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Baude v. Heath

August 7, 2008


Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:05-CV-0735-JDT-TAB-John Daniel Tinder, Judge.

The opinion of the court was delivered by: Easterbrook, Chief Judge.


Before EASTERBROOK, Chief Judge, and BAUER and POSNER, Circuit Judges.

After Granholm v. Heald, 544 U.S. 460 (2005), held that states that allow wineries to ship direct to consumers may not discriminate against outof-state vintners, Indiana revised its statutes. We had held in Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th Cir. 2000), that the portions of Indiana's laws there under challenge were non-discriminatory but had flagged other questionable provisions. Indiana eliminated them and revamped the way in which it regulates direct shipments.

Today wineries inside and outside Indiana may ship to customers, if (a) there is one face-to-face meeting at which the buyer's age and other particulars can be verified; and (b) the vintner is not allowed to sell to retailers in any state as its own wholesaler. Indiana also requires wineries to obtain licenses and remit taxes, and it limits each customer to 24 cases per winery per year, but these elements of the state's system have not been challenged. The district court enjoined enforcement of the two contested provisions because they have a disparate impact on out-of-state sellers. 2007 U.S. Dist. LEXIS 64444 (S.D. Ind. Aug. 29, 2007).

A state law that discriminates explicitly ("on its face," lawyers are fond of saying) is almost always invalid under the Supreme Court's commerce jurisprudence, which the Justices recapped this spring in Department of Revenue of Kentucky v. Davis, 128 S.Ct. 1801, 1808--11 (2008). (That recent decision makes it unnecessary for us to rehearse the standards.) Plaintiffs, oenophiles who want easier access to wine from small vineyards in other states, do not contend that either of the two challenged provisions discriminates in terms. Every rule applies to every winery, no matter where it is located. The argument instead is that the rules impose higher costs on interstate commerce as a practical matter.

That brings into play the norm that, "[w]here the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). State laws regularly pass this test, see Davis, 128 S.Ct. at 1808--09, for the Justices are wary of reviewing the wisdom of legislation (after the fashion of Lochner) under the aegis of the commerce clause. For recent cases in which this circuit has held that Pike tolerates state laws of dubious benefit, see, e.g., Cavel International, Inc. v. Madigan, 500 F.3d 551 (7th Cir. 2007); National Paint & Coatings Ass'n v. Chicago, 45 F.3d 1124 (7th Cir. 1995).

One of the two provisions challenged here is indeed a needless and disproportionate burden on interstate commerce. The wholesale clause in Ind. Code §7.1-3-26-7(a)(6) provides that a winery may sell direct to consumers only if it "does not hold a permit or license to wholesale alcoholic beverages issued by any authority" and is not owned by an entity that holds such a permit. Indiana says that this clause is designed to protect the state's "three-tier system" under which retailers may buy their inventory only from wholesalers. If a wholesaler in another state could sell wine direct to consumers, the state insists, the winery-to-wholesaler-to-retailer-to-consumer model would collapse.

State laws that regulate the distribution chain, as this one does, have been sustained against other challenges under the commerce clause. See Exxon Corp. v. Governor of Maryland, 437 U.S. 117 (1978). But the Court concluded in Exxon that Maryland's separation of the retail and wholesale functions did not affect interstate commerce in petroleum, all of which came from out of state no matter how the distribution system was organized. Indiana's wholesaler clause, by contrast, prevents direct shipment of almost all out-of-state wine while allowing all wineries in Indiana to sell direct. That happens because states organize their distribution systems differently. Although Indiana forbids any winery to sell to a retailer, many other states either forbid wholesaling or are indifferent to where retailers get their inventory. California, Oregon, and Washington, which produce 93% of this nation's wine, have two-tier systems in which retailers buy from producers without a middleman. All wineries in those states lawfully may sell to retailers-which means that Indiana classifies them as wholesalers and will not allow them to ship wine to customers in Indiana. The statute is neutral in terms, but in effect it forbids interstate shipments direct to Indiana's consumers, while allowing intrastate shipments.

Indiana does not defend the wholesale clause, though a trade association, which intervened to protect its economic interest, insists that the clause is valid. Pike asks whether the putative local benefits could possibly justify the burden on interstate commerce. All the wholesalers can muster in support of the statute is that the three-tier system may help a state collect taxes and monitor the distribution of alcoholic beverages, because there are fewer wholesalers than there are retailers, so state enforcement efforts can focus on the middle layer. That may be so, see Granholm, 544 U.S. at 489 (stating in dictum that the three-tier system is compatible with the dormant commerce clause), but once a state allows any direct shipment it has agreed that the wholesaler may be bypassed. It is no harder to collect Indiana's taxes from a California winery that sells to California retailers than from one that does not. The wholesale clause protects Indiana's wholesalers at the expense of Indiana's consumers and out-of-state wineries.

Analysis of the law's other requirement is more complex. Indiana requires any consumer who wants to receive direct shipments of wine-from any winery, in or out of Indiana-to visit the winery once and supply proof of name, age, address, and phone number, plus a verified statement that the wine is intended for personal consumption. See Ind. Code §§ 7.1-3-26-6(4), 7.1-3-26-9(1)(A). The parties call this the face-to-face clause. Plaintiffs say that a face-to-face meeting is more expensive, the farther away is the winery (so the law has a disparate impact on interstate commerce), and that local benefits are negligible because people under 21 are bound to find some way to get hold of wine no matter what the law provides (they could, for example, present forged credentials or bribe sellers to overlook their youth).

Any balancing approach, of which Pike is an example, requires evidence. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456 (1981). It is impossible to tell whether a burden on interstate commerce is "clearly excessive in relation to the putative local benefits" without understanding the magnitude of both burdens and benefits. See Cherry Hill Vineyard, LLC v. Baldacci, 505 F.3d 28 (1st Cir. 2007). Exact figures are not essential (no more than estimates may be possible) and the evidence need not be in the record if it is subject to judicial notice, but it takes more than lawyers' talk to condemn a statute under Pike.

The vital bit of information for the wholesale clause is that 93% of all wine comes from states that have two-tier systems. Indiana concedes as much and does not proffer any local benefit to offset the exclusionary effect. But Indiana has not conceded that it is particularly costly for consumers to visit wineries on the west coast, or that an effort to verify buyers' ages is worthless. Plaintiffs have waged the suit as a "facial" challenge to the statute-which means that Indiana receives the benefit of any plausible factual suppositions, for a statute is not unconstitutional "on its face" if there is any substantial possibility that it will be valid in operation. See, e.g., Washington State Grange v. Washington State Republican Party, 128 S.Ct. 1184 (2008). When some form of heightened scrutiny applies-as it does if a law's own terms treat in-state and out-of-state producers differently-then the burdens of production and persuasion rest on the state. But when challenging a law that treats in-state and out-of-state entities identically, whoever wants to upset the law bears these burdens.

The costs of a face-to-face meeting depend on distance, not on borders, and many consumers in Indiana are closer to some wineries in Michigan or Illinois than to most wineries in Indiana. But then plaintiffs aren't interested in wine from Illinois, Michigan, Kentucky, or Ohio. They have their hearts set on the boutique ...

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