See Ann Hardie, Spotlight on Ethics Laws, Atlanta J./Atlanta Const., Jan. 19, 1998, at B1.

n72. See Plummer, supra note 5, at 47; Editorial, A Vintage Sham, Raleigh News & Observer, July 30, 1997, at A12.

n73. See Knap, supra note 53.

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Analyzing the other side in the debate is more complex. At first blush, so to speak, it would appear that wineries would represent an equal opponent to wholesalers and retailers. In the case of direct shipment laws, however, wineries actually have comparative organizational disadvantages. First, all wineries do not share a unity of interests in the issue. While small, family wineries suffer as a result of direct shipment regulation, large wineries have very little to lose. Distributors and retailers, for example, will always carry the wines of Gallo and Kendall-Jackson. Direct shipments form a much smaller percentage of large wineries' total sales. n74 Compounding this incentive for large wineries to remain apathetic is the competitive benefit gained from eliminating small wineries from the market. Thus, large wineries may actually have some incentive to support direct shipment laws.

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n74. See Plummer, supra note 5, at 47 ("Famous-name wines from large companies already have a sturdy distribution network. They are sold in grocery stores and wine shops throughout the country, so they don't need direct shipments to make money or make a name for themselves.").

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Small wineries, in contrast, are clearly harmed by direct shipment restrictions, as they rely on direct mailing to reach most of their customers. For example, Duckhorn Vineyard, a California winery, in one year lost $500,000, or eight percent of its revenue, due to direct shipment restrictions. n75 Matanzas Creek Winery, also in California, has lost $8000 a week in sales since direct shipment laws have been aggressively enforced. n76

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n75. See Wells, supra note 31.

n76. See id.

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One might suppose that small, family-owned wineries are few in number and thus will find organization easy. Yet over the last thirty years, the number of wineries has skyrocketed, from 100 to 2000. n77 Most of this growth has been in the small, family-owned winery industry.

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n77. See Marcus, supra note 3. There are 900 wineries in California alone. See Moore, supra note 5, at 2424.

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[*365] Whether small wineries can organize thus depends on several factors. n78 As a result of their very nature, that is, producing specialized wines and appealing to minimal consumer bases, no single small winery so dominates the market that it has the incentive (or the financial wherewithal) to provide for the collective good. n79 Thus, effective organization on the part of small wineries is difficult.

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n78. In medium-sized groups, no one member may get a large benefit from the collective good such that she would pay all of the cost of providing it; but the contribution or lack thereof of each individual has a noticeable effect on the costs or benefits of others in the group. See Olson, supra note 60, at 44. In such groups, the result often cannot be predicted. Some coordination or organization is necessary, requiring initial costs; however, the costs of such organization may be low, making it relatively easy to meet the needs of the group. In the end, the result depends on where the group falls on the continuum from small group to large group. See id. at 50-52.

n79. There is a greater likelihood that collective goods will be provided in groups of members of uneven size or uneven extent of interest in the good. See id. at 34. In such situations, the larger or more interested members will receive such a substantial proportion of the total benefit from the good that they will provide for the good even if they have to pay for it themselves. See id.; see also Hardin, supra note 60, at 67-69 (discussing the collective action advantages that an asymmetric group has over a symmetric group).

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Despite these obstacles, there has been some organization on the part of small wineries. Coalition for Free Trade, Family Winemakers of California, American Vintners Association, and The Wine Institute all represent wineries in the fight against direct shipment regulation. n80 Some of these groups have just entered the battle, so it is difficult to gauge their success and determine whether they will be able to maintain organization and cooperation. Yet some factors would predict that these groups may not be as effective as their wholesaler/retailer counterparts. The most obvious factor is the lack of funds. Despite the incentive of preventing the loss of a large percentage of their business, such wineries just may not have the capital to invest in a full-scale lobbying effort. In fact, the losses themselves may preclude the wineries from expending any money; many may see shutting down as the only viable option. n81

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n80. See Faircloth, supra note 3, at 46; Moore, supra note 5, at 2424; Steven Van Yoder, Shipping Happens, Wines & Vines, Jan. 1, 1998, at 67, available in 1998 WL 10248846.

n81. Furthermore, many small wineries have expressed a "careful what you wish for" concern. A moderate lobbying victory in the form of highly-detailed limited personal importation statutes may result in so much paperwork that small and medium-sized wineries, with fewer employees, will be unable to compete. See Plummer, supra note 5, at 47 (discussing a medium-sized winery that would rather not directly ship than deal with the paperwork and taxes required by Louisiana's detailed direct shipment law).

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An additional problem for wineries is that they are affected by regulation in other states. Out-of-state parties have little ability to influence state politics, especially when they are opposed by in-state interests. In-state wineries will have some interest in reciprocity legislation in order to be able to sell to consumers in other states; to that extent they will oppose stricter direct shipment laws. Indeed, it is no surprise that states with significant winery industries, such as California, Oregon, and Washington, have maintained reciprocity [*366] laws. States with little or no local wine production, however, have little reason to succumb to pressure from outside wineries. The wineries and their interest groups, meanwhile, are faced with much greater costs in having to target twenty or thirty different state legislatures, or the need to spread their funds across those legislatures, resulting in a smaller quantum of lobbying effort in each state.

The Supreme Court relied on similar reasoning in striking a milk pricing order in West Lynn Creamery v. Healy. n82 The Court noted that non-discriminatory state regulation is generally upheld despite adverse effects on interstate commerce, in part because "the existence of major in-state interests adversely affected...is a powerful safeguard against legislative abuse." n83 When a state's regulatory system confers some benefit on in-state interests, however, the state's political process "can no longer be relied upon to prevent legislative abuse...." n84 When the costs of state regulation fall entirely on out-of-state parties, one must look upon the state's political process with suspicion. n85

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n82. 512 U.S. 186 (1994).

n83. Id. at 200 (citing Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 473 n.17 (1981)); see also Raymond Motor Transp. v. Rice, 434 U.S. 429, 444 n.18 (1978) (according special deference to state highway regulations because "their burden usually falls on local economic interests as well as other States' economic interests, thus insuring that a State's own political processes will serve as a check against unduly burdensome regulations"); Washington v. United States, 460 U.S. 536, 545 (1983) ("A "political check' is provided when a state tax falls on a significant group of state citizens who can be counted upon to use their votes to keep the State from raising the tax excessively, and thus placing an unfair burden on the Federal Government.").

