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QUALITY BRANDS, INC. v. BARRY

June 27, 1989

QUALITY BRANDS, INC., Plaintiff,
v.
MARION S. BARRY, JR., et al., Defendants



The opinion of the court was delivered by: REVERCOMB

 GEORGE H. REVERCOMB, UNITED STATES DISTRICT JUDGE

 Plaintiff Quality Brands Inc. has moved for summary judgment on its claim for a declaratory judgment that the District of Columbia's Wholesale Liquor Industry Storage Act of 1986 ("the Act") is unconstitutional, and it seeks an injunction of enforcement of the Act. Defendant has filed a cross-motion to dismiss, or in the alternative for summary judgment. Quality Brands argues that the Act, which prohibits sale in the District of Columbia of liquor which is stored outside the District, violates the Commerce Clause because it discriminates against businesses using out-of-state facilities and labor in order to benefit local interests.

 Here is the pertinent text of the challenged Act:

 
The Board may permit the storing of beverages upon premises other than the premises designated in the license by the holder of a . . . (2) wholesaler's license; . . . . No licensee may store beverages upon premises outside the District, except that licensed wholesalers permitted by the Board to store beverages outside the District as of January 1, 1986, may continue to do so until July 27, 1988.

 Quality Brands merged operations in 1980 with another company which had a warehouse in Glen Burnie, Maryland. At the time the two companies were merged, warehouse operations were consolidated at Glen Burnie, resulting in the elimination of 15 jobs in the District. One result of the consolidation was the transfer of jobs outside the jurisdiction of Local 639 of the Teamsters Union. Quality emphasizes that it offered to let the D.C. workers keep their jobs if they wanted to work in Maryland; all refused and found other jobs. If the workers had elected to go to work at Glen Burnie, they would have had to transfer their union affiliations anyway. According to plaintiffs, this merger led the Teamsters to lobby for passage of a statute designed to prevent Quality Brands from moving its warehouse operations outside the District of Columbia. According to plaintiff, these efforts began in 1981, the year that the Council first considered legislation entitled "Wholesale Liquor Industry Job Protection Act." The legislation was not successful at that time, nor when it was revived under the same title in 1983. Ultimately, it was re-introduced in 1985, and was passed. The name of the bill was changed in committee to the "Wholesale Liquor Industry Storage Age," although the substance of the bill remained unchanged.

 The Committee Report on the bill describes the "issues and background" of the legislation in terms of lost jobs for District citizens and the competitive disadvantage suffered by warehouses in D.C. because of lower overhead, insurance rates and wages applying to warehouses outside D.C. The plaintiff's exhibits show that the Teamsters Local lobbied hard to cause the Council to amend the ABC Act to prohibit Quality (or any other liquor wholesaler) from using warehouses outside the city limits. Further evidence for the argument that the Act was intended to discriminate in favor of local workers is that the only reason offered in support of the bill by witnesses and by the executive branch (in the form of the D.C. Department of Consumer and Regulatory Affairs) was the preservation of jobs, with an incidental nod at increasing the tax base, since licensees would have to use storage facilities in the District.

 I. The Commerce Clause.

 As a threshhold matter, it should be noted that a conventional Commerce Clause analysis does apply to laws passed by the D.C. government. See e.g., Electrolert Corp. v. Barry, 237 U.S. App. D.C. 328, 737 F.2d 110 (D.C. Cir. 1984). The basic principles of such an analysis were stated in Hughes v. Oklahoma, 441 U.S. 322, 336, 60 L. Ed. 2d 250, 99 S. Ct. 1727 (1979) First, a court must determine whether a challenged statute discriminates against interstate commerce. If the statute discriminates on its face, the court is to examine it with "the strictest scrutiny." Id. at 337. If the statute is to survive, the burden is on the State to justify it in terms of local benefits and the absence of non-discriminatory alternatives to preserve those local interests. Id. at 336. This inquiry as well requires "the strictest scrutiny." Id. at 337. As explained in Hughes and other cases, the Commerce Clause prohibits economic protectionism. "Where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected." Philadelphia v. New Jersey, 437 U.S. 617, 624, 57 L. Ed. 2d 475, 98 S. Ct. 2531. Parochial legislation that seeks "to create jobs by keeping industry in the State" is routinely struck down as protectionist, Philadelphia v. New Jersey, 437 U.S. at 627.

