Beskind v. Easley , 325 F.3d 506 ( 2003 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
DONALD H. BESKIND; KAREN 
BLUESTEIN; MICHAEL D. CASPER, SR.;
MICHAEL Q. MURRAY; D. SCOTT
TURNER; MICHAEL J. WENIG; MARY
A. WENIG; OAKSTONE WINERY,
INCORPORATED,
Plaintiffs-Appellees,
and
I. ROGER SCARBOROUGH,
Plaintiff,
v.
MICHAEL F. EASLEY, in his official

capacity as Governor of North
Carolina; ROY COOPER, in his No. 02-1432
official capacity as Attorney
General of North Carolina; BRYAN
E. BEATTY, in his official capacity
as Secretary of the North Carolina
Department of Crime Control and
Public Safety; ANN SCOTT FULTON,
in her official capacity as Interim
Chairman of the North Carolina
Alcoholic Beverage Control
Commission,
Defendants-Appellants.
NATIONAL ALCOHOL BEVERAGE
CONTROL ASSOCIATION,
INCORPORATED; STATE OF MICHIGAN;

2 BESKIND v. EASLEY
NATIONAL CONFERENCE OF STATE 
LIQUOR ADMINISTRATORS; WINE &
SPIRITS WHOLESALERS OF AMERICA,
INCORPORATED; NATIONAL
ASSOCIATION OF BEVERAGE
IMPORTERS; NATIONAL ASSOCIATION OF
BEVERAGE RETAILERS; NATIONAL
BEER WHOLESALERS ASSOCIATION;
NATIONAL LICENSED BEVERAGE
ASSOCIATION; PRESIDENTS’
FORUM OF THE BEVERAGE ALCOHOL

INDUSTRY,
Amici Supporting Appellants.
JUANITA SWEDENBURG; SWEDENBURG
WINERY; DAVID LUCAS; THE LUCAS
WINERY; FAMILY WINEMAKERS OF
CALIFORNIA; COALITION FOR FREE
TRADE,
Amici Supporting Appellees.

Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, Chief District Judge.
(CA-00-258-3-MU)
Argued: January 22, 2003
Decided: April 8, 2003
Before NIEMEYER, LUTTIG, and TRAXLER, Circuit Judges.
Affirmed in part, vacated in part, and remanded by published opinion.
Judge Niemeyer wrote the opinion, in which Judge Luttig and Judge
Traxler joined.
BESKIND v. EASLEY 3
COUNSEL
ARGUED: James Peeler Smith, Special Deputy Attorney General,
NORTH CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North
Carolina, for Appellants. James Alexander Tanford, INDIANA UNI-
VERSITY SCHOOL OF LAW, Bloomington, Indiana, for Appellees.
ON BRIEF: Roy Cooper, Attorney General of North Carolina, Isaac
Avery, Special Deputy Attorney General, Amy Yonowitz, Assistant
Attorney General, Brian Blankenship, Assistant Attorney General,
NORTH CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North
Carolina, for Appellants. Robert D. Epstein, EPSTEIN & FRISCH,
Indianapolis, Indiana, for Appellees. James M. Goldberg, GOLD-
BERG & ASSOCIATES, P.L.L.C., Washington, D.C., for Amici
Curiae Beverage Control Association, et al. Jennifer M. Granholm,
Attorney General, Thomas L. Casey, Solicitor General, Irene M.
Mead, Assistant Attorney General, MICHIGAN DEPARTMENT OF
ATTORNEY GENERAL, Lansing, Michigan, for Amicus Curiae
Michigan. Louis R. Cohen, C. Boyden Gray, Scott A. Shepard, WIL-
MER, CUTLER & PICKERING, Washington, D.C.; M. Craig Wolf,
WINE & SPIRITS WHOLESALERS OF AMERICA, INC., Wash-
ington, D.C., for Amici Curiae Wholesalers, et al. Clint Bolick, Wil-
liam H. Mellor, Steven M. Simpson, INSTITUTE FOR JUSTICE,
Washington, D.C., for Amici Curiae Swedenburg, et al. Tracy S. Car-
lin, FOLEY & LARDNER, Jacksonville, Florida; Kevin M. Fong,
PILLSBURY WINTHROP, L.L.P., San Francisco, California, for
Amici Curiae Winemakers, et al.
OPINION
NIEMEYER, Circuit Judge:
The plaintiffs, a California winery and individual oenophiles, com-
menced this action challenging the constitutionality of North Caroli-
na’s Alcoholic Beverage Control ("ABC") laws as they apply to the
direct shipment of wine to consumers, which prohibit the importation
of wine into North Carolina except through a highly regulated three-
tiered structure. The plaintiffs alleged that portions of these laws,
even though adopted pursuant to the Twenty-first Amendment, are
4 BESKIND v. EASLEY
unconstitutional by virtue of the dormant Commerce Clause because
the laws favor local wine manufacturers, who are permitted to sell and
ship their wine directly to consumers, and correspondingly discrimi-
nate against out-of-state wine manufacturers and sellers, who must
sell and ship through the more costly three-tiered structure.