n84. West Lynn Creamery, 512 U.S. at 200. In West Lynn Creamery, the state law coupled a nondiscriminatory tax with a subsidy to in-state dairy farmers; the Court observed that in-state dairy farmers, who would ordinarily be expected to lobby against the tax, were "mollified" by the subsidy and thus supported the tax. Id. at 200-01. The Court further noted that dairy farmers were one of the most powerful groups with interests at stake, comparing them specifically to milk dealers and consumers. See id. Chief Justice Rehnquist, in his dissent, agreed with the Court that dairy farmers would have altered their position due to the subsidy; but he pointed out that there were still interest groups opposed to the tax, namely, milk dealers and consumers. See id. at 214-15 (Rehnquist, C.J., dissenting). Rehnquist refused to compare the political influence of these groups, stating that "nothing in the dormant Commerce Clause suggests that the fate of state regulation should turn upon the particular lawful manner in which the state subsidy is enacted or promulgated." Id. at 215 (Rehnquist, C.J., dissenting).

n85. This theory of the Dormant Commerce Clause has been called the "Carolene Products" theory, referring to United States v. Carolene Products Co., 304 U.S. 144 (1938). See Donald H. Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich. L. Rev. 1091, 1161 (1986). Regan summarizes the theory as follows: "When states adopt economic regulations that affect out-of-state interests, those out-of-state interests are likely to be shortchanged because they are not represented in the political process that produces the regulations. But everyone who is affected ought to be represented. Therefore we have judicial review of state economic regulation that affects out-of-state interests in order to give those interests "virtual representation.'" Id. (citations omitted). Regan himself does not subscribe to this theory, arguing that purpose-based review will accomplish the same end without the Court having to engage in balancing. See id. at 1161-67. The Manual of Federal Practice suggests that traditional contract law may call for judicial intervention in such cases: "While contracts are ordinarily binding as between the parties to them, absent unconscionability or other specific reasons not to enforce them, they are generally not binding on third parties who did not agree to them. This might well include diluted interests with little to say about a bargain, or kept in the dark about its content." Richard A. Givens, Manual of Federal Practice 11.20, at 137 (5th ed. 1998) (emphasis omitted). The Manual states that one area that may be a candidate for such treatment is

interpretation of the commerce clause (also an area subject to correction by ordinary legislation) as applied to local protectionism for interest groups through occupational licensing and similar restraints where not genuinely supported by health, safety, worker protection, or true consumer protection needs.... Particular care might be called for in scrutinizing procedural disadvantages imposed on those in a less well-situated position to protect themselves in the political process, e.g., importers facing far more powerful because concentrated protectionist pressures...."

Id. at 137-38 (citations omitted).

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[*367] Consumers are the most obvious party negatively impacted by direct shipment laws. In general, consumers are hurt by limited choice and higher prices that result from in-state monopolies. n86 In particular, wine connoisseurs are prevented from obtaining the rare wines that they desire.

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n86. See Daniel A. Farber, State Regulation and the Dormant Commerce Clause, 3 Const. Commentary 395, 413 (1986) ("Laws that protect in-state firms from competition in local markets have the effect of raising prices, so the ultimate burden is borne by local consumers.").

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Consumers, however, suffer from the classic problems identified by public choice analysis. Favorable consumer legislation is a public good; mobilizing consumer pressure for such legislation requires organization. Organization, of course, is quite difficult with consumers, as they comprise a large and dispersed group. n87

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n87. See Mark Tushnet, Rethinking the Dormant Commerce Clause, 1979 Wis. L. Rev. 125, 133 ("The general consumer interest is at a systematic disadvantage in legislative combat against organized groups. Consumers are dispersed and, because of the problem of free riders, are difficult to organize. They therefore cannot mobilize political resources commensurate with their numbers."); see also Olson, supra note 60, at 48 ("The larger the group the farther it will fall short of providing an optimal supply of a collective good...."); id. at 166 ("Consumers are at least as numerous as any other group in the society, but they have no organization to countervail the power of organized or monopolistic producers.").

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The Supreme Court in West Lynn Creamery acknowledged the organizational disadvantages of consumers. Speaking of the Massachusetts milk pricing law at issue, the Court stated, "consumers would be unlikely to organize effectively to oppose the pricing order." n88 The Court observed that the effect of the regulation (in terms of higher prices) on such a large group would be so diluted that in general consumers would not notice the impact. n89 It is likely that, for each consumer, the cost of organizing would outweigh the minimal benefit received; a rational individual would not invest more than his expected return.

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n88. West Lynn Creamery, 512 U.S. at 201 n.18 (1994).

n89. See id.

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[*368] Whether the latent group of consumers can be mobilized is a difficult question. n90 Pro-consumer interest groups do exist, but these organizations usually focus on larger issues than access to wine. Moreover, it is doubtful that a political entrepreneur n91 would arise to advance the cause of wine connoisseurs spread across all fifty states. Because, as noted above, parties will have difficulty lobbying for legislation in other states, presumably a political entrepreneur would have to arise in each state.

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n90. Mancur Olson labels large groups "latent" groups, calling attention to their untapped potential to provide for group interests. See Olson, supra note 60, at 50. The tapping of the potential is called "mobilization." See id. at 51. Without mobilization, "large or "latent' groups have no incentive to act to obtain a collective good because, however valuable the collective good might be to the group as a whole, it does not offer the individual any incentive to pay dues to any organization working in the latent group's interest, or to bear in any other way any of the costs of the necessary collective action." Id. at 50-51.

n91. Russell Hardin defines political entrepreneurs as "people who, for their own career reasons, find it in their private interest to work to provide collective benefits to relevant groups." Hardin, supra note 60, at 35. Political entrepreneurs can play a role in mobilizing latent groups, see id. at 31, but they more easily arise in already-existing organizations, see id. at 37.

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It seems clear that wholesalers and retailers possess tremendous organizational advantages compared to small family wineries and consumers. In addition to these organizational advantages, wholesalers and retailers have the political benefit of being located in the state that is passing the legislation. It is thus unsurprising that wholesalers and retailers have been able effectively to influence the political process toward direct shipment legislation.

