DC Winery, LLC v. D.C. Alcoholic Beverage Control Bd.

299 A.3d 574

DC WINERY, LLC, T/A District Winery/Ana Restaurant & Bar, Petitioner, v. D.C. ALCOHOLIC BEVERAGE CONTROL BOARD, Respondent.

No. 22-AA-0017

District of Columbia Court of Appeals.

Argued March 1, 2023

Decided August 10, 2023

Christopher L. LaFon, with whom Andrew J. Kline was on the brief, for petitioner.

Marcella Coburn, Assistant Attorney General, with whom Karl A. Racine, Attorney General for the District of Columbia at the time the brief was filed, Caroline S. Van Zile, Solicitor General, Ashwin P. Phatak, Principal Deputy Solicitor General, and Thais-Lyn Trayer, Deputy Solicitor General, were on the brief, for respondent.

Before Beckwith and McLeese, Associate Judges, and Steadman, Senior Judge.

Steadman, Senior Judge:

By statute, the District of Columbia requires a licensee dealing in alcoholic beverages to store its inventory within the District. Petitioner DC Winery, which stored part of its inventory in Virginia, claims that this provision is unconstitutional as violative of the "dormant Commerce Clause" and is not saved by § 2 of the Twenty-first Amendment ending prohibition. Twenty-five years ago, the D.C. Circuit rejected a dormant Commerce Clause challenge to this same law and upheld the law under § 2 of the Twenty-first Amendment. Milton S. Kronheim & Co. v. District of Columbia , 91 F.3d 193, 195-96 (D.C. Cir. 1996). Today, petitioner argues that recent Supreme Court precedent invalidates the D.C. Circuit's ruling and demonstrates that the District's storage requirement is unconstitutional. We disagree and hold that the statute passes constitutional muster.

I. Background

A. How the District Regulates Alcoholic Beverages

The District of Columbia Alcoholic Beverage Control Board ¹ (the Board) enforces the District's alcohol laws. See D.C. Code § 25-201. These laws create a three-tier system of distribution that requires alcoholic beverage manufacturers, wholesalers, and retailers to obtain licenses to produce, store, or sell alcohol ² at their establishments in the District. See id. §§ 25-102, -110 to -113. The Board oversees the Alcoholic Beverage Regulation Administration (ABRA), which helps the Board perform its functions. Id. § 25-202. These functions include issuing licenses; inspecting licensees’ premises, books, and records; investigating violations of these laws; and punishing licensees for violations. Id. § 25-201(c).

D.C. Code § 25-754(b) states that "[a] licensee may not store alcoholic beverages upon premises outside the District." The Board may allow certain licensees to store alcohol on "premises other than the licensed establishment" if those premises are in the District. Id. § 25-754(a) - (b). Using an off-site storage facility requires obtaining a storage facility permit. 23 D.C.M.R. § 209.1. These facilities are subject to inspections by the Board and ABRA. Id. § 209.11; D.C. Code § 25-802(a). ABRA also must examine every licensed establishment's premises, books, and records at least once a year. D.C. Code § 25-802(b).

The only ways to import alcohol into the District for sale are via "a manufacturer's, wholesaler's, ^{[3 ]} or common carrier's license," or a "retailer's license under a validly issued import permit." Id. § 25-772(a). Import permits (also called importation permits) allow retailer licensees to import a narrow class of alcoholic beverages into the District. Id. § 25-119(a). Import permits only cover alcoholic beverages that a licensee cannot obtain "from a licensed manufacturer or wholesaler in the District in sufficient quantity to reasonably satisfy the immediate needs of the licensee." Id.

B. Facts

The facts are undisputed. Petitioner holds a retailer's license to sell, with an "endorsement" to manufacture, wine at 385 Water Street, SE, Washington, D.C. ⁴ Due to limited space at its D.C. location, petitioner stored large amounts of wine at a warehouse in Sterling, Virginia, called International Cellars. Wine was then shipped back to petitioner's D.C. property as needed. ABRA eventually learned that petitioner was storing wine across the Potomac and sent an investigative team to International Cellars with two agents from the Virginia Alcoholic Beverage Control Authority (ABC). The ABRA agents learned that, at the time of the visit, petitioner had approximately 168,000 bottles of wine stored there.

The Board issued petitioner a Notice of Status Hearing and Show Cause Hearing that alleged petitioner violated D.C. Code § 25-754(b) by storing wine outside the District. At the show cause hearing, petitioner did not dispute any facts or contend that it did not violate the statute. Instead, petitioner argued § 25-754(b) is unconstitutional under the dormant Commerce Clause and that § 2 of the Twenty-first Amendment does not save the statute. In a written order, the Board found that petitioner violated § 25-754(b), fined petitioner $1,500, ordered it to stop storing alcohol outside the District, and imposed other conditions on its license. In response to petitioner's constitutional argument, the Board denied that it had authority to invalidate the statute. Then, assuming arguendo that it had such authority, it concluded after an extensive analysis that the statute is valid under the Twenty-first Amendment and the dormant Commerce Clause.