The district court held that North Carolina’s ABC laws unconstitu-
tionally discriminated against out-of-state wine manufacturers and
sellers and were not saved by the Twenty-first Amendment. Accord-
ingly, the court enjoined their enforcement with the effect that out-of-
state wine manufacturers would be permitted to sell and ship directly
to North Carolina residents.
On appeal, North Carolina maintains that the aspect of its ABC
laws authorizing local wine manufacturers to sell and ship directly to
North Carolina consumers falls within the authority conferred on it by
the Twenty-first Amendment. It claims that, in any event, the district
court abused its discretion in striking down the core of the laws’ pro-
hibition against the direct shipment of wine and other alcoholic bever-
ages when the alleged discrimination could be eliminated simply by
striking down the single provision that favors local wine manufactur-
ers.
For the reasons that follow, we affirm the district court’s conclu-
sion that the ABC laws unconstitutionally discriminate against out-of-
state wine manufacturers and sellers and vacate its remedy striking
down the core provisions of North Carolina’s direct-shipment prohibi-
tions.
I
Following the repeal of Prohibition with the adoption of the
Twenty-first Amendment, many states, including North Carolina,
enacted laws to prohibit the importation of alcoholic beverages except
through a highly regulated structure created by ABC laws. As in
many states that implemented the Twenty-first Amendment, the struc-
ture in North Carolina is a familiar three-tiered one in which out-of-
state sellers of alcoholic beverages may sell their alcoholic beverages
only to licensed wholesalers, who in turn may sell only to other
wholesalers and licensed retailers.
BESKIND v. EASLEY 5
Specifically, North Carolina General Statutes § 18B-102.1 provides
that it is unlawful "for any person who is an out-of-state retail or
wholesale dealer in the business of selling alcoholic beverages to ship
or cause to be shipped any alcoholic beverage directly to any North
Carolina resident who does not hold a valid wholesaler’s permit,"
N.C. Gen. Stat. § 18B-102.1(a), and a violation of this section is pun-
ished as a felony, id. § 18B-102.1(e). Addressing the importation of
wine in particular, the North Carolina ABC laws provide that a non-
resident wine vendor must have a permit and then may sell wine in
North Carolina "only to wholesalers, importers, and bottlers licensed
under this Chapter," id. § 18B-1114, and only these wholesalers and
importers are subject to excise taxes on wine sold, id. § 105-113.83.
In addition to prohibiting out-of-state wine manufacturers from sell-
ing directly to residents in North Carolina, the ABC laws also prohibit
North Carolina residents from receiving out-of-state wine without a
wholesale permit. Id. § 18B-109. The licensed wine wholesaler who
purchases wine from an out-of-state supplier may then resell the wine
only to another licensed wholesaler or a licensed retailer. Id. § 18B-
1107. And only a licensed retailer may sell to consumers. Id. § 18B-
1000 et seq. The ABC laws also require that wholesalers and retailers
be distinct persons. Thus, a manufacturer, bottler, or licensed whole-
saler is prohibited from having any direct or indirect financial interest
in a licensed retailer. Id. § 18B-1116(a)(2).
In sum, under laws that North Carolina first enacted in 1937 pursu-
ant to the Twenty-first Amendment, an out-of-state wine manufac-
turer or seller wishing to sell wine to North Carolina residents must
sell through the three-tiered system with (1) the first sale to a licensed
wholesaler, (2) the second sale by a licensed wholesaler to a licensed
retailer, and (3) the third sale by the licensed retailer to the consumer.
And it is "unlawful for any person to manufacture, sell, transport,
import, deliver, furnish, purchase, consume, or possess any alcoholic
beverages except as authorized by the ABC law." Id. § 18B-102.
As part of its revision of its ABC laws in 1981, the North Carolina
legislature enacted a provision, in the context of an emerging local
wine industry, that authorized in-state wine manufacturers to sell and
ship their products directly to consumers. Id. § 18B-1101(3). It is the
juxtaposition of this provision with the provisions regulating out-of-
state wine manufacturers that gives rise to the issue in this case.
6 BESKIND v. EASLEY
The plaintiffs, some of whom wish to purchase wine directly from
out-of-state wineries and some of whom are out-of-state sellers or
shippers who wish to sell or ship wine directly to consumers in North
Carolina, commenced this action in June 2000, challenging North
Carolina’s ban on direct shipment of out-of-state wine, alleging that
it unconstitutionally discriminates against interstate commerce. Don-
ald H. Beskind, a North Carolina resident and a collector of fine
wines, would like to purchase rare and unusual wines that are not
available in North Carolina except by direct shipment. Karen Blue-
stein, a North Carolina resident, would like to be able to purchase
wine while visiting small out-of-state wineries and have the wine
shipped back to her home in North Carolina. Michael D. Casper, Sr.,
a resident of Calabash, North Carolina, which is a small town with
only a very limited selection of wine available locally, would like to
be able to receive direct shipments of wine from out-of-state suppli-
ers. Michael Q. Murray, Mary A. Wenig, and Michael J. Wenig, also
North Carolina residents, would like to purchase and receive wines by
direct shipment that are not available through North Carolina retailers.