Knowing who was influential in obtaining passage of legislation can provide crucial information as to why the legislation was passed. The above discussion points to the conclusion that direct shipment legislation was passed to protect the economic interests of in-state wholesalers and retailers. This, in turn, becomes quite relevant in both Commerce Clause and Twenty-First Amendment analysis, as will be shown in Parts III and IV. As mentioned above, the Supreme Court has used public choice analysis in evaluating state regulation under the Commerce Clause. n92 Many scholars also argue that the judiciary should use public choice analysis to check legislative action. Jonathan Macey, for example, maintains that it is the duty of the judiciary to check legislative excesses and impede interest group legislation; to achieve this end, courts may have to determine whether the true legislative purpose was to transfer wealth to an interest group. n93 Similarly, Cass Sunstein argues that "naked preferences," or "the distribution of resources or opportunities to one group rather than another solely on the ground that those favored have exercised the raw political power to obtain what they want," are prohibited by [*369] several provisions of the Constitution, including the Dormant Commerce Clause. n94 Examination of such naked preferences focuses on the underlying motivations of legislators. n95 The duty of prohibiting naked preferences, Sunstein contends, falls on the courts:

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n92. See supra notes 82-85 and accompanying text.

n93. See Jonathan R. Macey, Promoting Public-Regarding Legislation Through Statutory Interpretation: An Interest Group Model, 86 Colum. L. Rev. 223, 226-27 (1986).

n94. See Cass R. Sunstein, Naked Preferences and the Constitution, 84 Colum. L. Rev. 1689, 1689 (1984). Additional writings on the role of public choice analysis in judicial review include Frank H. Easterbrook, Some Tasks in Understanding Law Through the Lens of Public Choice, 12 Int'l Rev. L. & Econ. 284 (1992); Einer R. Elhauge, Does Interest Group Theory Justify More Intrusive Judicial Review?, 101 Yale L.J. 31 (1991); and Daniel A. Farber & Philip P. Frickey, The Jurisprudence of Public Choice, 65 Tex. L. Rev. 873 (1987).

n95. See Sunstein, supra note 94, at 1691.

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The prohibition of naked preferences, enforced as it is by the courts, stands as a repudiation of theories positing that the judicial role is only to police the processes of representation to ensure that all affected interest-groups may participate. It presupposes that courts will serve as critics of the pluralist vision, not as adherents striving only to "clear the channels" in preparation for the ensuing political struggle. n96

Thus the varying degrees of influence wielded by the interested parties should be quite relevant in assessing the validity of direct shipment laws.

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n96. Id. at 1692-93.

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III. State Control over Alcohol: The Twenty-First Amendment

A. The Early Years: Unconfined State Power

As the era of nationwide Prohibition came to an end, the prevailing view was that control over liquor belonged solely to the states and localities. n97 The Twenty-First Amendment ostensibly constitutionalized this view, granting broad power to each state over the "transportation or importation" of alcohol for "delivery or use" within the state's borders. n98 This grant of power, however, seemed to present an immediate conflict with the Constitution's Commerce Clause, which reserves for Congress the power to "regulate Commerce... [*370] among the Several States...." n99 The Commerce Clause, which is an affirmative grant of authority to Congress, has been read to include a negative corollary that restricts state action: The states may not pass laws that burden interstate commerce. n100 This restriction is called the "dormant" or "negative" Commerce Clause. n101

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n97. See Sidney J. Spaeth, Note, The Twenty-First Amendment and State Control Over Intoxicating Liquor: Accommodating the Federal Interest, 79 Cal. L. Rev. 161, 179-80 (1991).

n98. U.S. Const. amend. XXI, 2. In recent years, the Supreme Court has recognized the obscurity of the legislative history of 2, noting that "no clear consensus concerning the meaning of the provision is apparent." Bacchus Imports v. Dias, 468 U.S. 263, 274 (1984); see also California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97, 107 n.10 (noting a "wise reluctance to wade into the complex currents beneath the congressional proposal of the Amendment and its ratification in the state conventions"). Because the Court has "focused primarily on the language of the provision rather than the history behind it," id. at 106-07, this Note will not attempt to analyze the legislative history of the Amendment, nor any inferences that may be drawn from that history regarding the purposes of the Amendment.

n99. "The Congress shall have Power...To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." U.S. Const. art. I, 8, cl. 1, 3.

n100. See Lewis v. BT Inv. Managers, 447 U.S. 27, 35-36 (1980); Gerald Gunther, Constitutional Law 210-11 (12th ed. 1991).

n101. See Gunther, supra note 100, at 211; John E. Nowak & Ronald D. Rotunda, Constitutional Law 8.1, at 281 (5th ed. 1995) As Professors Nowak and Rotunda have noted:

The text of the commerce clause does not explain what happens if a state law affects interstate commerce but there is no direct federal legislation on point. The Court has responded by interpreting the affirmative grant of commerce power to the states as imposing some self-executing limitations on the scope of permissible state regulation. Without a dormant commerce clause, states would be free to enact legislation favoring local commerce and discriminating against out of state commerce in all cases where Congress had not legislated on a particular matter.

Id. For a discussion of Supreme Court cases striking statutes that violate the dormant Commerce Clause, see Laurence H. Tribe, American Constitutional Law 6-1 to -20, at 401-68 (2d ed. 1988).

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To escape the inherent conflict between the Twenty-First Amendment and the Dormant Commerce Clause, soon after ratification the Supreme Court interpreted the Amendment as essentially an exception to the Dormant Commerce Clause. n102 Thus, by virtue of the Amendment a state was totally unconfined by traditional Commerce Clause analysis and had plenary power to regulate alcohol. n103 The Court in State Board of Equalization v. Young's Market Co. n104 initially espoused this view. In Young's Market, the Court upheld a California statute that imposed an import license fee on beer importers but imposed no fee for domestic beer. n105 The Court essentially held that there could not be a Commerce Clause violation because of the Twenty-First Amendment:

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n102. See Spaeth, supra note 97, at 182-83.

n103. See generally Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 330-33 (1964) (outlining the history of the Supreme Court's Twenty-First Amendment jurisprudence).

n104. 299 U.S. 59 (1936).

n105. See id. at 60-62.

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Prior to the Twenty-First Amendment it would obviously have been unconstitutional to have imposed any fee for [the] privilege [of importation]. The imposition would have been void, not because it resulted in discrimination, but because the fee would be a direct burden on interstate commerce; and the commerce clause confers the right to import merchandise free into any state, except as Congress may otherwise provide. The exaction of a fee for the privilege of importation would not, before the Twenty-First Amendment, have been permissible even if the State had exacted an equal fee for the privilege of transporting [*371] domestic beer from its place of manufacture to the wholesaler's place of business.... Thus, the case does not present a question of discrimination prohibited by the commerce clause. n106

The Court further held that any interpretation of the Amendment that disallowed its use in a protectionist scheme "would involve not a construction of the Amendment, but a rewriting of it." n107

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n106. Id. at 62 (emphasis added) (citations omitted).

n107. Id. Interestingly, the plaintiffs also argued that the purpose of the Twenty-First Amendment was to protect "the public health, safety or morals" and that the importation fee was not imposed for that purpose. Id. at 63. The Court was not swayed by this argument, noting that a state "may adopt a lesser degree of regulation than total prohibition." Id. Later, as will be shown, the Court explicitly adopts the plaintiffs' line of reasoning. See infra text accompanying notes 121-65.

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Three years later, in Indianapolis Brewing Co. v. Liquor Control Commission, n108 the Court upheld a Michigan statute that barred liquor dealers from selling any beer manufactured in a state that, by its laws, discriminated against Michigan beer. n109 The Court held:

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n108. 305 U.S. 391 (1939).

n109. See id. at 392, 394.