 The first aspect of this inquiry is whether the Act is discriminatory on its face, i.e., if its stated purpose is protectionist, or whether protectionism may be inferred from facts other than the stated purpose, such as when a "legitimate" state interest is articulated in the legislative history but belied by the facts. The courts are not bound by the characterization of a statute given by the legislature. "The crucial inquiry, therefore, must be directed to determining whether [the statute] is basically a protectionist measure, or whether it can fairly be viewed as a law directed to legitimate local concerns, with effects upon interstate commerce that are only incidental." Philadelphia v. New Jersey, 437 U.S. at 624. Even if there are ancillary purposes for a statute which are non-discriminatory, they must be more than "occasional and accidental," and cannot be based on "implausible speculation." New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 108 S. Ct. 1803, 1810-11, 100 L. Ed. 2d 302 (1988).

 The Act is clearly discriminatory on its face. It explicitly (on its face and in practical effect) regulates liquor storage in a way which favors local industry and workers at the expense of out-of-state interests. Cf. Bacchus Imports v. Dias, 468 U.S. 263, 271, 82 L. Ed. 2d 200, 104 S. Ct. 3049 (1984). Defendant argues that Quality's Commerce Clause argument fails because the storage requirement does not burden interstate commerce, on the grounds that the sales occur inside the District, and the "precise location of the warehouse from which the later deliveries are made -- whether inside the District or outside the District -- is merely incidental." This argument is difficult to credit, since the prohibition is on sales of alcohol stored outside the District. Defendant appears to be arguing that the location is "incidental" even though it leads to a prohibition. The Court concludes that it is the prohibition which is the substance of the discrimination against foreign business created by the Act.

 As plaintiff points out, the legislation struck down as protectionist in Bacchus Imports v. Dias, 468 U.S. 263, 82 L. Ed. 2d 200, 104 S. Ct. 3049 (1984), was very similar to the statute challenged in this case: the legislature of Hawaii enacted an exemption from the State Liquor Tax for locally produced alcoholic beverages, for the purpose of encouraging local industry. The Court struck down the statute under the Commerce Clause, holding that "we need not guess at the legislature's motivation, for it is undisputed that the purpose of the exemption was to aid Hawaiian industry. Likewise, the effect of the exemption is clearly discriminatory, in that it applies only to locally produced beverages, even though it does not apply to all such products. Consequently, as long as there is some competition between the locally produced exempt products and non-exempt products from outside the State, there is a discriminatory effect." In this case, there is a prohibition, not just an exemption favoring local business. "The Court has viewed with particular suspicion state statutes requiring business operations to be performed in the home State that could more efficiently be performed elsewhere." Pike v. Bruce Church, Inc., 397 U.S. 137, 145, 25 L. Ed. 2d 174, 90 S. Ct. 844 (1970). The Wholesale Liquor Industry Storage Act does just that: it requires business operations to be performed in the District of Columbia when, as is obvious from plaintiff's decision to merge and relocate, they could be performed more efficiently in Maryland. The Court concludes that the Act discriminates against interstate commerce "on its face" and therefore is "virtually per se invalid" under the rule of Philadelphia v. New Jersey. The Act is therefore subject to "the strictest scrutiny," and is invalid unless the defendants can show that the Act "advances a legitimate local purpose that cannot be adequately served by reasonable non-discriminatory alternatives." New Energy Co. v. Limbach, 108 S. Ct. at 1810.

 Defendant has not denied that the purpose of the Act was, at least in part, to preserve jobs inside the District of Columbia, but argues that other legitimate purposes were also at work, and that any protectionist effects of the statute are incidental to them. Defendant asks the Court to weigh the possibility that the council considered several putatively legitimate bases for the Act. Basically, defendant argues that the D.C. Council made an attempt to articulate non-protectionist state interests in the legislative history, while plaintiff ...


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