8th Circuit Sarasota Wine Oral Argument: Judge Loken takes a scalpel to the state
The 8th Circuit heard oral argument on a challenge to Missouri’s retailer wine shipping law, which allows Missouri retailers to ship wine to Missouri consumers but denies this privilege to out-of-state retailers.
Before getting into the oral argument’s highlights, it is important to know some important factors about this decision.
The biggest question is if the Eight Circuit rules in favor of the plaintiffs and remands the case, what will the remanded decision look like?
The Eight Circuit could write a strong or weak remand. If they write a weak remand, the Court could instruct the lower court that the record needs to be developed and there are unanswered questions. If the 8th Circuit writes a strong remand, similar to the 7th Circuit in Lebamoff, they could provide a very explicit road map on how the lower court should rule on this case.
What I am looking for is the role Tennessee Wine plays in the decision. When the 7th Circuit strongly remanded Lebamoff, it discussed how Granholm extended to retailers. The 7th Circuit concluded before the certainty of Tennessee Wine. Now that Tennessee Wine established the Granholm extension as true, I am looking for how strongly the 8th Circuit utilizes Tennessee Wine in its decision. Does Tennessee Wine play a strong role on how the 8th Circuit views Missouri’s wine retailer shipping law, or does the 8th Circuit leave that role to the lower court?
Finally, in this analysis, I focus on the exchanges between Judge Loken and the Missouri State Attorney General because this represented the lion’s share of the oral argument issues.
The main theme of the oral argument is Judge James Loken’s repudiation of the state’s defense of the law. Every time the state brought up a legal justification, Judge Loken aggressively combated their position.
The viability of the three-tier system argument
The state opened its case by stating that this case is about nothing less than the viability of the three-tier system. “A regulatory approach that the 8th Circuit court and the Supreme Court both blessed.”
Judge Loken flat out rejected this argument and stated:
“That is not true, that is such an exaggeration, I’m not going to let you start with that. We have no idea whether Granholm applied to Missouri’s three-tier system.”
The state stayed on its point and reiterated its position. “Judge Sutton’s decision in Lebamoff addressed this issue on the head. It would gut the three-tier system if, direct sales were allowed because, out-of-state retailers are not subject to Missouri regulation, more importantly the alcohol they sell never passes through the three-tier system. If plaintiffs are granted the relief they seek here.”
Judge Loken flat out rejected this argument and emphatically stated that:
“Counsel, I frankly don’t care about the three system, I care about harmonizing the 21st Amendment and the Commerce Clause. And Granholm as confirmed in Tennessee Wine, the three-tier system which is absolutely a valid way for a state to accomplish its 21st Amendment objectives. It must yield or be subject to, Commerce Clause restrictions. Doesn’t mean it can’t be done, the three-tier system may or may not look differently, if the three-tier system has been disrupted and replaced by the modern economy.”
The opening exchange revealed some important themes. 1. The argument that wine retailer shipping would destroy the three-tier system was strongly repudiated. 2. The arguments from Judge Sutton’s decision from the 6th Circuit will not hold sway in the 8th Circuit. 3. The 8th Circuit is looking at the alcohol regulatory system with regards to a changing and modern economy.
In the 7th Circuit’s decision in Lebamoff (which reversed and remanded a lower court decision upholding Illinois’ discriminatory wine retailer shipping law), Judge Wood was concerned about how Illinois’ wine shipping law applied to the modern economy, she stated “what Illinois is trying to do is put a huge damper on modern commerce.”
When Judges start looking at the law in the modern economy context, the states are usually in trouble!
Judge Loken went on to state that the Commerce Clause trumps the 21st Amendment and interstate discrimination cannot be justified by 21st Amendment principles.
State’s reliance on dubious legal authority and analysis
In the next exchange the state relied on the argument that regular dormant Commerce Clause analysis does not apply. They also relied on the argument that there was no discrimination against out-of-state retailers, as they could ship to Missouri residents if the out-of-state retailers had a physical presence in Missouri and were willing to comply with Missouri licensing requirements. Citing the Supreme Court’s Exxon case, the State indicated that the Dormant Commerce Clause does not protect a chosen way of doing business.