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Whether the Michigan law should not more properly be described as a protective measure, we have no occasion to consider. For whatever its character, the law is valid. Since the Twenty-First Amendment, as held in the [Young"s Market] case, the right of a state to prohibit or regulate the importation of intoxicating liquor is not limited by the commerce clause.... n110

Clearly the statutes in Young's Market and Indianapolis Brewing would not have passed constitutional muster had they dealt with any commodity other than alcohol. n111 The Court seemed to be saying that the Commerce Clause simply does not apply when alcohol is involved. n112

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n110. Id. at 394.

n111. See Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 329 (1964) ("It is not disputed that, if the commodity involved here were not liquor, but grain or lumber, the Commerce Clause would clearly deprive New York of any such power.").

n112. See Young's Market, 299 U.S. at 62 ("The Amendment which "prohibited' the "transportation or importation' of intoxicating liquors into any state "in violation of the laws thereof,' abrogated the right to import free, so far as concerns intoxicating liquors."). Several other noteworthy cases were decided in 1939 that confirmed the Young's Market view. See, e.g., Joseph S. Finch & Co. v. McKittrick, 305 U.S. 395 (1939) (upholding, based purely on the Twenty-First Amendment and without discussing the Commerce Clause, a Missouri statute prohibiting the importation of alcohol from any state that discriminated against alcohol produced in Missouri); Ziffrin, Inc. v. Reeves, 308 U.S. 132 (1939) (upholding a comprehensive, 123-section Kentucky statute that regulated virtually every phase of alcohol transportation and distribution).

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[*372]

B. A Shift in Thought: Harmonizing State and Federal Interests

The Young's Market view dominated Twenty-First Amendment jurisprudence for over twenty years, until the Court began to indicate that there may be some limits to state power over alcohol commerce. Hostetter v. Idlewild Bon Voyage Liquor Corp. n113 was the key case in this regard. In Idlewild, the Court held that the Commerce Clause prohibited the State of New York from interfering with the sale of alcohol to departing international airline travelers at a New York airport. n114 In what seemed to be an unequivocal repudiation of Young's Market and Indianapolis Brewing, the Court stated that the conclusion that the Twenty-First Amendment has operated to repeal the Commerce Clause wherever regulation of intoxicating liquors is concerned is "patently bizarre," "an absurd oversimplification," and "demonstrably incorrect." n115 The Court further noted, "Both the Twenty-First Amendment and the Commerce Clause are parts of the same Constitution. Like other provisions of the Constitution, each must be considered in the light of the other, and in the context of the issues and interests at stake in any concrete case." n116

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n113. 377 U.S. 324 (1964).

n114. See id. at 325, 333-34.

n115. Id. at 331-32.

n116. Id. at 332.

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Sixteen years later, in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, n117 the Court again indicated that the Twenty-First Amendment cannot save every state liquor regulation regardless of its effect on commerce. In Midcal Aluminum, a state wine pricing system was found to violate the Sherman Antitrust Act and was thus declared invalid. n118 Noting that the "Federal Government retains some Commerce Clause authority over liquor," n119 the Court stated that the mode of analysis in Twenty-First Amendment cases should involve a "pragmatic effort to harmonize state and federal powers." n120

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n117. 445 U.S. 97 (1980).

n118. See id. at 114. The pricing system required all California wine producers, wholesalers, and rectifiers to set prices through a fair trade contract, or to post a resale price schedule. The contract or schedule locked in the price of the product. See id. at 99.

n119. Id. at 108.

n120. Id. at 109.

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Shortly after Midcal Aluminum, the Supreme Court began to focus on the purposes of the Twenty-First Amendment and on the role these purposes should play in judging the validity of state regulations. Two 1984 cases demonstrate the Court's efforts in this regard. In Capital Cities Cable v. Crisp, n121 a case dealing with the advertisement of alcoholic beverages, the Court stated that, "when a State has not attempted directly to regulate the sale or use of liquor within its borders - the core 2 power - a conflicting exercise of fed [*373] eral authority may prevail." n122 Interpreting the Midcal Aluminum decision as striking down the state law because the state's interest in promoting temperance was "not substantial," n123 the Court stated that the central question is "whether the interests implicated by a state regulation are so closely related to the powers reserved by the Twenty-First Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies." n124 Later in its opinion, the Court stated that a state's "central power" under the Twenty-First Amendment consists of "regulating the times, places, and manner under which liquor may be imported and sold." n125

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n121. 467 U.S. 691 (1984).

n122. Id. at 713. The Oklahoma statute struck down by the Court banned the retransmission of out-of-state alcoholic beverage commercials by cable television systems operating in the state. See id. at 695.

n123. Id. at 713.

n124. Id. at 714.

n125. Id. at 716.

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Similarly, in Bacchus Imports v. Dias, n126 the Court focused on the central purpose of the Twenty-First Amendment in striking down a Hawaii law that imposed an excise tax on sales of liquor but exempted certain locally-produced alcoholic beverages. n127 After first finding that the law violated basic Commerce Clause principles because it was clearly discriminatory legislation that constituted "economic protectionism," n128 the Court then examined whether the Twenty-First Amendment could nonetheless save the law. The Court said, "One thing is certain: The central purpose of the [Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition." n129 The Court further noted that the Hawaii law was not designed to promote temperance but rather constituted "mere economic protectionism." n130

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n126. 468 U.S. 263 (1984).

n127. See id. at 265 & n.1, 275-76. The tax was a 20% excise tax on sales of liquor at wholesale. Because the legislature sought to encourage development of the Hawaiian liquor industry, it enacted an exemption for okolehao, a locally-produced brandy, and pineapple wine. See id. at 265 & n.1.

n128. Id. at 270-73. Note that, in addition to the Court's increased emphasis on balancing state and federal interests, its mode of analysis shifted from the time of Young's Market to Bacchus. In Young's Market, the Court held that, simply because of the Twenty-First Amendment, there could be no Commerce Clause violation for state alcohol regulations. See 299 U.S. at 62. In Bacchus, the Court first conducted traditional Commerce Clause analysis, then considered whether the Twenty-First Amendment could save the law. See 468 U.S. at 274-75; Brownlee, supra note 35, at 325; infra Section III.C.

n129. Bacchus, 468 U.S. at 276.

n130. Id.

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The Capital Cities/Bacchus reasoning was thereafter used to strike down several state price affirmation statutes. n131 Such statutes require out-of-state sellers of alcohol to post their prices and to affirm that their posted prices for [*374] products sold to the state's wholesalers are no higher than the prices at which those products are sold in other states. n132

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n131. See, e.g., Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 584-85 (1986) (relying on Bacchus); Healy v. Beer Inst., 491 U.S. 324 (1989) (relying on Brown-Forman).

n132. See Healy, 491 U.S. at 326.

