CHICAGO (CN) – In a victory for out-of-state alcohol sellers, the Seventh Circuit said Wednesday an Illinois law prohibiting those retailers from shipping liquor to in-state consumers “smacks of protectionism” and may not be lawful under the constitutional amendment that repealed Prohibition.
An Indiana wine retailer, Lebamoff Enterprises, sued the state, saying it maintains an online site and ships wine to customers but is unable to obtain a retail license under Illinois law. The wine seller filed a similar suit challenging Michigan’s shipping ban.
Lebamoff claims Illinois’ regulatory scheme is unfairly protectionist and violates the Commerce Clause, but the state says its law is constitutional under the 21st Amendment, which ended Prohibition in 1933 and specifically permits states to regulate the transport of alcohol.
A federal judge accepted the state’s reasoning, but the Seventh Circuit reversed Wednesday, saying the lower court came to its conclusion too quickly.
Citing U.S. Supreme Court precedent interpreting the 21st Amendment, the Seventh Circuit ruling states, “We read these cases to dictate that the Twenty-first Amendment can save an otherwise discriminatory regulation only if it ‘is demonstrably justified by a valid factor unrelated to economic protectionism.’”
Illinois argues that the Commerce Clause protects out-of-state producers, but not retailers or wholesalers.
But U.S. Circuit Judge Diane Wood, writing for the three-judge panel, disagreed Wednesday.
“There is no reason to think that the Twenty-First Amendment accords privileged status to only one form of state liquor regulation. The Amendment gives states the power to structure their liquor distribution systems; it does not give states that adopt one structure over another outsized deference,” she wrote.
Wood also questioned how Illinois justifies statewide mail-order sales, but prohibits out-of-state shipments.
“The interstate shipment provision decries ‘direct marketing’ of liquor as a ‘serious threat’ not only to the health of state residents, but also ‘to the economy of this State.’ The first reason touches the core of the Twenty-First Amendment, while the second smacks of protectionism,” Wood said.
U.S. Circuit Judges Michael Kanne and Illana Rovner joined the 19-page opinion.
“If Illinois can limit the dangers of mail-order sales through other requirements, why does it need to discriminate against interstate commerce and flatly bar out-of-state retailers from obtaining a license?” Wood continued.
The Seventh Circuit remanded the case with instructions that the lower court conduct further inquiry into the liquor law’s protectionist intent.
The opinion notes that the ruling may be affected by the Supreme Court’s forthcoming disposition of a case recently granted certiorari, Tennessee Wine & Spirits Retailers Ass’n v. Byrd. In that case, a Tennessee alcohol retailer challenges a state law requiring a person or business be a state resident for at least two years before they can obtain a liquor license.