Business Law 11th Edition by Kenneth Clarkson,Roger LeRoy Miller,Gaylord Jentz,Frank Cross

Exercise 9

Granholm v. Heald
Supreme Court of the United States, 2005. 544 U.S. 460, 125 S.Ct. 1885, 161 L.Ed.2d 796.
www.findlaw.com/casecode/supreme.html a
a. In the "Browsing" section, click on "2005 Decisions." In the result, click on the name of the case to access the opinion. FindLaw is part of West Group, the foremost provider of e-information and solutions to the U.S. legal market.
• Background and Facts In 2005, consumer spending on direct wine shipments made up more than 3 percent of all wine sales. Because it was not economical for every wholesaler to carry every winery's products, many small wineries relied on direct shipping to reach consumers. Domaine Alfred, a small winery in California, received requests for its wine from Michigan consumers but could not fill the orders because of that state's direct-shipment ban. The Swedenburg Estate Vineyard, a small winery in Virginia, was unable to fill orders from New York because of that state's laws. Domaine and others filed a suit in a federal district court against Michigan and others, contending that its laws violated the commerce clause. The court upheld the laws, but on appeal, the U.S. Court of Appeals for the Sixth Circuit reversed this ruling. Swedenburg and others filed a suit in a different federal district court against New York and others, arguing that its laws violated the commerce clause. The court issued a judgment in the plaintiffs' favor, but on appeal, the U.S. Court of Appeals for the Second Circuit reversed this judgment. Both cases were appealed to the United States Supreme Court.
Justice KENNEDY delivered the opinion of the Court.
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Time and again this Court has held that, in all but the narrowest circumstances, state laws violate the Commerce Clause if they mandate differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter. This rule is essential to the foundations of the Union. The mere fact of nonresidence should not foreclose a producer in one State from access to markets in other States. States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses. This mandate reflects a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization [fragmenting] that had plagued relations among the Colonies and later among the States under the Articles of Confederation. [Emphasis added.]
The rule prohibiting state discrimination against interstate commerce follows also from the principle that States should not be compelled to negotiate with each other regarding favored or disfavored status for their own citizens. States do not need, and may not attempt, to negotiate with other States regarding their mutual economic interests. Rivalries among the States are thus kept to a minimum, and a proliferation of trade zones is prevented.
Laws of the type at issue in the instant cases contradict these principles. They deprive citizens of their right to have access to the markets of other States on equal terms.* * * Allowing States to discriminate against out-of-state wine invites a multiplication of preferential trade areas destructive of the very purpose of the Commerce Clause.
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The discriminatory character of the Michigan system is obvious. Michigan allows in-state wineries to ship directly to consumers, subject only to a licensing requirement. Out-of-state wineries, whether licensed or not, face a complete ban on direct shipment. The differential treatment requires all out-of-state wine, but not all in-state wine, to pass through an in-state wholesaler and retailer before reaching consumers. These two extra layers of overhead increase the cost of outof- state wines to Michigan consumers. The cost differential, and in some cases the inability to secure a wholesaler for small shipments, can effectively bar small wineries from the Michigan market.
The New York regulatory scheme differs from Michigan's in that it does not ban direct shipments altogether. Out-of-state wineries are instead required to establish a distribution operation in New York in order to gain the privilege of direct shipment. This, though, is just an indirect way of subjecting out-of-state wineries, but not local ones, to the three-tier system.* * *
The New York scheme grants in-state wineries access to the State's consumers on preferential terms. The suggestion of a limited exception for direct shipment from out-of-state wineries does nothing to eliminate the discriminatory nature of New York's regulations. In-state producers, with the applicable licenses, can ship directly to consumers from their wineries. Out-of-state wineries must open a branch office and warehouse in New York, additional steps that drive up the cost of their wine. For most wineries, the expense of establishing a bricks-and-mortar distribution operation in 1 State, let alone all 50, is prohibitive. It comes as no surprise that not a single out-of-state winery has availed itself of New York's direct-shipping privilege. We * * * [view] with particular suspicion state statutes requiring business operations to be performed in the home State that could more efficiently be performed elsewhere. New York's in-state presence requirement runs contrary to our admonition that States cannot require an out-of-state firm to become a resident in order to compete on equal terms.
• Decision and Remedy The United States Supreme Court concluded that "New York, like Michigan, discriminates against interstate commerce through its direct-shipping laws," which prohibit or severely restrict out-of-state wineries from shipping directly to state residents while allowing in-state wineries to do so. The Court affirmed the judgment of the U. S. Court of Appeals for the Sixth Circuit, which invalidated the Michigan laws, and reversed the judgment of the U.S. Court of Appeals for the Second Circuit, which upheld the New York laws.
• What If the Facts Were Different Suppose that the states had only required the outof-state wineries to obtain a special license that was readily available. How might this have affected the outcome of the case
• The E-Commerce Dimension How might the issues related to the purchase of out-ofstate wines have changed as a result of consumers' increased use of the Internet