Constitutional Laws; Interstate Commerce; Intoxicating Liquors

Subject:

Constitutional Laws; Interstate Commerce; Intoxicating Liquors

Requested By:

Honorable Carolyn Mathis, Member North Carolina Senate

Question:

A bill which allows the sale in ABC Stores of wine produced from fruit or berries grown in North Carolina in counties which have approved the sale of wine, is now pending in the General Assembly. Would this bill be held constitutional if enacted since it prohibits the sale in ABC Stores of wines produced outside of N.C.?

Conclusions:

Yes.

A bill pending in the current session of the North Carolina General Assembly would allow local Boards of Alcoholic Control to permit, in counties where the sale of wine has been approved, the sale through ABC stores, of wines "derived from fruits and berries grown in North Carolina."

Three provisions of the Constitution of the United States are relevant to a determination of whether the proposal would be held constitutional: the Commerce Clause, Article 1, Section 8,

cl. 3; the Fourteenth Amendment; and the Twenty-first Amendment. "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." Hostetter v. Idlewild Bon Voyage Liquor Corporation, 377 U.S. 324, 332 (1964).

The interplay between these provisions was described by Mr. Justice Frankfurter, concurring, in United States v. Frankfort Distilleries, Inc., 324 U.S. 293, 300-301 (1945) as follows:

"The Twenty-first Amendment made a fundamental change, as to control of the liquor traffic, in the constitutional relations between the States and national authority. Before that Amendment-disregarding the interlude of the Eighteenth Amendment-alcohol was for constitutional purposes treated in the abstract as an article of commerce just like peanuts and potatoes. As a result, the power of the States to control the liquor traffic was subordinated to the right of free trade across state lines as embodied in the Commerce Clause. The Twenty-first Amendment reversed this legal situation by subordinating rights under the Commerce Clause to the power of a state to control, and to control effectively, the traffic and liquor within its borders. . . .

As a matter of constitutional law, the result of the Twenty-first Amendment is that a state may erect any barrier it pleases to the entry of intoxicating liquors. Its barrier may be low, high, or insurmountable. Of course, if a state chooses not to exercise the power given it by the Twenty-first Amendment and to continue to treat intoxicating liquors like other articles, the operation of the Commerce Clause continues. . . ."

Judged under the Commerce Clause, the proposal appears to be unconstitutional as a discrimination against interstate commerce in that it authorizes a sale of wines produced from North Carolina agricultural products but not the sale of wines produced from the agricultural products of any other state. The bill opens to wine made of North Carolina agricultural products the marketing power of sellers (city and county ABC stores) unavailable to the producers and distributors of wines derived from the agricultural products of any other state. These sellers are now unavailable to the producers or distributors of any wine; therefore, an allowance to these sellers to offer for sale wines manufactured from North Carolina agricultural products discriminates against the wines manufactured from the agricultural products of any other state or nature. American Motors Sales Corporation v. Division of Motor Vehicles, 592 F.2d 219 (1979). In our view, however, a court called upon to determine the constitutionality of this bill would determine its constitutionality under the standards of the Twenty-first Amendment rather than the standards of the Commerce Clause.

In State Board of Equalization v. Young’s Market, 299 U.S. 59 (1936) certain wholesalers of beer challenged a statute of the State of California which required them to pay a license fee of $500.00 for the privilege of importing beer produced outside California. The license fee did not apply to persons selling beer produced in California. The plaintiffs claimed that the license fee violated the Commerce Clause by discriminating against the wholesaler of imported beer, (e.g., beer brewed in North Carolina). The Supreme Court said:

Can it be doubted that a state might establish a state monopoly on the manufacture and sale of beer, and either prohibit all competing importations, or discourage importation by laying a heavy impost, or channelize desired importations by confining them to a single consignee? . . . There is no basis for holding that it may prohibit, or so limit, importation only if it establishes monopoly of the liquor trade. It might permit the manufacture and sale of beer, while prohibiting absolutely hard liquors. It might permit the manufacture and sale of beer, while prohibiting absolutely hard liquors. If it may permit the domestic manufacture of beer and exclude all made without the state, may it not, instead of absolute exclusion, subject the foreign article to a heavy importation fee?"

In Mahoney v. Joseph Triner Corporation, 304 U.S. 401 (1938) a wholesaler of liquor challenged an Indiana statute which prohibited the sale of certain imported brands of liquor but did not apply to liquor produced in Indiana. The wholesaler claimed that the prohibition on selling these liquors violated the Fourteenth Amendment. The Supreme Court held:

"The statute clearly discriminates in favor of liquor processed within the State as against liquor completely processed elsewhere. For only that locally processed may be sold regardless of whether the brand has been registered. That under the Twenty-first Amendment discrimination against imported liquor is permissible although it is not an incident of reasonable regulation of liquor traffic, was settled by State Board of Equalization v. Young’s Market Corporation, 399

U.S. 59, 62, 63, 57 S.Ct. 77, 78, 79, 81 L.Ed. 38." (Emphasis supplied) The same result was reached in Indianapolis Brewing Company v. Liquor Control Commission of Michigan, 305 U.S. 391 (1939) and Joseph S. Finch & Companyy v. Mc Kittrick, (1939). Thus, a State may discriminate against an interstate alcoholic product, even though the motivation for the preference of the intrastate alcoholic beverage product is motivated by local economic interests and has no relationship to the interest of the State in alcohol regulation.

The Supreme Court has recently cited the Young’s Market and Mahoney cases with approval, Craig v. Boren, 429 U.S. 190 (1976), but pointed out that ". . . (B)oth cases centered upon importation of intoxicants, a regulatory area where the State’s authority under the Twenty-first Amendment is transparently clear . . . and touched upon merely economic matters that traditionally merit only the mildest review under the Fourteenth Amendment, . . . ."

In summary, it is clear that the Twenty-first Amendment supplants the Commerce Clause with respect to intoxicating liquors to the extent of legislation valid under State Constitutions concerning the regulation of commerce in intoxicants. Where the only claim to be made against a state statute regulating commerce in intoxicants is that it discriminates against liquors produced out of state and in favor of those produced within the State, the statute will be held valid under the "rational relationship to permissible state purpose" standard of review under the Fourteenth Amendment. We therefore conclude that this bill, if enacted, would be held to be constitutional under the Twenty-first Amendment against a challenge based on a theory of the Commerce Clause or the economic consequences of equal protection.

Rufus L. Edmisten Attorney General

Howard A. Kramer Deputy Attorney General for Legal Affairs

David S. Crump Special Deputy Attorney General