D. Scott Turner, a Michigan resident, would like to be able to ship
wine from Michigan to his parents in North Carolina as a gift. And
Oakstone Winery, Inc., a small winery in Fair Play, California, asserts
that it is economically infeasible for it to distribute its wine through
a wholesaler and that it relies principally on Internet sales and direct
shipments. It has received requests for wine from North Carolina cus-
tomers, including Beskind, but cannot fill them without violating
North Carolina’s ABC laws. It has indicated it would be willing to
obtain a license and remit taxes to North Carolina with respect to the
direct shipments.
In their complaint, the plaintiffs alleged that the North Carolina
ABC laws treat "interstate sales and delivery of wine to adults differ-
ently from intra-state sales and delivery of wine to adults, discrimi-
nate[ ] against interstate sales and delivery, reserve[ ] to in-state
retailers and wineries the exclusive market in wine, and provide[ ] a
direct economic advantage to in-state wine businesses, all in violation
of the Commerce Clause of the United States Constitution." In an
affidavit submitted in support of plaintiffs’ motion for summary judg-
ment, Russell Bridenbaugh, an expert on the wine business and wine
industry in the United States, stated on behalf of the plaintiffs:
BESKIND v. EASLEY 7
For a California winery to sell its wine in North Carolina
and in other states that prohibit direct shipment to consum-
ers, it would have to go through an in-state wholesaler and
retailer, each of whom would add their handling costs and
profit to the cost of the wine. However, North Carolina and
most other prohibition states exempt their in-state small
wineries from having to go through the three-tiered system
and allow them to sell and deliver wine directly to the pub-
lic. Thus, the consumer must pay the additional mark-up on
California wine, but not on North Carolina wine.
For relief, the plaintiffs sought a declaratory judgment that North Car-
olina General Statutes §§ 18B-102.1, 18B-109, 18B-1114, 18B-102,
and 105-113.83 are unconstitutional, in violation of the Commerce
Clause, and they sought an injunction against North Carolina state
officials responsible for enforcing the ABC laws, "prohibiting them
from enforcing the provisions of the North Carolina ABC laws which
prohibit or punish the delivery of alcoholic beverages from an out-of-
state supplier to an adult North Carolina resident." They also sought
a mandatory injunction requiring North Carolina officials to accept
excise tax payments from plaintiffs that are due on wine received
directly from out-of-state sources.
On the parties’ cross-motions for summary judgment, the district
court held that North Carolina’s ABC laws are facially discriminatory
in their differential treatment of in-state and out-of-state wine manu-
facturers. The court explained:
North Carolina has articulated numerous legitimate reasons
for ABC laws generally, but has not provided a reason for
applying the ABC laws unevenly. Efficient administration
of tax collection, safety, and the like would certainly bal-
ance in favor of retaining the existing general system, were
it not for the exception for in-state wineries. But the Defen-
dants do not provide the court with a reason for the excep-
tion to balance against the needs of the Commerce Clause.
In the absence of a reasonable explanation from Defendants
for the lack of uniformity, the only one that comes to mind
is protection of local economic interests, which the Com-
merce Clause will not tolerate. No equilibrium can be
8 BESKIND v. EASLEY
achieved when economic protectionism is placed on one
side of the scale, and the Commerce Clause’s need to pre-
serve the respect of the several states for each other is
placed on the opposite side.
Accordingly, the district court declared that North Carolina General
Statutes §§ 18B-102.1, 18B-109, and 18B-1114 violate the Com-
merce Clause; that § 18B-102 violates the Commerce Clause "to the
extent that it prohibits out-of-state wine dealers from shipping their
products directly to North Carolina residents, while not similarly lim-
iting in-state wineries;" and that § 105-113.83 violates the Commerce
Clause "by not permitting out-of-state dealers and in-state wine buy-
ers to pay the excise tax due on wine sales." The court also enjoined
North Carolina "from enforcing state laws . . . that prohibit or punish
out-of-state wine dealers from directly shipping wines to adult North
Carolina residents" and ordered it to "accept excise tax payments
from adult residents of North Carolina that are due on wine directly
received from out-of-state sources."
North Carolina filed this appeal, challenging both the district
court’s finding that the ABC laws are unconstitutional and its choice
of remedy. North Carolina contends that if there is a constitutional
violation, the appropriate remedy is to enjoin the in-state preference
rather than strike down the laws prohibiting direct shipments from
out-of-state suppliers.
II
We address first whether the district court erred in concluding that
North Carolina’s ABC laws violate the Commerce Clause by discrim-
inating against out-of-state wine manufacturers and that the Twenty-
first Amendment does not save the discriminatory scheme from inval-
idation. Resolution of these issues requires us to explore the interac-
tion of the Commerce Clause and the Twenty-first Amendment.