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C. The Modern View: An Accommodation Test

As the cases discussed in Section III.B indicate, the Court has been moving toward a Twenty-First Amendment jurisprudence that seeks to balance state and federal interests. This balancing process is highly concerned with core Twenty-First Amendment powers. n133

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n133. See Brownlee, supra note 35, at 328-29; Spaeth, supra note 97, at 186-93.

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Beginning with cases such as Idlewild and continuing through Midcal Aluminum, the Court has been moving toward an accommodation principle in the Twenty-First Amendment area. n134 This accommodation principle seeks initially to resolve Commerce Clause concerns by determining whether the law in question improperly discriminates against out-of-state interests. The next inquiry is whether the Twenty-First Amendment can save a law that violates Commerce Clause principles. It is this inquiry that focuses on core Twenty-First Amendment powers.

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n134. See Spaeth, supra note 97, at 186.

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Bacchus Imports v. Dias may be the most notable example of the accommodation principle in application. In Bacchus, the Court first addressed the conflict between Hawaii's tax regulations and federal interests, concluding that

"[a] discriminating tax imposed by a State operating to the disadvantage of the products of other States when introduced into the first mentioned State, is, in effect, a regulation in restraint of commerce among the States, and as such is a usurpation of the power conferred by the Constitution upon the Congress of the United States." n135

After finding a Commerce Clause violation, the Court then turned to the question whether the tax exemption "is saved by the Twenty-First Amendment to the Constitution." n136 It was in answering this question that the Court focused on "whether the principles underlying the Twenty-First Amendment are sufficiently implicated by the [tax exemptions for Hawaii wines] to outweigh the Commerce Clause principles that would otherwise be offended." n137 After concluding that Hawaii's protectionist measures do not fall under the principles of the Amendment, the Court noted that "recent Twenty-First Amendment cases have emphasized federal interests to a greater degree than [*375] had earlier cases," n138 and finally held that the federal interest in preventing "economic Balkanization" mandates the conclusion that Hawaii's regulation was invalid. n139

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n135. Bacchus, 486 U.S. at 271 (quoting Walling v. Michigan, 116 U.S. 446, 455 (1886)).

n136. Id. at 274.

n137. Id. at 275.

n138. Id.

n139. Id. at 276.

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Following Bacchus, the Court in both Brown-Forman Distillers Corp. v. New York State Liquor Authority n140 and Healy v. Beer Institute n141 also applied the accommodation principle, holding that the Twenty-First Amendment could not save price affirmation statutes that violated the Commerce Clause. n142

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n140. 476 U.S. 573 (1986).

n141. 491 U.S. 324 (1989).

n142. See Brown-Forman, 476 U.S. at 584-85; Healy, 491 U.S. at 341-42.

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D. Core Powers

As cases such as Capital Cities and Bacchus demonstrate, the key aspect of the accommodation test is the determination of whether the law was passed under a core Twenty-First Amendment power. n143 Thus, evaluating any state alcohol regulation requires an understanding of just what the Twenty-First Amendment's core powers are. Recent lower court cases have demonstrated that temperance is the core purpose of the Twenty-First Amendment.

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n143. See Spaeth, supra note 97, at 188.

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In Quality Brands v. Barry, n144 the district court struck down a District of Columbia act that prohibited the sale of liquor that was stored outside the District. n145 The court first found that the law violated the Commerce Clause because it was "discriminatory on its face." n146 The court then held that the Twenty-First Amendment could not save the law because the law was not passed under a core power of the Amendment. n147 "The Amendment was designed only to allow the States to legislate against the evils of alcohol, rather than to reward its purveyors.... The powers reserved to the States by the Amendment must be exercised with temperance as their goal." n148 The court further stated that the District's act could not survive unless it ""directly promotes temperance,' and thereby brings the statute outside the ambit of the Commerce Clause." n149 The court then held that the justifications for the law offered by the District, including taxation, were not directly related to [*376] the promotion of temperance. n150 Noting that the act did not promote temperance because "residents of the District can drink as much as they want so long as they drink liquor stored inside the District," n151 the court found that the District's argument was "nothing but a pretextual rationale: temperance is merely a pretext for economic protectionism." n152 In the end, the court held that, for the act to stand, the District would have to have shown that the act would have a "real impact on temperance." n153

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n144. 715 F. Supp. 1138 (D.D.C. 1989), aff'd, 901 F.2d 1130 (D.C. Cir. 1990).

n145. See id. at 1138.

n146. Id. at 1140.

n147. See id. at 1142-43.

n148. Id. (citing Loretto Winery v. Gazzara, 601 F. Supp. 850, 861 (S.D.N.Y.), aff'd and modified as to remedy sub nom. Loretto Winery v. Duffy, 761 F.2d 140 (2d Cir. 1985)).

n149. Id. at 1143 (citing Loretto Winery v. Gazzara, 601 F. Supp. 850, 861 (S.D.N.Y.), aff'd and modified as to remedy sub nom. Loretto Winery v. Duffy, 761 F.2d 140 (2d Cir. 1985)).

n150. See id.

n151. Id.

n152. Id.

n153. Id.

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The Quality Brands court relied on Bacchus for the proposition that economic protectionism is not a purpose of the Twenty-First Amendment: "The Supreme Court has stated that "the central purpose of the [Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition.'" n154 In Bacchus the Court struck down Hawaii's discriminatory taxation scheme because "the State [did] not seek to justify its tax on the ground that it was designed to promote temperance or to carry out any other purpose of the Twenty-First Amendment, but instead acknowledges that the purpose was "to promote a local industry.'" n155 Quality Brands also relied heavily on Loretto Winery v. Gazzara, n156 quoting Judge Brieant's district court opinion: ""What is to be balanced is the state interest in promoting "temperance" with the federal constitutional interest in free trade across state lines. Only those state restrictions which directly promote temperance may now be said to be permissible under Section 2 of the Twenty-First Amendment.'" n157 Judge Brieant's district court opinion was affirmed in relevant part by the Court of Appeals for the Second Circuit in a short opinion. n158 The Second Circuit opinion held that "clearly protectionist measures are violative of the commerce clause and, in light of Bacchus Imports v. Dias... cannot be saved by Section 2 of the Twenty-First amendment." n159

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n154. Id. (quoting Bacchus, 468 U.S. at 276).

n155. Bacchus, 468 U.S. at 276.

n156. 601 F. Supp. 850 (S.D.N.Y.), aff'd and modified as to remedy sub nom. Loretto Winery v. Duffy, 761 F.2d 140 (2d Cir. 1985).

n157. Quality Brands, 715 F. Supp. at 1142 (quoting Loretto, 601 F. Supp. at 861).

n158. Loretto Winery v. Duffy, 761 F.2d 140 (2d Cir. 1985).

n159. Id. at 141 (citation omitted).

