Anticipating an appetite at the U.S. Supreme Court to upend state laws favoring in-state liquor sellers, a federal appeals panel in Chicago has given an Indiana wine seller another chance to argue Illinois’ law blocking them from shipping wine to Illinois residents violates constitutional interstate commerce protections.
The Supreme Court is scheduled to hear arguments in January for a case in which a wine retailers’ association has sued the Tennessee Alcoholic Beverage Commission to win a right for out-of-state retailers to apply for retail or wholesale licenses, which are now limited to in-state businesses. In the Illinois case, Lebamoff Enterprises Inc., which owns a wine store in Fort Wayne, Ind., contends the Prairie State’s liquor laws also violate constitutional provisions designed to prevent economic protectionism.
The 21st Amendment, which lifted Prohibition, gave states considerable rights to regulate the sale of alcohol within their own boundaries, provided the regulations do not infringe on any other Constitutional provisions.
In Illinois, retailers with a physical presence within the state can ship alcoholic beverages to customers anywhere in the state. There is no similar license allowing out-of-state retailers to ship to Illinois customers. The state argues it is within its 21st Amendment powers to restrict direct-to-consumer shipments to Illinois businesses. Lebamoff contends those rules violate the Commerce Clause and Privileges and Immunities Clause of the U.S. Constitution.
U.S. 7th Circuit Court of Appeals Chief Circuit Judge Diane P. Wood
The district court dismissed the case with prejudice. In reopening it, the U.S. Seventh Circuit Court of Appeals said the dismissal was too hasty and that there are material issues that should be argued in court. The author of the appellate opinion, Seventh Circuit Chief Judge Diane Wood, cautioned however that “there are other aspects of the Illinois law – not before us at present – that will be difficult for plaintiffs to surmount if [the federal case] does not come out in their favor.”
The Illinois Liquor Control Act lays out a three-tier licensing system. Licensed producers sell to licensed distributors, who sell to licensed retailers, who sell to consumers. Out-of-state manufacturers, distributors and retailers cannot ship alcohol directly to Illinois consumers; they must go through a business licensed in one of the three tiers. The out-of-state business must also have its own Illinois license.
A consumer has joined Lebamoff and its co-owner Joseph Doust as a plaintiff in the case. Irwin Berkley is an Illinois resident and a collector of fine wines; he joined the suit against the state arguing the law makes it difficult for him to access fine wines without traveling out of state himself.
In its analysis, the appellate court notes that the Commerce Clause and the 21st Amendment perform a kind of balancing act: The provisions of the amendment can save a state law that violates the clause, but the interests at stake must be evaluated. The court found the issues in this case complex enough to warrant further argument in court. The state law is in clear violation of the Commerce Clause, the court wrote, but the state is using the 21st Amendment as a defense, which must be analyzed.
“The district court … took the plaintiffs’ challenge to be one to the three-tier system as a whole. This was error. It should have asked whether Illinois has justified requiring an in-state presence for retailers now that it allows state-wide mail-order sales,” Wood wrote. “Perhaps Illinois can show that the differential treatment is necessitated by permissible 21st Amendment interests, but this sort of inquiry is ill-suited for the motion to dismiss stage.”
Joining Judge Wood in the decision were Seventh Circuit judges Ilana Rovner and Michael Kanne.
Lebamoff is represented by attorney James A. Tanford, and others with the firm of Epstein, Cohen, Seif & Porter LLP, of Indianapolis.
The state of Illinois is represented by the Illinois Attorney General's office.
Intervening in the matter as a defendant is the Wine and Spirits Distributors of Illinois. They are represented by attorney Richard J. Prendergast, of Chicago.