Although it was understood during the nineteenth century that the
States retained broad authority "to regulate the trade of alcoholic bev-
erages within their borders free from implied restrictions under the
Commerce Clause," Craig v. Boren, 429 U.S. 190, 205 (1976), and
that the States were free to prohibit the in-state production and con-
BESKIND v. EASLEY 9
sumption of alcoholic beverages, see Mugler v. Kansas, 123 U.S. 623(1887), the Commerce Clause nonetheless was construed to prohibit
States from regulating the in-state sale of imported liquor that
remained in its original package, Leisy v. Hardin, 135 U.S. 100(1890). "The combination of Leisy and Mugler meant that states could
forbid domestic production of alcoholic beverages but could not stop
imports; the Constitution effectively favored out-of-state sellers." Bri-
denbaugh v. Freeman-Wilson, 227 F.3d 848, 852 (7th Cir. 2000).
Congress remedied this imbalance by passing the Wilson Act in 1890
which provided:
All . . . intoxicating liquors or liquids . . . transported into
any State . . . shall upon arrival in such State . . . be subject
to the operation and effect of the laws of such State . . . to
the same extent and in the same manner as though such liq-
uids or liquors had been produced in such State . . . and shall
not be exempt therefrom by reason of being introduced
therein in original packages or otherwise.
27 U.S.C. § 121. And to plug the loophole that left direct interstate
shipments to consumers unregulated, Congress passed the Webb-
Kenyon Act in 1913, which provided that a State could regulate the
in-state sale of liquor to "any person interested therein, to be received,
possessed, sold, or in any manner used." 27 U.S.C. § 122. These two
statutes authorized States to apply their State laws governing alco-
holic beverages within the State to alcoholic beverages that originated
outside the State.
The beginning of Prohibition with the adoption of the Eighteenth
Amendment in 1919 rendered moot the existing tension between the
Commerce Clause and the States’ regulation of alcoholic beverages.
But with the end of Prohibition and the repeal of the Eighteenth
Amendment by the adoption of the Twenty-first Amendment in 1933,
pre-Prohibition statutory law was inscribed into the Constitution as
§ 2 of the Twenty-first Amendment, which provides:
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.
10 BESKIND v. EASLEY
This language, which closely followed the language of the Wilson
and Webb-Kenyon Acts, expressed a "clear intention of constitution-
alizing the Commerce Clause framework established under those stat-
utes." Craig, 429 U.S. at 205-06. In addition, the Twenty-first
Amendment had the effect of transferring to the States the power to
address the moral concerns that underlay Prohibition, freeing them to
impose temperance in the consumption of alcoholic beverages. Cf.
Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 276 (1984) (citing the
promotion of temperance as one purpose of the Twenty-first Amend-
ment).
Thus, within the authority to regulate alcoholic beverages con-
ferred on the States by the Twenty-first Amendment, some power to
regulate interstate commerce was withdrawn from Congress so that
the Commerce Clause could not be construed to prevent the enforce-
ment of State laws regulating the importation of alcoholic beverages
and the manufacture and consumption of alcoholic beverages within
State borders. See, e.g., Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138
(1939) ("The Twenty-first Amendment sanctions the right of a State
to legislate concerning intoxicating liquors brought from without,
unfettered by the Commerce Clause"). The core interests protected by
the Twenty-first Amendment are described as the States’ interests in
"promoting temperance, ensuring orderly market conditions, and rais-
ing revenue," all in connection with the manufacture, shipment, and
use of alcoholic beverages. North Dakota v. United States, 495 U.S.
423, 432 (1990) (plurality opinion). But beyond the core interests pro-
tected by the Twenty-first Amendment, Congress remains empowered
to regulate interstate commerce under the Commerce Clause. See
Bacchus Imports, 468 U.S. at 275 ("It is by now clear that the
Amendment did not entirely remove state regulation of alcoholic bev-
erages from the ambit of the Commerce Clause"). The question in this
case thus becomes "‘whether the interests implicated by a state regu-
lation are so closely related to the powers reserved by the Twenty-
first Amendment that the regulation may prevail, notwithstanding that
its requirements directly conflict with express federal policies.’" Id.
at 275-76 (quoting Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691,
714 (1984)).
Under the analytical framework designed by the Supreme Court to
answer this question, we determine first whether the purported State
BESKIND v. EASLEY 11
regulation violates the Commerce Clause without consideration of the
Twenty-first Amendment. If we conclude that it does, then we look
at the State’s Twenty-first Amendment interests and determine
"whether the principles underlying the Twenty-first Amendment are
sufficiently implicated by the [State regulation] . . . to outweigh the
Commerce Clause principles that would otherwise be offended." Bac-
chus Imports, 468 U.S. at 275; see also Healy v. Beer Inst., 491 U.S.