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The United States Court of Appeals for the Fifth Circuit has also weighed in on the issue of core powers. In Cooper v. McBeath, n160 the court struck down on Commerce Clause grounds a Texas provision imposing residency requirements on liquor permit holders, holding that the "Twenty-First [*377] Amendment provides no sanctuary for these parochial statutes." n161 Citing Capital Cities, Bacchus, and Healy v. Beer Institute, the court stated that the defendants' purported justification for the law, ""to protect the health, safety, welfare, morals and temperance' of its citizens," was "unpersuasive and insufficient." n162 The court labeled such justification "boilerplate enabling language." n163

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n160. 11 F.3d 547 (5th Cir.), cert. denied, 512 U.S. 1205 (1994).

n161. Id. at 548.

n162. Id. at 554 (quoting Tex. Alco. Bev. Code Ann. 1:03 (West 1978)).

n163. Id.

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It is clear that Twenty-First Amendment jurisprudence has come a long way from Young's Market's unconfined powers position. n164 Recognizing that the federal interest in preventing "economic Balkanization" n165 is substantial, federal courts have increasingly required state laws regulating alcohol to be passed with the intent of furthering the core Amendment purpose: temperance.

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n164. See Brownlee, supra note 35, at 337 ("The days when a state could prevail in a Twenty-First Amendment challenge merely by intoning the words "Twenty-First Amendment' are gone. In recent years, the Supreme Court has repeatedly voiced its skepticism regarding state rationalizations for discriminatory liquor legislation.").

n165. Bacchus, 468 U.S. at 276.

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IV. The Twenty-First Amendment/Commerce Clause Analysis Applied to Direct Shipment Laws

The public choice analysis in Part II demonstrated that direct shipment legislation is passed because of the incentives and comparative political advantages of in-state wholesalers and retailers. This information becomes pivotal in light of the Twenty-First Amendment/Commerce Clause jurisprudence discussed in Part III. Public choice analysis can play a crucial role in both a court's Commerce Clause and Twenty-First Amendment inquiries. This Note contends that direct shipment laws do not pass constitutional muster.

The first question is whether direct shipment laws violate the Commerce Clause. The Supreme Court has adopted a two-tiered approach to analyzing state economic regulation under the Commerce Clause. n166 "When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests," the Court generally has struck down the statute without further inquiry, finding a per se Commerce Clause violation. n167 As the Court noted in West Lynn Creamery v. Healy n168:

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n166. See Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 578-79 (1986).

n167. Id. at 579 (citing City of Philadelphia v. New Jersey, 437 U.S. 617 (1978); see Shafer v. Farmers Grain Co., 268 U.S. 189 (1925); Edgar v. MITE Corp., 457 U.S. 624, 640-43 (1982) (plurality opinion)); see also West Lynn Creamery v. Healy, 512 U.S. 186, 205 (1994) ("Preservation of local industry by protecting it from the rigors of interstate competition is the hallmark of the economic protectionism that the Commerce Clause prohibits.").

n168. 512 U.S. 186 (1994).

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[*378]

"[The] "negative' aspect of the Commerce Clause prohibits economic protectionism - that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.... Thus, state statutes that clearly discriminate against interstate commerce are routinely struck down...unless the discrimination is demonstrably justified by a valid factor unrelated to economic protectionism...." n169

When the statute has "only indirect effects on interstate commerce and regulates evenhandedly," however, the Court examines "whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits." n170 In Brown-Forman Distillers Corp. v. New York State Liquor Auth., the Court also noted that, in distinguishing laws that are per se violations of the Commerce Clause from those that are subject to the balancing approach that the Court delineated in Pike v. Bruce Church, Inc., n171 "the critical consideration is the overall effect of the statute on both local and interstate activity." n172

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n169. Id. at 192-93 (quoting New Energy Co. v. Limbach, 486 U.S. 269, 273-74 (1988)) (omissions in original).

n170. Brown-Forman, 476 U.S. at 579 (citing Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)).

n171. 397 U.S. 137 (1970).

n172. Brown-Forman, 476 U.S. at 579.

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The Court has thus drawn a distinction between statutes that regulate all commerce and statutes that treat out-of-state goods differently. As the Court demonstrated in West Lynn Creamery, discriminatory state regulations are not subject to the natural protections of the state political process. n173 Similarly, in Lewis v. BT Investment Managers, n174 the Court struck down a Florida statute discriminating against out-of-state banks and holding companies, calling the statute ""parochial' in the sense that it overtly prevents foreign enterprises from competing in local markets," n175 and adding that ""where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected.'" n176

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n173. See supra notes 82-84 and accompanying text; see also South Carolina Highway Dep't v. Barnwell Bros., 303 U.S. 177, 185 n.2 (1938) ("When the regulation is of such a character that its burden falls principally upon those without the state, legislative action is not likely to be subjected to those political restraints which are normally exerted on legislation where it affects adversely some interests within the state.").

n174. 447 U.S. 27 (1980).

n175. Id. at 39.

n176. Id. at 36 (quoting City of Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978)).

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How does the Court determine whether "simple economic protectionism" is the aim of a state legislature? Several scholars have suggested that in "movement-of-goods" cases, which comprise the central area of Dormant Commerce Clause jurisprudence, the Court is concerned exclusively with [*379] preventing states from engaging in purposeful economic protectionism. n177 In these cases, the Court "should invalidate a state law if it finds by a preponderance of the evidence that protectionist purpose contributed substantially to the adoption of the law." n178

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n177. See Regan, supra note 85, at 1092.

n178. Id. at 1151. Regan suggests that in movement-of-goods cases, courts should not (and the Supreme Court in reality does not) engage in any type of balancing. See id. at 1092, 1206. Rather, they focus on protectionist purpose: "Unless there is a good general objection to judicial review of legislative purpose, the anti-protectionism principle is properly embodied in the doctrine that state laws are invalid if and (so far as anti-protectionism is in issue) only if they were motivated by protectionist purpose as we have defined it." Id. at 1142-43; see also Farber, supra note 86, at 414 (proposing that the courts invalidate only laws that intentionally discriminate against interstate commerce).

