Defendant points to the fact that when the Act reached the full council for a vote, the General Counsel questioned its constitutionality, and Councilman Ray made a statement suggesting several putatively legitimate state interests which would be promoted by requiring geographic proximity of warehouses, e.g., auditing company records, monitoring compliance with the ABC laws, monitoring licenses, checking tax forms for audits, etc. However, the fact that these justifications were offered does not legitimize the Act, for, as plaintiff correctly points out, a mere statement of non-protectionist intent in legislative history does not end the inquiry. Under Hughes, the characterization given a statute by the enacting legislature is not controlling. 441 U.S. at 336. Facts external to the stated purpose may reveal protectionist purposes, and purported legitimate local purposes are subject as well to strict scrutiny. Id. at 337. This level of scrutiny is required by the Supreme Court to avoid the problem of "ingenious" state statutes which appear neutral but operate discriminatorily.
On this score, plaintiff argues that Councilman Ray's "11th-hour" rationalizations are ancillary to the central purpose of economic protectionism and therefore do not suffice to show a legitimate state purpose. Quality argues that the circumstances under which the Act was passed reveal the central protectionist purpose, since the Act was not proposed by any branch of local government, but was in fact adopted at the instigation of the Teamsters Union. Similarly, the bulk of the testimony offered to the Council stresses the importance of the Act from a job preservation standpoint.
Quality further argues that even assuming the legitimacy of the state interests proferred by Councilman Ray, those interests are not threatened by out-of-state storage and are not promoted by the legislation. In support of this argument, Quality asserts that local regulators had never had any difficulty with the types of regulatory enforcement mentioned by Councilman Ray before the vote. Defendants are on the record as admitting that "it appears that ABC records since 1979 fail to show any specific instance where ABC officials encountered one or more difficulties" in enforcement. Pl. Statement of Facts, para. 15. Furthermore, defendants admitted that there are no known instances, since 1979, in which District regulators have found any failure by plaintiff to comply with the ABC Act or with its conditions of licensure. Pl. Statement of Facts, para. 16. The practical effect of the Act would appear to be minimal from the standpoint of the District's regulatory interests, and therefore, the Court may conclude that the purported local interests offered by defendant do not sustain the burden of showing that the Act serves a legitimate local purpose. Cf. Hunt v. Washington Apple Advertising Commission, 432 U.S. 333, 353, 53 L. Ed. 2d 383, 97 S. Ct. 2434 (1977). In any event, if legitimate purposes given for the Act are "ancillary" to a central purpose which is protectionist, in the sense that the non-protectionist effects of the statute are "merely an occasional and accidental effect of achieving what is its purpose," the constitutional infirmity is not overcome. New Energy Co., 108 S. Ct. at 1810.
Defendant offers additional candidates for "legitimate local objectives" underlying the Act by arguing that the Act advances the goals of the ABC Act. These objectives are said to be the enforcement of the "three-tier licensing system" and the discouragement of the so-called "tied house." The "three-tier" system was created by the 1934 ABC Act, which requires local licensure, and separates retailers from wholesalers, and both from manufacturers; it prevents one firm from controlling the entire chain of distribution, the so-called "tied house." To achieve this goal, the '34 Act requires wholesalers to store liquor at the "place" described in their licenses, unless the right to require this is waived by the District. Waivers have been granted in two instances since 1934, and one of them was to the predecessor company of Quality, which was allowed to store liquor in Maryland. Defendant argues that such outside storage is a revocable privilege, and that the council's recent action was merely the exercise of power granted to it under the ABC Act. The Court is not persuaded by this argument, since a decision to revoke plaintiff's "privilege" would have been vulnerable to the same Commerce Clause attack plaintiff now brings against the Act. See H.P. Hood & Sons Inc. v. DuMond, 336 U.S. 525, 93 L. Ed. 865, 69 S. Ct. 657 (1949) (denial of license violated Commerce Clause because decision was motivated solely by protectionism).
