Supreme Court Rules in Favor of Economic Liberty

In a David-and-Goliath case that pitted independent small businesses against state-supported oligopolists, the U.S. Supreme Court ruled in favor of David today.

In a 5-4 decision in the case of Granholm v. Heald, the justices split into rather odd coalitions. In the majority were Justice Anthony Kennedy (who wrote the Court's opinion) and Justices Antonin Scalia, David Souter, Ruth Bader Ginsburg, and Steven Breyer. The dissenters were Justices John Paul Stevens and Clarence Thomas (who each wrote dissenting opinions), Chief Justice William Rehnquist, and Justice Sandra Day O'Connor. This was not, in other words, a typical "liberal"/"conservative" split with Kennedy or O'Connor providing the swing vote.

At issue were laws in Michigan and New York and 22 other states that prohibit consumers from purchasing wine by mail-order or over the Internet from out-of-state wineries. It featured a clash between the Constitution's Commerce Clause and the 21st Amendment, which not only ended Prohibition but also granted states the authority to control the manufacturing, sale, and purchase of alcoholic beverages within their borders.

The Supreme Court today essentially found that the Commerce Clause, which gives Congress the authority to regulate interstate commerce, trumps the 21st Amendment.

Here's how the New York Times summarized the arguments:

Today's decision, in the cases of Granholm v. Heald, No. 03-1116, from Michigan, and Swedenburg v. Kelly, No. 03-1274 from New York, had to do with interpretation of the Constitution, the intent of the 1933 Amendment that ended Prohibition and changing personal tastes in the age of the Internet.

When the case was argued before the justices on Dec. 7, lawyers for New York and Michigan asserted that the Prohibition-ending 21st Amendment to the Constitution gave states such wide authority over the importation of alcohol that it trumped the principle embodied in the Commerce Clause: that the states may not, without Congressional authorization, discriminate against one another.

New York's and Michigan's lawyers insisted then that the goals of preventing minors' access to alcohol and assuring that the states could collect taxes from out-of-state shippers justified their states' statutes. Solicitor General Caitlin J. Halligan of New York told the justices that the case "goes to the very core of the 21st Amendment."

Justice Kennedy responded - tellingly, it would appear from today's ruling - that "it also goes to the very core of the Commerce Clause."

Justice Kennedy wrote today that the real object of the Michigan and New York statutes was not protection of minors but rather to give in-state wineries a competitive advantage over those in other states. Justice Kennedy, who was joined by Justices Antonin Scalia, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer, said New York and Michigan "provide little evidence for their claim that purchasing wine over the Internet by minors is a problem."

"The 26 states now permitting direct shipments report no such problem, and the states can minimize any risk with less restrictive steps, such as requiring an adult signature on delivery," the majority said. Moreover, the majority said, the states could devise tax-collection procedures without resorting to discrimination in interstate commerce.

"In all but the narrowest circumstances" the states violate the Commerce Clause if they erect barriers to help in-state business at the expense of outsiders, the majority said in describing the Commerce Clause as "essential to the foundations of the Union."

The majority observed that "the current patchwork of laws - with some states banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocity - is essentially the product of an ongoing, low-level trade war."

In his opinion for the majority, Justice Kennedy concludes:

States have broad power to regulate liquor under §2 of the Twenty-first Amendment. This power, however, does not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a State chooses to allow direct shipment of wine, it must do so on evenhanded terms. Without demonstrating the need for discrimination, New York and Michigan have enacted regulations that disadvantage out-of-state wine producers. Under our Commerce Clause jurisprudence, these regulations cannot stand.

We affirm the judgment of the Court of Appeals for the Sixth Circuit; and we reverse the judgment of the Court of Appeals for the Second Circuit and remand the case for further proceedings consistent with our opinion.

Clint Bolick, an attorney with the libertarian public-interest law firm, the Institute for Justice, said in a statement that "this is the best day for wine-lovers since the invention of the corkscrew."

Juanita Swedenburg, the owner of a small winery in Middleburg, Va., was IJ’s lead plaintiff in the case (she sued the state of New York). Her reaction: "This opens up interstate markets just like our Founding Fathers envisioned. They wanted us to be one nation when it comes to trade -- not 50 states. This is a boon for America’s wine-loving consumers who like to have various wines from throughout the nation."

The Institute for Justice also represented the homeowners threatened by abusive eminent-domain actions in Kelo v. New London, which awaits a ruling by the Supreme Court. We can only hope that the Court continues down the path of economic and personal liberty it traveled in today's decision.