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The public choice analysis conducted in Part II is powerful evidence of protectionist purpose on the part of state legislatures that have passed strict direct shipment regulations (which, of course, regulate movement of goods). As noted in Part II, the Supreme Court has relied on public choice analysis in examining the discriminatory nature of state regulation. n179 Indications of who successfully lobbied for state legislation may be enough to reveal the motivation of the state legislature; that is, public choice analysis may demonstrate that "protectionist purpose contributed substantially to the adoption of the law." n180 An improper motivation of the state legislature, in turn, is enough for a finding that state legislation constitutes invalid economic protectionism. n181

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n179. See, e.g., West Lynn Creamery, 512 U.S. at 199-201; see also supra note 84 and accompanying text (discussing the West Lynn Creamery Court's analysis of interest group influence).

n180. Regan, supra note 85, at 1151; see also Tushnet, supra note 87, at 125 (arguing for a "political theory" of judicial review in dormant Commerce Clause cases, in which "judicial displacement of legislative judgment is appropriate when it seems that the legislative process has operated in a distorted way - for example, by excluding some affected interest from influence on the legislative process"). Tushnet's political theory would focus on the "adequacy of the political branches to protect important interests." Id. at 164. Such a theory would transform the Court's dormant Commerce Clause jurisprudence into one that is "more consistent with the realities of national politics." Id. at 165.

n181. Cf. Bacchus, 468 U.S. at 270 (citing Hunt v. Washington Apple Adver. Comm'n, 432 U.S. 333, 352-53 (1977), and City of Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978), for the proposition that a finding that state legislation constitutes economic protection can be made on the basis of either discriminatory purpose or discriminatory effect).

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It seems clear that direct shipment laws are per se violations of the Commerce Clause in that they directly regulate interstate commerce and demonstrate a purpose to favor in-state economic interests over out-of-state interests. The West Lynn Creamery Court noted the "cardinal principle that a State may not "benefit in-state economic interests by burdening out-of-state competitors.'" n182 [*380] The Court has further stated that "even in regulating to protect local interests, the States generally must act in a manner consistent with the "ultimate... principle that one state in its dealings with another may not place itself in a position of economic isolation.'" n183 Direct shipment laws allow states to approach that position of economic isolation. The overall effect of the laws on interstate activity is significant and detrimental. The statutes unduly hamper free trade among the states and result in the type of "economic Balkanization" decried by the Supreme Court in Bacchus Imports v. Dias. n184 The Supreme Court has made clear that "the Commerce Clause prohibits a State from using its regulatory power to protect its own citizens from outside competition." n185 As states repeal their reciprocity statutes and turn toward stricter enforcement of direct shipment restrictions, interstate commerce in alcohol is severely harmed. Indeed, interstate commerce in many other products is harmed as well, as some heavy wine producing states such as California have threatened to boycott products from felony states such as Florida. n186 This type of breakdown in interstate free trade is just what the Commerce Clause was meant to prevent. n187

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n182. 512 U.S. at 199 (quoting New Energy Co. v. Limbach, 486 U.S. 269, 273-74 (1988)); see also Wyoming v. Oklahoma, 502 U.S. 437, 455 (1992) ("[A] preference for coal from domestic sources cannot be characterized as anything other than protectionist and discriminatory, for the Act purports to exclude coal mined in other States based solely on its origin."); Healy v. Beer Inst., 491 U.S. 324, 340 (1989) ("The Connecticut [price-affirmation] statute... violates the Commerce Clause in a second respect: On its face, the statute discriminates against brewers and shippers of beer engaged in interstate commerce.").

n183. Lewis v. BT Inv. Managers, 447 U.S. 27, 36 (1980) (quoting Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 527 (1935)).

n184. 468 U.S. 263, 276 (1984).

n185. Lewis, 447 U.S. at 44.

n186. See Wine Makers Boycott Florida Charity Festivals, supra note 68; Ferguson & Samuelson, supra note 5, at 154; see also id. at 155 (stating that some wineries are embargoing Kentucky).

n187. Though this Note does not seek to address the availability of recourse for those harmed by direct shipment laws, it should be noted that the Supreme Court held in Dennis v. Higgins, 498 U.S. 439, 440 (1991), that suits for violations of the Commerce Clause can be brought under 42 U.S.C. 1983. The Court stated that "the Commerce Clause of its own force imposes limitations on state regulation of commerce and is the source of a right of action in those injured by regulations that exceed such limitations." Id. at 450.

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The next inquiry is whether the Twenty-First Amendment can nonetheless save direct shipment laws. Recent federal cases have indicated that alcohol regulation laws that present Commerce Clause conflicts can only be saved by the Twenty-First Amendment if they were promulgated in order to achieve the core Amendment purpose of temperance. n188 Laws passed for economic protectionism or that result in economic Balkanization have increasingly been struck as violative of the Commerce Clause, despite being passed under the aegis of the Twenty-First Amendment. n189

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n188. See supra notes 143-65 and accompanying text.

n189. See supra Section III.C.

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Direct shipment laws and felony upgrades have not been passed to achieve temperance. First, even the proffered justifications for direct shipment laws do not satisfy the required relationship with the promotion of temperance. It has been held that collection of tax revenue is not a core purpose of the [*381] Twenty-First Amendment. n190 As for preventing access by minors, direct shipment laws are not narrowly tailored to achieve that purpose and thus should be struck down under the Commerce Clause. n191 Moreover, there is no indication that, if not for restrictive laws, minors would attempt to acquire alcohol through direct shipment. n192

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n190. See Bacchus, 468 U.S. at 276; Quality Brands v. Barry, 715 F. Supp. 1138, 1143 (D.D.C. 1989) ("Taxation...[has], possibly, a tangential, attenuated, connection with temperance...; but any relation to the promotion of temperance which may be traced to that source is hardly the direct promotion of temperance which is required to invoke the Twenty-First Amendment."), aff'd, 901 F.2d 1130 (D.C. Cir. 1990). But see North Dakota v. United States, 495 U.S. 423, 432 (1990) (listing, in addition to "promoting temperance" and "ensuring orderly market conditions," "raising revenue" as a legitimate state interest under the Twenty-First Amendment).

n191. See 44 Liquormart v. Rhode Island, 517 U.S. 484, 507 (1996) (finding that the state could not "satisfy the requirement that its restriction on speech be no more extensive than necessary," and listing several "alternative forms of regulation that would not involve any restriction on speech" and "would be more likely to achieve the State's goal of promoting temperance"); see also Brownlee, supra note 35, at 329 ("[A] state must...show that the statute's purpose cannot be promoted with a lesser impact on interstate commerce."); id. at 336-37 ("There must be no other less discriminatory means of accomplishing the state's purpose than the absolute ban on out-of-state liquor competition."); cf. Hughes v. Oklahoma, 441 U.S. 322, 336 (1979) (noting that courts, in determining whether the burden imposed on interstate commerce by a statute is permissible, must inquire whether alternative means could promote the purpose as well without discriminating against interstate commerce). The Hughes Court further noted that once discrimination against commerce has been demonstrated, ""the burden falls on the State to justify it both in terms of the local benefits flowing from the statute and the unavailability of nondiscriminatory alternatives adequate to preserve the local interests at stake.'" Id. at 336 (quoting Hunt v. Washington Apple Adver. Comm'n, 432 U.S. 333, 353 (1977)). Thus, "facial discrimination invokes the strictest scrutiny of any purported legitimate local purpose and of the absence of nondiscriminatory alternatives." Id. at 337.

n192. See supra text accompanying notes 36-38.

