Insights
Publications

The CARE Act and the Commerce Clause: How Congressional Silence Can Impact Review of State Regulation of Alcohol

5/27/2010 Articles

On April 15, 2010, HR 5034, also known as the Comprehensive Alcohol Regulatory Effectiveness Act of 2010 (the "CARE Act") was introduced into the U.S. House of Representatives. This alert does not summarize the CARE Act, but clarifies one rumor regarding the effects of the CARE Act, and explains one effect of the many the bill would have.

The CARE Act would not ban direct shipment of wine. Current state laws would not be effected by the CARE Act.

The CARE Act would eliminate judicial review of alcohol regulation under the dormant Commerce Clause. This is significant because the most important recent Supreme Court case addressing state regulation of alcohol, Granholm v. Heald,[1] was based on a dormant commerce clause challenge to state laws. If passed, the CARE Act would render Granholm, and future dormant commerce clause challenges to state laws regulating alcohol, moot.

The CARE Act would eliminate judicial, dormant commerce clause scrutiny of state laws regulating alcohol.

The CARE Act would render state laws regulating alcohol invulnerable to challenges based on the dormant commerce clause of the Constitution[2] The dormant commerce clause is a principle which states that because only Congress has the power to regulate interstate commerce, then no State may enact laws that impact interstate commerce.

Application of the dormant commerce clause to the regulation of alcohol is complex. Because of Prohibition and its repeal, States have more authority to regulate alcohol than other substances. Specifically, the 21st Amendment to the Constitution states "(1) The eighteenth article of amendment to the Constitution of the United States [which instituted Prohibition] is hereby repealed. (2) The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

The interplay of the 21st Amendment and the dormant commerce clause were addressed in Granholm. In that case, small wineries from California and Virginia challenged laws of Michigan and New York claiming those laws discriminated against the small wineries in violation of the dormant commerce clause.

The Supreme Court agreed with the small wineries holding that the 21st Amendment does not trump the dormant commerce clause. Although States have broad power to regulate liquor under Section 2 of the 21st amendment, that does not mean the States can use discriminatory means to regulate liquor because this would violate the dormant commerce clause.

The CARE Act would alter this situation. The CARE Act is an explicit choice by Congress to NOT regulate alcoholic beverages while approving of current state regulation. This means that state laws regulating alcohol are no longer subject to dormant commerce clause challenge, because as the Supreme Court held in another commerce clause case, Western, once "Congress ordains that the States may freely regulate an aspect of interstate commerce, any action taken by a State within the scope of the congressional authorization is rendered invulnerable to Commerce Clause challenge."[3] In Western, an out of state insurance company challenged a California tax that only applied to out of state corporations. The Court held the tax was constitutional under the Commerce Clause, notwithstanding the discrimination between businesses based on their state of origin, because Congress explicitly gave up its authority to regulate insurance and gave it to the states under the McCarren-Ferguson Act.[4]

The language used by Congress in the McCarren-Ferguson Act to give up its regulatory authority over insurance is strikingly similar to the language used by Congress in the CARE Act to give up its regulatory power over alcohol.  Compare:

the McCarren-Ferguson Act:
"Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States."[5]

to the CARE Act:
"[E]ach State or territory shall continue to have the primary authority to regulate alcoholic beverages...[S]ilence on the part of Congress shall not be construed to impose any barrier under clause 3 of section 8 of article I of the Constitution (commonly referred to as the ‘Commerce Clause') to the regulation by a State or territory of alcoholic beverages.

From the similar language, it seems reasonable to assume a similar result: alcohol regulation, like insurance regulation, will be invulnerable to judicial dormant commerce clause scrutiny if the CARE Act is passed. This means that decisions like Granholm would be very unlikely and that States will have fewer barriers to enact laws that discriminate against out of state producers alcohol.

Thus, producers of alcoholic beverages are urged to act now to influence their representative in Congress. Farella Braun + Martel remains available to discuss the consequences of the bill and to assist in working within the law going forward, however it may exist.

For more information, please contact Katherine Philippakis at [email protected] / 707.967.4000 or Philip Milestone at [email protected] / 415.954.4914.

This article is published as a service to our clients and friends. It should be viewed only as an overview of the law, and not as a substitute for legal consultation.                        www.fbm.com


[1] Granholm v. Heald, 544 US 460 (2005).

[2] See Const. Art.1, cl.8 §3: "The Congress shall have the power ...regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes" otherwise known as the Commerce Clause.

[3] Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 US 648 (1981).

[4] 15 USC §1011 et seq.

[5] 15 USC §1011.

Firm Highlights

Publication

SEC Expands Definition of “Accredited Investor” – Here Are 5 Key Takeaways

The SEC recently adopted amendments to Rule 501(a) of Regulation D of the Securities Act of 1933 that expand the definition of “accredited investor” by adding new categories of eligibility based on professional knowledge...

Read More
News

Quinn Arntsen Named to North Bay Business Journal’s Forty Under 40

Read More
News

What’s Ahead for California Wine Industry With Laws and Regulations - Q&A

More than wine, area lawyers specializing in the wine business have been forced in the past year to take on a number of critical issues. That includes regulations that were put in place to help...

Read More
Publication

Top 10 Practical Business Implications Arising From the Passage of the CPRA

California’s Proposition 24 passed as expected, and the new California Privacy Rights Act will change the privacy landscape created by the California Consumer Protection Act (CCPA), which went into effect only months ago. While...

Read More
Publication

What California Wineries Need to Know Now to Prepare for Fire Season

California is at the start of another dry year, with increased likelihood that the North Bay will experience another active fire season. Fires are always a risk and they are always unpredictable — preparing...

Read More
Publication

Fire Season Preparedness: What Wineries Should Do Now - Video

Farella's Quinn Arntsen and MaryJo Lopez with guest speaker Christopher Thompson of Napa Communities Firewise Foundation discuss "Fire Season Preparedness: What Wineries Should Do Now." California is at the start of another dry year...

Read More
Publication

New Statewide Winery Order: What Wineries Need to Know

Buzz Hines and John Ugai, along with guest speakers, Timothy Simpson and Mehran Ebrahimi from GSI Environmental Inc, discuss "New Statewide Winery Order: What Wineries Need to Know." The new statewide General Waste Discharge...

Read More
Publication

How to Comply With the TCPA After the Facebook Supreme Court Decision

Many consumer products industry companies rely heavily on text messaging marketing programs to reach their customers and to create loyalty in an increasingly competitive market. While text messaging programs may be an effective marketing tool...

Read More
Publication

Hidden Liens in Custom Crush Relationships: How to Avoid Being Caught Between Creditors

Custom crush is an effective method for vintners to start and grow their label and brand without requiring the capital intensive investment of a dedicated winery. When evaluating potential custom-crush facilities and providers, wine...

Read More
Publication

M&A Deals and PPP Loans: Unexpected Parties in Your Deal

The Payroll Protection Program has been a lifesaver to many businesses this year, but its quick roll out, and many generous features (including potential forgiveness) could tempt a borrower to treat the PPP as...

Read More