324 (1989); Brown-Forman Distillers Corp. v. New York State Liquor
Auth., 476 U.S. 573 (1986); TFWS, Inc. v. Schaefer, 242 F.3d 198,
212 (4th Cir. 2001). The Eleventh Circuit, applying this analytical
framework in Bainbridge v. Turner, 311 F.3d 1104, 1112 (11th Cir.
2002), a case challenging Florida’s direct-shipment laws, summarized
the approach:
All components of the dormant Commerce Clause doctrine
remain in force unless a "core concern" of the Twenty-first
Amendment is implicated. When such a concern is impli-
cated, the Amendment removes the constitutional cloud
from the challenged law so long as the state demonstrates
that it genuinely needs the law to effectuate its proffered
core concern. In no event can the law directly regulate
extraterritorially; nor can a law ever be motivated by "mere
economic protectionism."
(Internal citations omitted). Thus, in Bacchus Imports, the Supreme
Court determined first that Hawaii’s exemption of Hawaiian okolehao
and pineapple wine from its 20% excise tax on liquor at wholesale
was facially discriminatory and that the exemption had both the pur-
pose and effect of discriminating in favor of local products. 468 U.S.
at 273. The court then proceeded to reject Hawaii’s contention that
"even if the tax exemption violates ordinary Commerce Clause princi-
ples, it [was] saved by the Twenty-first Amendment to the Constitu-
tion." Id. at 274. We follow the same analytical approach to resolve
this case.
A
The Commerce Clause provides that Congress "shall have Power
. . . To regulate Commerce . . . among the several States." U.S. Const.
art. I, § 8, cl. 3. This affirmative authority to regulate commerce car-
12 BESKIND v. EASLEY
ries with it an implied "dormant" aspect that restricts the power of the
States to burden interstate commerce:
It is also clear, however, that the Commerce Clause does
more than confer power on the Federal Government; it is
also a substantive restriction on permissible state regulation
of interstate commerce. The Commerce Clause has long
been recognized as a self-executing limitation on the power
of the States to enact laws imposing substantial burdens on
such commerce.
Dennis v. Higgins, 498 U.S. 439, 447 (1991) (internal quotations and
citations omitted); see also Bainbridge, 311 F.3d at 1108. And a law
that discriminates against interstate commerce is the clearest example
of the type of State law that imposes an unconstitutional burden on
that commerce. Brown-Forman, 476 U.S. at 579 ("When a state stat-
ute . . . discriminates against interstate commerce, or when its effect
is to favor in-state economic interests over out-of-state interests, we
have generally struck down the statute without further inquiry"). As
prohibited by the "dormant" Commerce Clause, discrimination means
simply "differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter." Oregon
Waste Systems, Inc. v. Dep’t of Environmental Quality, 511 U.S. 93,
99 (1994).
A facial examination of North Carolina’s ABC laws leaves little
doubt that those laws treat in-state manufacturers of wine differently
from out-of-state manufacturers of wine, with the undoubted effect of
benefiting the in-state manufacturers and burdening the out-of-state
manufacturers. Out-of-state manufacturers shipping wine into North
Carolina, while authorized to operate under a nonresident wine ven-
dor permit, see N.C. Gen. Stat. § 18B-1114, nevertheless must sell
their products to a licensed wholesaler in the State and have that wine
distributed only through North Carolina’s three-tiered structure. In
addition, North Carolina’s ABC laws expressly forbid the direct ship-
ment of wine from out-of-state sources to North Carolina residents
who are not licensed wholesalers. Id. § 18B-102.1. In contrast,
licensed in-state wineries may sell directly to consumers without dis-
tributing their wine through the three-tiered structure. Id. § 18B-
1101(3). As the affidavit presented by the plaintiffs’ wine expert
BESKIND v. EASLEY 13
explains, this differential treatment has the economic effect of favor-
ing in-state wine manufacturers and burdening out-of-state wine man-
ufacturers and shippers. This affidavit asserts, without contradiction
by the State, that wine sold through the three-tiered system is more
expensive than the same or comparable wine sold in-state because
wine distributed through the three-tiered structure is subjected to two
"mark-ups" in price that local wine does not face. This affidavit also
reveals that in-state wineries make use of a valuable distribution chan-
nel denied to out-of-state wineries. In sum, the record supports the
plaintiffs’ assertion that in-state wineries benefit from the very sort of
vertical integration that the three-tiered scheme was originally
designed to prevent.
Because North Carolina’s ABC laws discriminate against out-of-
state wine manufacturers and shippers in favor of in-state wine manu-
facturers and shippers, the scheme violates "a central tenet of the
Commerce Clause." Bacchus Imports, 468 U.S. at 276. "[T]he virtu-
ally per se rule of invalidity provides the proper legal standard here
. . . . [And the discriminatory scheme] must be invalidated unless [the
State] can ‘sho[w] that it advances a legitimate local purpose that can-
not be adequately served by reasonable nondiscriminatory alterna-
tives.’" Oregon Waste Systems, 511 U.S. at 100-01 (quoting New
Energy Co. v. Limbach, 486 U.S. 269, 278 (1988)); see also Hunt v.