The state also asserted that its Missouri retailers can’t run an internet only business, and if Missouri law allows Sarasota wine to run an internet business, it is providing them an opportunity that is not available to Missouri retailers.
In the state’s view, if the Court rules in Sarasota Wine’s favor, it would put Missouri out-of-state retailers at a distinct advantage over Missouri in-state retailers that cannot run an internet only business. They concluded by stating that the Dormant Commerce Clause does not require this conclusion.
The state then took the position that based on the 5th Circuit’s decision in Walmart, the burden to prove discrimination rest on the party challenging the validity of the statute, the Plaintiff has the burden of showing discrimination.
This drew skepticism from Judge Loken who stated that “I’m sorry the 5th Circuit trumps the Supreme Court, I was reading, a Supreme Court decision. I don’t care what 5th circuit says I follow the Supreme Court.”
After this exchange the State indicated that the 5th circuit quoted the Supreme Court, a similar idea in the North Dakota case, liquor laws are entitled to a strong presumption of validity. But the Granholm nondiscrimination principle was only triggered after discrimination was reached.
Judge Loken retorted that “I agree with that, a mandatory locational requirement that benefits and discriminates in favor of in-state retailers, is discriminatory under the commerce clause. And it may be justifiable, but the question is whether you have to justify it?”
The state responded to this question, by indicating that State’s position does not facially discrimination against out of state retailers and many out-of-state retailers operate in Missouri.
Judge Loken retorted back that the out-of-state retailers operate here by spending a lot of money to have a physical presence in Missouri, some specialty retailers can’t afford to develop a physical presence, they are financially barred from competing in Missouri.
The state answered Judge Loken by stating that the complaint does not allege anything along these lines. And that a string of cases Walmart, Wine Country Gift Baskets, Orion, and Arnold’s Wine, found no discrimination when a state required a physical presence.
In my opinion the state set itself up for a trap with this line of reasoning. Granholm was clear that a state could not require a physical presence as a condition of doing business. As Tennessee Wine extended Granholm’s non-discrimination principle to retailers, the same principle will extend to retailers. Further, the line of cases relied on by the state are flimsy. Wine Country Gift Basket and Arnold’s Wine are deemed irrelevant by Tennessee Wine. Both of these cases stood for the proposition that Granholm did not extend to retailers, clearly a legal principle repudiated by the Supreme Court in Tennessee Wine. Orion is a Federal District Court decision out of California dealing with residency issues pertaining to wholesalers, it holds little weight in the 8th Circuit, and Judge Loken already rejected the use of Walmart.
The state’s physical presence argument is a very weak argument that ignores Supreme Court precedent and relies on poor legal authority.
The state’s argument against remand fall flat
Next the state made the arguments that because Sarasota Wine did not submit to Missouri regulations like retailers located in Missouri, that the parties were not similarly situated, and that this is a threshold inquiry in any kind of discrimination case. In the mind of the state, if the parties are not similarly situated, discrimination was not possible.
The state then took the position that if the similarly situated argument did not pan out and the discriminatory burden shifted to the state, that their law’s predominant effect addresses a legitimate state interest rather than economic protectionism. Further, they stated there is not a claim flushed out that the state engaged in protectionism, and in fact their law advanced a legitimate state interest.
Judge Loken in a rather frustrated manner said “Now we are hearing a rule 56 argument (Motion for Summary Judgement), that is not the issue before us.
The state answered Judge Loken and stated, the court can take judicial notice in fact finding in similar cases that clearly establish this including Southern Wine.”
Judge Loken growingly increasingly frustrated stated, “Judicial Notice of what! Of no discrimination!’
Under Judicial Notice a party is allowed to introduce facts into evidence if the truth of the facts is so well known that it cannot reasonably be doubted.
