(CN) – The 2nd Circuit upheld New York’s three-tiered system of regulating alcohol as a constitutional exercise of the state’s rights.
The case required the court to chart a course between a section of the 21st Amendment, which allows states to regulate alcohol from other states, and the Commerce Clause, which gives Congress the power to regulate interstate commerce, “thus implicitly limiting the states’ power to do so,” Judge Wesley wrote.
Indiana wine retailer Arnold’s Wine and two New York residents challenged the state’s Alcoholic Beverage Control Law, which bars out-of-state retailers from selling wine directly to New York consumers.
Two New York wholesalers and an association of New York retailers intervened on behalf of the state.
U.S. District Judge Richard Holwell granted the defendants’ motion to dismiss, saying New York’s alcohol regulation system is line with the state’s authority under the 21st Amendment.
The three tiers are the producer, the distributor or wholesaler, and the retailer. The producer must sell to a licensed in-state wholesaler, who must deliver the alcohol to a licensed New York retailer. Only wineries may bypass the three-tier system and ship directly to customers.
The federal appeals court acknowledged that the 21st Amendment – passed as a temperance measure – “is thus in tension with the Commerce Clause,” as it gives states near-total control over liquor distribution.
But Judge Wesley noted that state policies are only protected when they treat in-state and out-of-state retailers the same.
Because the New York regulatory system doesn’t discriminate in this way, the court concluded, it’s a “valid exercise of the state’s rights under the 21st Amendment.”