Even if Councilman Ray's reasons were legitimate expressions of local concern, the statute would not survive scrutiny under the last prong of Hughes, which is whether non-discriminatory alternatives exist to serve the local purpose. Where the statute is discriminatory on its face, assertions of the absence of non-discriminatory alternatives are subject to "strict scrutiny." Although the Court concludes that the putatively legitimate local interests offered in defense of the Act are not sufficient to withstand strict scrutiny, it appears in any case that those interests could be met in a non-discriminatory way. For example, if there is a legitimate local interest in inspection, it is valid under the Commerce Clause to force out-of-state manufacturers to bear the expense of compliance with local requirements, rather than forbidding outside warehousing for the sake of avoiding those expenses. The principal non-protectionist justification defendant offers for wishing to keep liquor storage solely in the District is the distance from the District to Quality's warehouse in Glen Burnie, Maryland. But in looking at that argument with the requisite "strict scrutiny," it appears to the Court that it would be possible to enforce local regulations by requiring Quality to bear the burden of whatever inconvenience may result from distance, rather than by resorting to the drastic solution of prohibiting out-of-District storage.
II. The Twenty-First Amendment.
Defendant argues that the Commerce Clause alone does not suffice to invalidate the legislation, because the article of commerce regulated is alcohol, so that the 21st Amendment protects the legislation even if it violates the Commerce Clause. Defendant relies on a 1944 Supreme Court case, Carter v. Virginia, where the Court stated that "the Amendment has been held to relieve the States of the limitations of the Commerce Clause on their powers over such transportation or importation." 321 U.S. at 137. Accordingly, defendant argues, the standard of review for regulation of liquor control ordinances should be the "rational relation" test applied to economic regulation.
The history of the Supreme Court's construction of the relationship between the Twenty-First Amendment and the Commerce Clause reveals that defendant's argument is no longer tenable. Defendant relies on a body of case-law which is roughly contemporaneous with the Amendment to argue that State regulation of the liquor industry is protected from Commerce Clause scrutiny. Plaintiff responds that the Court has changed its approach to the effect of the Amendment on the operation of the Commerce Clause, and argues that the Court's contemporary analysis is to determine whether the State's regulation pertains to the purposes of the Amendment, meaning, primarily, whether the statute is intended to promote temperance.
In a recent case which carefully traced the history of the Supreme Court's interpretation of the Twenty-first Amendment, Judge Brieant concluded that "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." Loretto Winery Ltd. v. Gazzara, 601 F. Supp. 850, 861 (S.D.N.Y. 1985). These principles are the promotion of temperance and "to combat the perceived evils of an unrestricted traffic in liquor." Bacchus Imports, 468 U.S. at 276. As is pointed out in Loretto Winery, 601 F. Supp. at 861, the Amendment was designed only to allow the States to legislate against the evils of alcohol, rather than to reward its purveyors. Therefore, in Judge Brieant's analysis, the powers reserved to the States by the Amendment must be exercised with temperance as their goal. This means that if a statute serves some purpose other than promoting temperance or combatting the evils of unrestricted liquor traffic, the Amendment yields to the Commerce Clause. This Court agrees with that view of the Supreme Court's present-day interpretation of the interaction of the Twenty-first Amendment and the Commerce Clause. Accordingly, the District's argument cannot survive unless the Liquor Industry Storage Act "directly promote[s] temperance," and thereby brings the statute outside the ambit of the Commerce Clause.
The justifications offered by defendant for the legislation as non-discriminatory bases for the statute are not "directly" related to the promotion of temperance. Taxation, inspection and the maintenance of local jobs have, possibly, a tangential, attenuated, connection with temperance in the sense that regulation of the liquor industry may limit the accessibility of alcohol to some degree; 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. The Liquor Storage Act does not serve to promote temperance except incidentally, since all it does, in effect, is to say that residents of the District can drink as much as they want so long as they drink liquor stored inside the District. Defendant's argument is nothing but a pretextual rationale: temperance is merely a pretext for economic protectionism. 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." Bacchus Imports, 468 U.S. at 276. In this case, defendant has offered no showing that its decision to forbid sale of liquor stored outside the District would have any real impact on temperance.
Therefore, the Court finds that the Wholesale Liquor Industry Storage Act violates the Commerce Clause and does not fall within the protections of the 21st Amendment. Therefore, it is ORDERED that enforcement of the Act is ENJOINED.
DATE June 27, 1989
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