The state answered Judge Loken’s strong comments by stating “The Southern Wine case analyzed whether there was a protected interest, the Judge discussed what the purpose of the statute was, and how it was advanced by enshrining a three-tier system, and alcohol must flow through the three-tier system.”
Judge Loken growing even more frustrated retorted: “I don’t know how we get into protectionism. The argument is whether Tennessee Wine undermines 8th Circuit case law, that the district court relied on that they didn’t even need to plead a case, and you are saying because Walmart can do it, there is no discrimination against Sarasota. That is so preposterous on its face to a former anti-trust lawyer, that is not a 12(b)(6) argument.” (A 12(b)(6) motion is a motion to dismiss a claim for failure to a state a claim upon which relief can be granted).
The attorney for Missouri held to the position that the district court did not rely solely on Southern Wine, and the District Court recognized that all alcohol sold in the state must pass through the three-tier system. In Missouri’s view if Sarasota gets the relieve that they seek, they will not be subject to the same restraints. The wine they purchase is not purchased from Missouri wholesalers and the wine they receive can be directly shipped in without going through the three-tier system.
The judge indicated that this is an argument for another day.
The state further argued that Sarasota attempts to gut the three-tier system and also Sarasota lacks proper standing. The state opined, even if Sarasota can prove discrimination, they still couldn’t ship into Missouri. Under Missouri law, a retailer is required to buy from a wholesaler, even if there was discrimination, Sarasota would not have access to the market because they are required to buy from a Florida wholesaler.
Based on these facts, the State believed the relief Sarasota seeks is insufficient, and they pray for relief that is insufficient to give them what they want. These two factors make Sarasota’s claim invalid.
Judge Loken rejected this argument, “if the claim is a Missouri statute or regulation, violated the Constitution, that is plausible on its face. The fact the relief that would be fashioned if the claim was proved, is very murky at best.”
The state replied by noting that they believed it was not murky but that the claim is impossible. Judge Loken again disagreed and the state charged back that this issue is beyond the scope of the complaint, because the plaintiff did not ask for relief and they never mentioned the wholesalers whatsoever.
An increasingly frustrated Judge Loken shot back at the State. “I don’t care about wholesalers, you care about wholesalers, the fact that Florida requires something they are not doing, is irrelevant in this Missouri case.”
The oral argument did not go well for the state. The arguments that were advanced not only fell on deaf ears, but were met with scorn by Judge Loken.
The state did its best to ignore Tennessee Wine and Granholm and made Walmart from the 5th Circuit as their case to rely on. Judge Loken seemed to be insulted by this legal slight of hand and called the state out numerous times.
Second, the argument that a state can demand physical presence as a condition for entering the market is a very poor argument. This was flat out rejected in Granholm. Yet, the state kept pushing the argument by ignoring Granholm and relying on a line of cases that are legally irrelevant or no longer considered sound law. Judge Loken studied this issue well and seemed insulted by this argument.
Third, the state kept making the argument that because the out-of-state retailer’s product never passes through the three-tier regulatory system, that even if the law discriminated on its face, the plaintiffs could never get the relief they sought, because they are required to purchase product through Missouri’s three-tier system as a condition to entering the market. Which is an impossibility since they are located in Florida.
Again, Judge Loken rejected this argument and stated, “I frankly don’t care about the three system, I care about harmonizing the 21st Amendment and the Commerce Clause.”
Fourth, Judge Loken discussed how the three-tier system could be changing based on a modern economy. This signals that they are not looking at the three-tier system in a strict legal vacuum. This is not a good fact for the state.
In the end, the state wanted the panel to keep its eye off discrimination and onto other legal theories, such as similarly situated parties, burdens of discrimination, and who could buy from the three-tier system. This did not work and the state did not make its case for flat out dismissal.
This case is going for remand, I think Judge Loken writes an expansive opinion addressing the state’s arguments and provides clear instructions for the lower court judges.