Washington State Apple Advertising Comm’n, 432 U.S. 333, 353
(1977) ("When discrimination against commerce . . . is demonstrated,
the burden falls on the State to justify it both in terms of the local ben-
efits flowing from the statute and the unavailability of nondiscrimina-
tory alternatives adequate to preserve the local interests at stake"). At
least one reasonable nondiscriminatory alternative is available to
North Carolina and it would require North Carolina simply to return
to the pre-1981 structure and require in-state wines to pass through
the same three-tiered scheme that all other wines must pass through.
Another alternative would be to permit out-of-state wineries to
engage in direct shipping just like in-state wineries can. North Caro-
lina argues that licensing out-of-state wineries to authorize direct
shipments from outside North Carolina’s boundaries is not a genuine
alternative because the State lacks the ability effectively to enforce its
laws outside its boundaries. According to North Carolina, physical
inspections would be more difficult, as would tax collection, and the
deterrent effect of revoking a license would be much greater for an
14 BESKIND v. EASLEY
in-state winery (which would no longer be able to produce wine) than
for an out-of-state winery (which would only be forbidden to ship into
North Carolina). Even if we fully credit these assertions, North Caro-
lina could satisfy its concerns by requiring out-of-state wineries to
import their wine into North Carolina to an in-state location and by
treating that location in the same manner as it treats in-state winery
locations. But in any event, North Carolina remains unable to explain
why imposing the same restrictions on in-state wineries that it
imposes on out-of-state wineries would not be a reasonable nondis-
criminatory alternative.
Thus, the question remains whether the otherwise unconstitutional
discriminatory scheme serves "any clear concern of the Twenty-first
Amendment" and thereby is saved by the Amendment. Bacchus
Imports, 468 U.S. at 276. We now turn to that question.
B
The plaintiffs do not challenge North Carolina’s three-tiered sys-
tem standing alone, perhaps due to their recognition that it is a long-
standing regulatory scheme authorized by the Twenty-first
Amendment. See North Dakota, 495 U.S. at 432 (plurality opinion)
("In the interest of promoting temperance, ensuring orderly market
conditions, and raising revenue, the State has established a compre-
hensive system for the distribution of liquor within its borders. That
system is unquestionably legitimate"); id. at 447 (Scalia, J., concur-
ring) ("The Twenty-first Amendment . . . empowers North Dakota to
require that all liquor sold for use in the State be purchased from a
licensed in-state wholesaler. Nothing in our Twenty-first Amendment
case law forecloses that conclusion"); see also Bridenbaugh, 227 F.3d
at 853-54. Through this scheme, North Carolina furthers its Twenty-
first Amendment interests in regulating the consumption of alcoholic
beverages, channeling the distribution of alcoholic beverages, enforc-
ing a minimum age for the purchase and consumption of such bever-
ages, limiting the location from where they are sold, controlling the
contents of such beverages, and collecting taxes in connection with
their sale and distribution. Although North Carolina devotes a sub-
stantial portion of its brief to defending the three-tiered system, it was
only by the addition of the preference for local wineries in 1981 that
North Carolina injected unconstitutional discrimination into its ABC
BESKIND v. EASLEY 15
laws. Prior to this 1981 amendment, all wineries had to sell their
wines through all three tiers. Apparently to spur the growth of a
domestic wine industry, North Carolina enacted laws exempting
North Carolina wine manufacturers from the three-tiered distribution
system. This gave rise to discrimination that, we have concluded, vio-
lates the Commerce Clause.
When pressed for an explanation for this discriminatory treatment,
other than the promotion of local industry and protectionism, the State
asserted that because the in-state wineries were located in the State,
the State could adequately control them without requiring them to sell
through a three-tiered system: "Prohibiting local wineries from ship-
ping wine directly to consumers would be an unnecessary measure
since the State has complete regulatory control over these busi-
nesses." The State argued further that "[i]t is not necessary to impose
additional burdens on its local wineries merely in the name of sym-
metry." When pressed at oral argument for some other justification
for the discriminatory treatment, the State could provide no additional
explanation.
The fact that North Carolina finds it unnecessary for its Twenty-
first Amendment purposes to require in-state wine manufacturers to
sell and distribute through a system as tightly regulating as the three-
tiered system suggests that it should also find it unnecessary to
require out-of-state sources to sell and distribute through the three-
tiered system. In addition to undercutting its rationale for the three-
tiered system more generally, North Carolina’s argument in support
of its one-tiered regulation of local wineries does not measure up to
the constitutional standard at issue. The question is not whether North
Carolina can advance its regulatory purpose by imposing fewer bur-
dens on in-state wineries than out-of-state wineries. That is what it
presently does. Rather, the question is whether discriminating in favor
of in-state wineries by vertically integrating its three-tiered regulatory
scheme to their economic benefit serves a Twenty-first Amendment
interest.
