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Thursday, August 07, 2008

Ind. Decisions - 7th Circuit posts two Indiana decisions late today

One is the wine shipping case, Baude v. Heath (SD Ind., Judge Tinder). For background, see this ILB entry from Feb. 22nd. Today Judge Easterbrook writes, in an 11-page opinion:

After Granholm v. Heald, 544 U.S. 460 (2005), held that states that allow wineries to ship direct to consumers may not discriminate against outof- state vintners, Indiana revised its statutes. We had held in Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th Cir. 2000), that the portions of Indiana’s laws there under challenge were non-discriminatory but had flagged other questionable provisions. Indiana eliminated them and revamped the way in which it regulates direct shipments.

Today wineries inside and outside Indiana may ship to customers, if (a) there is one face-to-face meeting at which the buyer’s age and other particulars can be verified; and (b) the vintner is not allowed to sell to retailers in any state as its own wholesaler. Indiana also requires wineries to obtain licenses and remit taxes, and it limits each customer to 24 cases per winery per year, but these elements of the state’s system have not been challenged. The district court enjoined enforcement of the two contested provisions because they have a disparate impact on out-of-state sellers. 2007 U.S. Dist. LEXIS 64444 (S.D. Ind. Aug. 29, 2007). * * *

One of the two provisions challenged here is indeed a needless and disproportionate burden on interstate commerce. The wholesale clause in Ind. Code §7.1-3-26-7(a)(6) provides that a winery may sell direct to consumers only if it “does not hold a permit or license to wholesale alcoholic beverages issued by any authority” and is not owned by an entity that holds such a permit. Indiana says that this clause is designed to protect the state’s “three-tier system” under which retailers may buy their inventory only from wholesalers. If a wholesaler in another state could sell wine direct to consumers, the state insists, the winery-to-wholesaler-to-retailer-to-consumer model would collapse. * * *

Indiana does not defend the wholesale clause, though a trade association, which intervened to protect its economic interest, insists that the clause is valid. * * *

The wholesale clause protects Indiana’s wholesalers at the expense of Indiana’s consumers and out-of-state wineries.

Analysis of the law’s other requirement is more complex. Indiana requires any consumer who wants to receive direct shipments of wine—from any winery, in or out of Indiana—to visit the winery once and supply proof of name, age, address, and phone number, plus a verified statement that the wine is intended for personal consumption. See Ind. Code §§ 7.1-3-26-6(4), 7.1-3-26- 9(1)(A). The parties call this the face-to-face clause. Plaintiffs say that a face-to-face meeting is more expensive, the farther away is the winery (so the law has a disparate impact on interstate commerce), and that local benefits are negligible because people under 21 are bound to find some way to get hold of wine no matter what the law provides (they could, for example, present forged credentials or bribe sellers to overlook their youth). * * *

None of the plaintiffs contends that Indiana’s law has led him to buy more wine from Indiana and less from other states. The law simply shifts sales from smaller wineries (in all states, including Indiana) to larger wineries (all of which are located outside Indiana). The Indiana Winegrowers Guild has filed a brief as amicus curiae opposing the face-to-face clause, which the Guild maintains has made it unduly difficult for its members to ship their wine direct to consumers. But if what the Guild says is true, then the statute—although bad economically for Indiana’s wineries—must be sustained against a challenge under the commerce clause. Favoritism for large wineries over small wineries does not pose a constitutional problem, and the fact that all Indiana wineries are small does more to show that this law’s disparate impact cuts against in-state product than to show that Indiana has fenced out wine from other jurisdictions.

The judgment of the district court with respect to the wholesale clause is affirmed, and with respect to the faceto- face clause is reversed. The case is remanded for the entry of a judgment consistent with this opinion.

The second opinion today is in US Sec. & Exchange Comm. v. Lyttle (SD Ind., Judge Barker), involving bank fraud. Defendants appealed their penalties. The panel, in a 6-page opinion by Judge Posner, affirmed.

Posted by Marcia Oddi on August 7, 2008 04:54 PM
Posted to Ind. (7th Cir.) Decisions