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Furthermore, declarations that these laws are needed to prevent "a serious threat to the public health, safety, and welfare" n193 will not be blindly accepted by courts. Increasingly, courts are requiring that a proffered rationale be borne out by evidence. n194 Indeed, common sense dictates that direct shipment [*382] laws will do little to achieve temperance, as state residents can drink as much as they want as long as they buy their alcohol from in-state retailers. n195

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n193. Fla. Stat. Ann. 561.545 (West 1998).

n194. See Hughes, 441 U.S. at 336 ("When considering the purpose of a challenged statute, this Court is not bound by "the name, description or characterization given it by the legislature or the courts of the State,' but will determine for itself the practical impact of the law.") (citing Lacoste v. Louisiana Dep't of Conservation, 263 U.S. 545, 550 (1924)); see also Brownlee, supra note 35, at 329 ("Mere legislative pronouncements and "post hoc rationalizations' purporting to justify protectionist liquor regulations will not save such regulations in the event of a conflict with federal law."); id. at 337 ("The Supreme Court has repeatedly voiced its skepticism regarding state rationalizations for discriminatory liquor legislation."). Brownlee cites several cases in which courts have struck down state laws despite statutory language that the law was intended to promote temperance, including Loretto Winery v. Gazzara, 601 F. Supp. 850 (S.D.N.Y.), aff'd and modified as to remedy sub nom. Loretto Winery v. Duffy, 761 F.2d 140 (2d Cir. 1985); California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97 (1980); and 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987). See Brownlee, supra note 35, at 334-35.

n195. Cf. Quality Brands, 715 F. Supp. at 1143 ("Residents of the District can drink as much as they want so long as they drink liquor stored inside the District.").

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The public choice analysis in Part II is further proof that direct shipment laws are simply protectionist measures that were not passed with the aim of promoting temperance. The Court's increased suspicion of laws passed under the guise of the Twenty-First Amendment has caused cases challenging such laws to turn into "evidentiary contests." n196 For example, in the trial in 44 Liquor Mart v. Racine, n197 the district court heard expert testimony and reviewed several studies concerning the impact on the promotion of temperance of an advertising ban in Rhode Island. In striking Rhode Island's statute, the Supreme Court stated:

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n196. See Brownlee, supra note 35, at 333, 335.

n197. 829 F. Supp. 543, 545-48 (D.R.I. 1993), rev'd sub nom. 44 Liquormart v. Rhode Island, 39 F.3d 5 (1st Cir. 1994), rev'd, 517 U.S. 484 (1996). The district court found "as a fact that Rhode Island's off-premises liquor price advertising ban has no significant impact on levels of alcohol consumption in Rhode Island." Id. at 549. The district court then concluded that, as a matter of law, the price advertising ban was unconstitutional because it did not "directly advance" the State's interest in reducing alcohol consumption and was "more extensive than necessary to serve that interest." Id. at 555.

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Without any findings of fact, or indeed any evidentiary support whatsoever, we cannot agree with the assertion that the price advertising ban will significantly advance the State's interest in promoting temperance.

Although the record suggests that the price advertising ban may have some impact on the purchasing patterns of temperate drinkers of modest means, the State has presented no evidence to suggest that its speech prohibition will significantly reduce marketwide consumption. Indeed, the District Court's considered and uncontradicted finding on this point is directly to the contrary. Moreover, the evidence suggests that the abusive drinker will probably not be deterred by a marginal price increase, and that the true alcoholic may simply reduce his purchases of other necessities. n198

The superior ability to influence the political process possessed by in-state wholesalers/distributors and retailers should provide ample evidence that direct shipment laws were passed for the purpose of economic protectionism. In addition, the lack of evidence tying direct shipments to increased alcohol consumption (and, simultaneously, the lack of evidence that direct shipment restrictions will significantly reduce consumption) should not go unnoticed by a court. Just like the state laws in Bacchus Imports v. Dias, Quality Brands v. Barry, n199 and Cooper v. McBeath, n200 direct shipment laws are designed solely [*383] to promote local liquor industries and to erect barriers to competition; temperance rationales are mere "pretexts." n201

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n198. 44 Liquormart v. Rhode Island, 517 U.S. 484, 505-06 (1996) (citations omitted).

n199. 715 F. Supp. 1138 (D.D.C. 1989), aff'd, 901 F.2d 1130 (D.C. Cir. 1990).

n200. 11 F.3d 547 (5th Cir.), cert. denied, 512 U.S. 1205 (1994).

n201. Quality Brands, 715 F. Supp. at 1143.

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Conclusion

There is only one reason to distinguish alcohol from other commodities in terms of federal power over interstate commerce: the state's interest in promoting temperance. Otherwise, states would likewise be able to outlaw the mail order of L.L. Bean socks or Gateway computers. The nation has an interest in such interstate sales and the resulting promotion of a national market.

In other words, there are "principles underlying the Twenty-First Amendment"; n202 whether these principles are implicated should determine the applicability of the Amendment. Thus, as courts have recently been holding, any state regulation over alcohol that was not passed to promote temperance does not fall within the purpose of the Twenty-First Amendment and, to the extent it interferes with interstate commerce, should not escape Commerce Clause invalidation. Furthermore, simple "boilerplate" appeals to temperance and public welfare should not suffice; courts should recognize rationales that are mere pretexts and should get to the heart of the matter: the state's purpose. Politics and economics do not provide adequate justifications for alcohol laws that unduly interfere with interstate commerce.

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n202. Bacchus Imports v. Dias, 468 U.S. 263, 275 (1984).

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James M. Goldberg, attorney for the National Alcohol Beverage Control Association, has told producers harmed by direct shipment laws, "If you want to direct-ship, change the law." n203 Goldberg's challenge is a cold yet accurate summary of what occurred in the direct shipment debate: Parties with entrenched economic interests wielded their superior ability to "change the law." Direct shipment laws were passed for political and economic reasons. They serve only to protect local industry and to fill state tax coffers, at the expense of small wineries, consumers, and, indeed, the nation's interest in economic unity. Under modern "core powers" Twenty-First Amendment analysis, direct shipment laws are unconstitutional.

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n203. Moore, supra note 5, at 2424.

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