When presented with this question directly, North Carolina failed
to identify any Twenty-first Amendment interest that is served by
authorizing in-state wineries to sell and ship directly to consumers
while simultaneously prohibiting out-of-state direct shipment. More-
16 BESKIND v. EASLEY
over, there is no evidence that North Carolina’s movement in the
direction of selective deregulation of alcoholic beverages is an exer-
cise of the State’s Twenty-first Amendment power to regulate alco-
holic beverages in promotion of temperance or any other Twenty-first
Amendment interest. Against the backdrop of its general prohibition
of direct shipment of alcoholic beverages, North Carolina’s authoriza-
tion of in-state direct shipment of wine — which has the effect of
increasing access to wine produced only in North Carolina — cannot
credibly be portrayed as anything other than local economic booster-
ism in the guise of a law aimed at alcoholic beverage control. More-
over, the authorization for direct in-state sales of wine by in-state
wineries reduces the number of licensed entities regulating the distri-
bution of wine and therefore has the tendency of surrendering control
otherwise authorized by the Twenty-first Amendment.
In short, when we focus on the preference given by North Caroli-
na’s ABC laws to local wineries, we can find no Twenty-first Amend-
ment interest that is promoted by this lessening of the regulation of
local wineries.
C
Thus, we conclude that North Carolina’s regulatory preference of
in-state wine manufacturers discriminates against out-of-state wine
manufacturers and sellers, in violation of the dormant Commerce
Clause, and that the preference is "not supported by any clear concern
of the Twenty-first Amendment," Bacchus Imports, 468 U.S. at 276,
and therefore is not saved by the Twenty-first Amendment. Accord-
ingly, on this issue, we affirm the judgment of the district court.
III
To remedy the unconstitutional discrimination arising from the
conjunctive effect of North Carolina’s ABC laws governing the direct
shipment of wine by out-of-state and in-state wineries, the plaintiffs
requested the district court to enjoin enforcement of the provisions
prohibiting direct sales of wine to North Carolina residents by out-of-
state wine manufacturers and sellers. The district court granted their
request, declaring unconstitutional the core statutes that prohibit such
direct shipment and enjoining their enforcement. The district court
BESKIND v. EASLEY 17
also mandated the State to collect taxes from the in-state purchasers
of wine shipped from out-of-state.
The State asserts that the remedy selected by the district court
needlessly undermines the State’s legitimate Twenty-first Amend-
ment interests by declaring five core statutes unconstitutional. It
states:
The district court’s Order eviscerates the Twenty-first
Amendment insofar as that amendment safeguards North
Carolina’s right to regulate the transportation and importa-
tion of wines by out-of-state dealers. If the Order stands, the
State can no more regulate direct shipments of wine by
gigantic wine warehouse dealers than it can by little win-
eries like Oakstone.
The State characterized the district court’s remedy as "grossly dispro-
portionate to the wrong it identified" and argued that the district court
erred in "ordering a remedy that is unconstitutional in itself because
it substantially eradicates the State’s authority guaranteed by the
Twenty-first Amendment." The State urges that, rather than destroy
its legitimate regulatory scheme, the remedy be focused simply on
finding unconstitutional the single provision that created the discrimi-
nation in the first place — North Carolina General Statutes § 18B-
1101(3) (authorizing local wineries to sell directly to consumers).
As a preliminary matter, we reject the plaintiffs’ suggestion that
they have placed at issue only the selected portions of North Caroli-
na’s ABC laws that regulate direct importation and that they can
themselves select the portions to be stricken and those to be pre-
served. The unconstitutional discrimination that they alleged was not
created only by the laws prohibiting the direct shipment of wine but
rather by the combination of the prohibition of direct shipment and
the law permitting local wineries to circumvent this prohibition. And
we have not determined that the ban on out-of-state direct shipping
alone violates the Commerce Clause; nor have we determined that the
authorization for in-state direct shipping alone violates the Commerce
Clause. Rather, we have determined that the conjunctive effect of
these two statutes in producing discrimination burdening out-of-state
wineries and benefiting in-state wineries violates the Commerce
18 BESKIND v. EASLEY
Clause. Cf. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 199-
200 (1994) ("By conjoining a tax and a subsidy, Massachusetts has
created a program more dangerous to interstate commerce than either
part alone"). Accordingly, we conclude that the plaintiffs’ lawsuit and
arguments, as well as the district court’s ruling, have put into play not
only the five statutes that plaintiffs seek to declare unconstitutional
but also § 18B-1101(3), which permits local wineries to sell directly
to consumers.