II. Analysis

The issue is whether requiring alcohol licensees to store their inventory in the District is constitutional under § 2 of the Twenty-first Amendment and the dormant Commerce Clause. We start by reviewing the relevant constitutional provisions and the case law interpreting them. Applying that case law to § 25-754(b), we conclude that the statute's in-District storage requirement is constitutional.

A. Constitutional Framework

Section two of the Twenty-first Amendment prohibits "[t]he transportation or importation into any State, ^{[5 ]} Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof." U.S. Const. amend. XXI, § 2. As the Supreme Court recently explained, § 2 "allows each State leeway to enact the measures that its citizens believe are appropriate to address the public health and safety effects of alcohol use and to serve other legitimate interests." Tenn. Wine & Spirits Retailers Ass'n v. Thomas , ––– U.S. ––––, 139 S. Ct. 2449, 2474, 204 L.Ed.2d 801 (2019). However, "§ 2 is not a license to impose all manner of protectionist restrictions on commerce in alcoholic beverages." Id. at 2457. Rather, we must view § 2 "as one part of a unified constitutional scheme." Id. at 2462. That scheme includes the dormant Commerce Clause. See id. at 2469-70.

The Commerce Clause empowers Congress "[t]o regulate Commerce with foreign Nations, and among the several States, ^{[6 ]} and with the Indian Tribes." U.S. Const. art. I, § 8, cl. 3. This Clause "also ‘contain[s] a further, negative command’ " that "has come to be called the dormant Commerce Clause." Nat'l Pork Producers Council v. Ross , 598 U.S. 356, 143 S. Ct. 1142, 1152, 215 L.Ed.2d 336 (2023) (quoting Okla. Tax Comm'n v. Jefferson Lines, Inc. , 514 U.S. 175, 179, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995) ). The dormant Commerce Clause "prohibits the enforcement of state laws ‘driven by ... economic protectionism—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.’ " Id. at 1153 (quoting Dep't of Revenue v. Davis , 553 U.S. 328, 337-38, 128 S.Ct. 1801, 170 L.Ed.2d 685 (2008) ). That type of discriminatory state law "can be sustained only on a showing that it is narrowly tailored to advance a legitimate local purpose." Tenn. Wine , 139 S. Ct. at 2461 (internal quotation marks and alterations omitted). In other words, the law must "advance[ ] a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." New Energy Co. of Ind. v. Limbach , 486 U.S. 269, 278, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988) ).

When a state law governing alcohol discriminates against out-of-state economic interests, § 2 of the Twenty-first Amendment compels "a different inquiry." Tenn. Wine , 139 S. Ct. at 2474. First, we assess if the law discriminates against out-of-state economic interests. Id. ; see B-21 Wines, Inc. v. Bauer , 36 F.4th 214, 222 (4th Cir. 2022), cert. denied , ––– U.S. ––––, 143 S. Ct. 567, 214 L.Ed.2d 336 (2023). If not, the law is constitutional. Tenn. Wine , 139 S. Ct. at 2474. If the alcohol law does discriminate against out-of-state economic interests, it survives constitutional scrutiny if it "can be justified as a public health or safety measure or on some other legitimate nonprotectionist ground." Id.

B. Application to § 25-754(b)

Section 25-754(b) survives constitutional scrutiny under Tennessee Wine . We review this constitutional challenge to a statute de novo. District of Columbia v. Towers , 260 A.3d 690, 693 (D.C. 2021). Although § 25-754(b) ’s in-District storage requirement discriminates to some degree against interstate commerce, ⁷ legitimate nonprotectionist grounds justify it. The parties agree that the statute aids ABRA in inspecting alcohol storage facilities and enforcing the District's alcohol laws. Below, we review how § 25-754(b) promotes those nonprotectionist objectives. We then address whether nondiscriminatory alternatives to § 25-754(b) could readily achieve the District's inspection and enforcement goals such that the statute's discrimination against interstate commerce is not justified.

1. Legitimate Nonprotectionist Grounds

A state alcohol law can permissibly discriminate against interstate commerce if the law can be justified on legitimate nonprotectionist grounds. Tenn. Wine , 139 S. Ct. at 2474-76. The law's connection to those nonprotectionist grounds cannot rely on "mere speculation" or "unsupported assertions." Id. (quoting Granholm v. Heald , 544 U.S. 460, 490, 492, 125 S.Ct. 1885, 161 L.Ed.2d 796 (2005) ). We will therefore not uphold a discriminatory...