Thus, in reviewing the remedy, we are given at least the choice to
affirm the district court’s conclusion that the out-of-state direct-
shipment prohibition should be stricken and its enforcement enjoined
or to agree with the State that only the provision affording the prefer-
ence for local wineries should be stricken and enjoined. Although we
recognize the plaintiffs’ interest as oenophiles in promoting the direct
shipment of out-of-state wine and therefore their interest in having the
direct-shipment prohibition stricken, their arguments have not estab-
lished the illegality of the prohibition itself. Rather, the plaintiffs have
latched onto a violation of the Commerce Clause created by the 1981
addition to the ABC laws as leverage to eliminate the preexisting pro-
hibition against direct shipment.*
If the record reveals that North Carolina continues to maintain its
interest in enforcing its ABC laws to regulate the transportation and
importation of alcoholic beverages as guaranteed by the Twenty-first
Amendment, then the statutory preference for local wineries, which
we have already concluded does not promote interests protected by
the Twenty-first Amendment, would be the appropriate statute to
strike down as unconstitutional. With the elimination of the local
preference statute, no interest of the Twenty-first Amendment is
implicated, yet the discrimination violating the Commerce Clause is
eliminated.
*The 1981 amendment "created" the violation of the dormant Com-
merce Clause because it brought into effect different rules for in-state
and out-of-state wineries. The conclusion of our Commerce Clause anal-
ysis did not depend, however, on the chronological accident that the
authorization given to in-state wineries post-dated the general prohibition
against direct shipment but rather on the conjunctive effect of the old
prohibition with the new authorization that came into being in 1981.
BESKIND v. EASLEY 19
We conclude that the record does support that the State continues
to maintain an interest in exercising its power under the Twenty-first
Amendment. An examination of the ABC laws indicates that the
North Carolina legislature continues to assert its power under the
Twenty-first Amendment and that the ABC laws are, at bottom,
intended to exercise that power in a broad-reaching manner. The very
first provision of those laws, § 18B-100, explicitly states that the
ABC laws "shall be liberally construed to the end that the sale, pur-
chase, transportation, manufacture, consumption, and possession of
alcoholic beverages shall be prohibited except as authorized in this
Chapter." N.C. Gen. Stat. § 18B-100. This intent is manifested again
by the general prohibition set out at the beginning of those laws: "It
shall be unlawful for any person to manufacture, sell, transport,
import, deliver, furnish, purchase, consume, or possess any alcoholic
beverages except as authorized by the ABC law." Id. § 18B-102.
Additionally, North Carolina has maintained its ABC laws in
implementation of the Twenty-first Amendment since 1937, shortly
after the end of Prohibition, but only added the preference for local
wineries over 40 years later, perhaps to promote its local wine indus-
try but certainly not to relinquish its power under the Twenty-first
Amendment. And even as it added that preference for local wineries,
it did not exempt them from a substantial portion of the ABC laws.
Moreover, it did not retreat from its general mandate that the ABC
laws be "liberally construed" to prohibit the transportation and impor-
tation of alcoholic beverages except as permitted by those laws.
Finally, we can accept a presumption that North Carolina would
want to uphold and preserve all of its ABC laws against constitutional
challenges. Accordingly, when presented with the need to strike down
one or more of those laws as unconstitutional, we can assume that
North Carolina would wish us to take the course that least destroys
the regulatory scheme that it has put into place pursuant to its powers
under the Twenty-first Amendment. See North Dakota, 495 U.S. at
433 (plurality opinion) ("Given the special protection afforded to state
liquor control policies by the Twenty-first Amendment, they are sup-
ported by a strong presumption of validity and should not be set aside
lightly"). And as a matter of comity and harmony, we are duly bound
to give effect to such a policy, disturbing only as much of the State
regulatory scheme as is necessary to enforce the U.S. Constitution.
20 BESKIND v. EASLEY
When applying this "minimum-damage" approach, we have little dif-
ficulty in concluding that it causes less disruption to North Carolina’s
ABC laws to strike the single provision — added in 1981 and creating
the local preference — as unconstitutional and thereby leave in place
the three-tiered regulatory scheme that North Carolina has employed
since 1937 and has given every indication that it wants to continue to
employ.
While our conclusion to focus on the single provision, which when
added to the State’s laws created their discriminatory effect, frustrates
the plaintiffs’ efforts to purchase wine directly from out-of-state win-
eries and to ship wine directly into North Carolina, their right is not
to void a law protected by the Twenty-first Amendment but rather to
eliminate discrimination in interstate commerce. The local preference
provision gave them the opportunity to challenge the discrimination
but not the right to dictate the course that cures the constitutional vio-
lation. North Carolina retains great flexibility to determine what sort
of relief to provide to cure the discriminatory treatment, and thus we
follow North Carolina’s indication of its preference. Cf. McKesson
Corp. v. Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18, 39-40
(1990) (discussing a State’s options in providing an adequate post-
deprivation remedy for a liquor tax found to violate the dormant
Commerce Clause). Any further objection to the State’s proper exer-
cise of its powers under the Twenty-first Amendment must now be
taken up directly with the North Carolina legislature.
IV
For the foregoing reasons, we affirm the district court’s conclusion
that North Carolina’s ABC laws unconstitutionally discriminate
against interstate commerce, but we vacate its judgment insofar as it
declares five statutes unconstitutional and enjoins their enforcement.
We remand for issuance of an order consistent with this opinion.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED