NAT. A. OF HOME BLDRS. v. SAN JOAQUIN VALLEY

Strict scrutiny analysis is reserved for statutes that are explicitly discriminatory or that, in their terms, treat in-state and out-of-state producers differently. Baude, 538 at 613. Explicitly discriminatory statutes are invalid virtually per se. Granholm, 544 U.S. at 476. Generally, strict scrutiny is only applied to regulations which insidiously operate to promote protectionist or isolationist objectives. See Hunt v. Washington State Apple Adv. Commn', 432 U.S. 333, 349-351 (1977). Whether strict scrutiny is a proper analytical tool in this context rests principally on whether a law directs alcohol produced out-of-state to be treated differently than that produced in-state. Granholm, 544 U.S. at 498.

If a law is not facially discriminatory, does not act as a powerful, isolationist restriction on interstate commerce but nevertheless has some discriminatory effect, courts apply the flexible balancing standard articulated in Pike:

Where the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.

Pike, 397 U.S. at 142. "State laws regularly pass this test, for the Justices are wary of reviewing the wisdom of legislation (after the fashion of Lochner) under the aegis of the [C]ommerce [C]lause." Baude, 538 F.3d 608; see also Cavel International, Inc. v. Madigan, 500 F.3d 551 (7th Cir. 2007); Nat'l Paint, 45 F.3d 1124.

If a law is neither facially discriminatory nor burdensome on interstate commerce, courts use rational-basis review when evaluating its constitutionality. Nat'l Paint, 45 F.3d at 1131. Under the rational basis test, the challenged legislation "is presumed to be valid and will be sustained if the classification drawn by the statute is rationally related to a legitimate state interest." City of Cleburne, 473 U.S. at 440.

2) Determining the Level of Analysis for Evaluating the Constitutionality of § 7.1-3-15-3(d)

In analyzing the statute at issue under the Commerce Clause, the Court must first determine the level of analysis the statute warrants; next, it must determine whether the statute overcomes the challenge. See Nat'l Paint, 45 F.3d at 1124.

a. Does strict scrutiny apply?

Cap N' Cork argues that § 7.1-3-15-3(d) is facially discriminatory and should therefore be subject to the heightened scrutiny test. [Dkt. 29 at 1-2.] First, Cap N' Cork argues that the statute prohibits retailers such as Cap N' Cork from using common carriers to deliver out-of-state wine but allows certain wineries (that hold permits for which wine retailers are not eligible) to do so. [Dkt. 29 at 27.] In its briefing, Cap N' Cork emphasizes that § 7.1-3-15-3(d) discriminates against two similarly situated entities — wine retailers and wineries — insofar as they market the same product. [ Id. at 17.] Drawing on the authority of General Motors Corp. v. Tracy, 519 US 278, 298-99 (1997), Cap N' Cork argues that wineries and retailers are similarly situated insofar as they compete to sell similar products. [ Id.] As such, Cap N' Cork argues, the statute is facially discriminatory by virtue of treating these entities differently. [ Id. at 18.]

However, in oral argument, Cap N' Cork took its facial discrimination argument one step farther, saying that the law "discriminates against UPS, the interstate carrier, which is direct discrimination against interstate commerce. . . . " [Dkt. 43 at 61-62.] Also at oral argument, Cap N' Cork argued that the statute "discriminates against interstate sellers like the New York Times Wine Club compared to the local sellers like Cap N' Cork Retail . . ." [ Id.] To this point, Cap N' Cork presents the affidavit of William Nelson, to show that "small, family-owned farm-based [wineries] that produce fewer than 10,000 cases per year" are cannot effectively market independently through the three-tier system, so they rely on fulfillment companies to navigate they system for them. [Dkt. 30-8 at 2.]

Cap N' Cork relies heavily on the "original package" doctrine, which was established in the late 19^th Century to protect alcohol moving through interstate commerce from state regulation when it remained in its original package. Leisy v. Hardin, 135 U.S. 100, 119 (1890). Under this doctrine, even nondiscriminatory regulations "directly affecting interstate commerce" were prohibited by the Commerce Clause. Bowman v. Chicago Northwestern R. Co., 125 U.S. 564 , 496-97 (1888). However, the original package doctrine pre-dated the Twenty-First Amendment and has been described by the Supreme Court in Granholm as "since-rejected." 544 U.S. at 477. The Court takes heed of the Supreme Court's characterization and declines to follow this "rejected" doctrine.

ATC argues, to the contrary, that the statute at issue does not facially discriminate against any of the entities Cap N' Cork mentions. Rather, is facially neutral and operates as an evenhanded regulation that simply requires off premises delivery of all wine by a permitted employee in a face-to-face transaction. [Dkt. 27 at 16.] The statute does not address common carriers in any way. [ Id. at 24.] Moreover, the statute makes "absolutely no distinction as to the origin of the wine" being delivered. [ Id. at 16] And as a facially neutral statute, ATC argues that § 7.1-3-15-3(d) is not subject to strict scrutiny analysis. [ Id.]

The Court agrees with ATC's assessment of the statute. Section 7.1-3-15-3(d) directly regulates wine dealers — not common carriers — and, on its face, the statute treats all wine that targeted for off premises delivery through Indiana wine dealers exactly the same way. The Court also finds merit in ATC's argument that wineries and wine retailers have a markedly different role in Indiana's highly regulated alcohol market, so their differential treatment under Indiana law does not constitute facial discrimination, [dkt. 27 at 11]. And wineries' sales (whether permitted as farm wineries or direct wine sellers) still require a face-to-face transaction at some point in the sales process. Finally, the statute in no way discriminates against wine clubs which are treated the same as any aspiring participant in the three-tier system. They have no special status to compel the Court, or more importantly the Indiana General Assembly, to treat them otherwise. The requirement that deliveries of wine by an Indiana wine retailer occur in a face-toface transaction by a permit holder is a facially neutral regulation, and, as such, § 7.1-3-15-3(d) is not subject to strict scrutiny. Granholm, 544 U.S. at 487.

b. Does § 7.1-3-15-3(d) pass the Pike balancing test?

In the absence of facial discrimination, Cap N' Cork argues that the "ban on delivery by common carriers discriminates against interstate commerce and favors local business interests" to the extent that it fails the Pike balancing test. [Dkt. 31 at 7.] At oral argument, Cap N' Cork restated this claim: "[the statute discriminates in practical effect against out-of-state wineries . . . whose only feasible access [to] the market is through this fulfillment process." This claim, which the Court re-characterizes as Cap N' Cork's disparate impact claim, rests on the allegations that "evidence shows that the ban has a substantial adverse impact on interstate commerce by decreasing selection, raising prices, and closing market access to many small wineries." [Dkt. 29 at 3.]

ATC argues, however, that § 7.1-3-15-3(d) neither explicitly discriminates against nor excessively burdens interstate commerce. As a result, ATC argues that the statute should undergo rational basis review. [Dkt. 27 at 11.] Nevertheless, ATC suggests, "should this Court apply Pike to the current action, the State has identified local benefits advanced by the face-to-face delivery requirements which are not `clearly excessive' as compared to the local benefits." [ Id. at 16.]

Because ATC has chosen to defend the statute under the Pike test, and because even facially neutral statutes regulating wine distribution have historically been analyzed in light of their potential burdens, see Baude, 538 F.3d at 608, the Court will undertake a Pike analysis. 397 U.S. at 142.

Because the statute ultimately survives Pike balancing, the Court will not go on to consider whether it overcomes rational basis review, which is an even less stringent test for constitutionality. Nat'l Paint Coatings, 45 F.3d at 1131.

Recently, the Seventh Circuit evaluated several Indiana laws governing distribution of wine within Indiana's three-tier system in Baude v. Heath. 538 F.3d 608 (7th Cir. 2008.) The plaintiffs in Baude challenged two Indiana laws. The first law stated 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. Ind. Code § 7.1-3-26-7(a)(6). The Baude court, in short order, found this provision discriminatory on its face, and therefore invalid. The statute was rejected because it prevented direct shipment of almost all out-of-state wine while allowing all wineries in Indiana to sell directly to Indiana customers and was clearly written to do the same. Id.

The second challenged statute frames the bulk of the court's analysis in Baude. This statute required any consumer who wanted to receive direct shipments of wine from any winery — inside or outside of Indiana — to visit the winery once and supply proof of name, age, address, and phone number, plus a verified statement that the wine was intended for personal consumption. Baude, 538 F.3d at 613; see also Ind. Code §§ 7.1-3-26-6(4), 7.1-3-26-9(1)(A). In assessing this statute, the Baude court determined that because "the rule applie[d] to every winery, no matter where it [wa]s located," it was not facially discriminatory. 538 F.3d at 611. Nevertheless, (although neutral in terms,) the statute had the effect of preventing interstate shipments directly to Indiana consumers, while allowing direct intrastate shipments. Id. at 612.

In light of the potential burden the statute posed on interstate commerce, the Baude court employed Pike balancing, noting: "If a statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." 538 F.3d at 611; see also Pike v. Bruce Church, 397 U.S. 137, 142 (1970).

In employing Pike balancing, the court in Baude first determined that "keeping alcohol out of minors' hands is a legitimate, indeed a powerful, [local] interest." Id. at 613. In response to plaintiffs' argument that the face-to-face identification did not in fact reduce the number of minors acquiring alcohol, the Baude court, even in the absence of compelling data to support the marginal benefits of in-person identification, stated:

Indiana thinks that in-person verification with photo ID helps to reduce cheating on legal rules, for both buying wine and voting (and perhaps other subjects). After the Supreme Court held in Crawford v. Marion County Election Board, [533] U.S. [181] (2008), that a belief that in-person verification with photo ID reduces vote fraud has enough support to withstand a challenge under the first amendment, it would be awfully hard to take judicial notice that in-person verification with photo ID has no effect on wine fraud and therefore flunks the interstate commerce clause.

Id. Therefore, the court accepted Indiana's reasoning that face-to-face verification would reduce the wine shipments that went to minors, as intended by the state. Id. at 615.

In determining whether the statute's burden on interstate commerce was excessive, the Baude court also accepted the plaintiffs' assertion that the cost of verification per winery would undoubtedly rise with distance between the consumer and the wineries, thus favoring wineries closer to Indiana buyers. 538 F.3d at 613. The court further noted that such a regulation might favor larger wineries over smaller wineries. Id. These burdens alone, however, were not excessive enough to render the statute unconstitutional in light of the local interest the face-to-face requirement supported. Moreover, the court recognized that, although purchasing and selling wine through wine clubs may be profitable for the dealer and potentially convenient for the consumer, there is no requirement that the Indiana General Assembly enact laws to permit the direct shipment of alcohol simply because the shipment may originate from out-of-state. Id. at 612.

With respect to plaintiffs' attempt to establish that the statute in Baude posed an excessive burden, the Baude court declared, "it is impossible to tell whether a burden on interstate commerce is "clearly excessive in relation to the putative local benefits without understanding the magnitude of both burdens and benefits." 538 F.3d at 613. Although "exact figures are not essential (no more than estimates may be possible) and the evidence need not be in the record if it is subject to judicial notice . . . it takes more than lawyers' talk to condemn a statute under Pike." Id. at 614. In light of the scarcity of empirical data concerning the effects on interstate commerce, the Baude court held that the plaintiffs did not establish the existence of an excessive burden that might undermine the legitimate state interest of keeping alcohol out of the hands of minors. 538 F.3d at 615. Therefore, the court in Baude upheld the second challenged law. Id.

ATC argues that the statute challenged here is similar to the second statute at issue in Baude. The Court agrees that the cases are analogous — both the statute in Baude and the statute at issue here require permitted wine retailers to make face-to-face contact with any Indiana consumer, regardless whether the consumer is buying wine shipped to the retailers from wineries inside or outside of Indiana. 538 F.3d at 611. But the Court finds that the statute at issue in Baude — upheld under Pike balancing — was actually far more burdensome than the statute Cap N' Cork challenges here.

1. Is there a legitimate local interest?

ATC argues that reducing minors' access to alcohol is a core policy of both federal and state governments, and that § 7.1-3-15-3(d) promotes this interest by ensuring that alcohol is only delivered by someone trained to ascertain whether the consumer is over 21. [Dkt. 27 at 16.] Cap N' Cork attempts to undermine the position that there is a legitimate government interest here by posing dismissive rhetorical questions: "Just what is the state's interest? Keeping the wine out of the hands of minors?" [Dkt. 17 at 8-9.]

In Baude, however, the Seventh Circuit answered Cap N' Cork's rhetorical question affirmatively: "keeping alcohol out of minors' hands is a legitimate, indeed a powerful, interest." 538 F.3d at 613. Consistent with that direct precedent, the Court finds that reducing youth access to alcohol is a legitimate local interest.

2. Does the statute effectuate that interest?

Cap N' Cork argues here that, to the extent that keeping alcohol out of the hands of minors is a sufficient state interest, the statute at issue does little to effectuate this interest:

It is matter of record that UPS drivers have been instructed in the proper method of checking for age verification. They will only leave the wine with an adult. This is true of FedEx and other common carriers which have been given training in permit states. Moreover, there are far fewer instances reported of wine getting into the hands of minors from delivery by common carriers than there [are] from minors getting alcoholic beverages from retail establishments themselves.

[Dkt. 17 at 9.] Unfortunately for Cap N' Cork and the Court, the "record" noted above does not exist in this case.

Citing to the Federal Trade Commission report, Cap N' Cork notes that "minors rarely buy wine over the Internet for delivery via common carrier because they prefer to buy alcohol for immediate consumption and do not want to pay additional shipping costs," and that "studies show that minors find it easy to buy wine in person at retail dealers." [Dkt. 29 at 6.] Cap N' Cork contends that "the UPS driver will obtain an adult signature upon delivery" of alcohol, thereby rendering § 7.1-3-15-3(d) unnecessary for effectuating the state interest. [Dkt. 29 at 5.]

The Court is perplexed by Cap N' Cork's proffer of UPS as a viable surrogate in light of the preemption challenge discussed later. In one breath, it argues the ATC should be content to regulate UPS' delivery of wine, and in another it argues that the face-to-face delivery requirement illegally regulates a service of a common carrier in conflict with the Federal Aviation Administration Authorization Act of 1994. [Dkt. 29 at 1-2.]

In contrast, ATC offers testimonial evidence from state excise officers revealing that face-to-face age verification is the primary tool for reducing youth access to alcohol, [dkt. 28-1 at 2-3]; specifically, the mandatory server training program which all holders of employee permits must undertake, combats underage access to alcohol, [dkt 27 at 17]. Evidence from the excise officers responsible for this training program supports ATC's argument and likewise reveals that invalidating § 7.1-3-15-3(d) would create substantial enforcement burdens for the officers working to combat youth access to alcohol, as 1000 more wine retailers would be allowed to directly ship to customers with no face-to-face requirement. [Dkt. 28-1 at 2-3; dkt. 29 at 10.]

Cap N' Cork objects to the admissibility of the personal opinions of Excise Officers Poindexter and Swallow, arguing that they are speculative under Fed.R.Evid. 601, 701 and 702. [Dkt. 29 at 9.] ATC responds that "these contentions are not only self-evident manifestations of the statutes, but that the personal knowledge of two long-time excise officers working for an agency "committed to reducing the availability of alcohol and tobacco products to minors" is sufficient to establish admissibility under Fed.R.Evid. 601 and 701. [Dkt. 31 at 4.] The Court agrees with ATC: evidence of the officers' personal knowledge is predicated on a properly laid foundation and admissible under Rules 601 and 701. Even if this were not the case, however, the court in Baude established that even without evidence of their effectiveness, face-to-face age verification requirements increase compliance with drinking age requirements. 538 F.3d at 614.

The Baude court made clear, and this Court agrees, that "the face-to-face requirement makes it harder for minors to get wine. Anything that raises the cost of an activity will diminish the quantity-not to zero, but no law is or need be fully effective." Id. Although Cap N' Cork expresses incredulity in its response brief about whether § 7.1-3-15-3(d) always results in faceto-face verification, [dkt. 29 at 8], the Court finds that it has presented virtually no quantifiable evidence to undermine the presumption that face-to-face requirements increase legality. Nor has it offered evidence that the requirement itself does nothing to reduce youth access to alcohol. Moreover, Cap N' Cork's contract with UPS does not specifically identify the manner in which UPS is to verify the age of the person whose adult signature is obtained, [dkt. 30-4], and the Court is skeptical that a prescription for the careful age verification procedures required by § 7.1-3-15-3(d) and its surrounding statutes would be implicit therein.

The Seventh Circuit has been clear that overcoming a motion for summary judgment requires more than mere speculation by the non-moving party. Singer, 593 F.3d at 533. In light of the paucity of evidence proffered by Cap N' Cork, the Court cannot find that § 7.1-3-15-3(d) does not effectuate the legitimate local interest of reducing youth access to alcohol.

3. Is the burden on commerce clearly excessive in relation to putative local interests?

Cap N' Cork argues that § 7.1-3-15-3(d) is unconstitutional because the burden it places on interstate commerce is "extreme," relative to its benefit. [Dkt. 17 at 9.] Many small wineries, it says, do not produce enough volume or have enough customers to obtain stable wholesale distribution for all of their products. [Dkt. 30-8 at 1-2.] They choose not to become permitted, and instead tend to use the fulfillment process. [Dkt. 30-6 at 1.] As such, Cap N' Cork contends that thousands of labels from smaller wineries throughout the United States, which are not available on the shelves of retail wine stores, are harmed by § 7.1-3-15-3(d). [Dkt. 29 at 7.] It further argues, "[m]any small out-of-state wineries cannot afford to pay the annual direct shipper's permit fee in Indiana to ship one or two cases of their wine each year." [Dkt. 29 at 3.] As Cap N' Cork explains, "Some small wineries have enough customers in a state other than its own to justify the expense of obtaining permits and setting up a direct shipping business, but many must use the more efficient fulfillment process to send small quantities of wine to states where they have few customers." [Dkt. 30-8 at 1-2.] Enforcing this law, Cap N' Cork argues, would "foreclose these wineries as well as the out-of-state fulfillment companies from engaging in interstate commerce." [ Id.]

Again, Cap N' Cork relies heavily upon statements contained in the 2003 Federal Trade Commission Report, [dkt. 30-2], and the 2004 National Research Council Report, [dkt. 30-3], to substantiate its assertions. Insofar as these reports are admissible, nothing in them, however, establishes that the Indiana statute at issue in this case burdens interstate commerce.

Aside from the national reports, Cap N' Cork has presented no evidence to substantiate the notion that § 7.1-3-15-3(d) poses an excessive burden — or any burden at all — on interstate commerce. Cap N' Cork has not provided evidence to show any quantifiable reduction in sales that might result if Cap N' Cork complied with the delivery restrictions imposed by § 7.1-3-15-3(d). At best, the Court can reasonably infer that it will cost more for Cap N' Cork to deliver beyond a fifteen mile radius. But no cost figures have been presented for the Court to determine whether Cap N' Cork would operate at an actual loss, or just less profit.

Nor has any evidence been proffered to show that the individually named Plaintiffs' wine purchases will be unfulfilled if Cap N' Cork does not deliver. The absence of this evidence speaks volumes: nothing in the statute at issue prohibits Cap N' Cork from selling or delivering its product, nor does it prevent the individually named Plaintiffs from buying it. Even if sufficient evidence were presented to show that any of the Plaintiffs would suffer actual loss, their financial loss would not be indicative of a burden on interstate commerce.

Furthermore, Cap N' Cork has offered no quantifiable evidence to show that § 7.1-3-15-3(d) burdens small wineries or out of state wineries. Section 7.1-3-15-3(d) does not prevent small or out-of-state wineries from offering their product in Indiana through the three-tier system or by purchasing permits that allow for direct shipping into Indiana — Cap N' Cork offers no evidence to suggest otherwise. Specifically, there is no evidence that small wineries cannot use the fulfillment process to sell to Indiana consumers through a wine dealer who may be more proximate to the consumer than Cap N' Cork. Even if the statute did disproportionately burden small wineries, the Seventh Circuit has made clear that "[f]avoritism for large wineries over small wineries does not pose a constitutional problem." Baude, 538 F.3d at 615.

Although Cap N' Cork has raised theoretical discrimination arguments on behalf of entities ranging from trucks to wine clubs, § 7.1-3-15-3(d) ultimately has nothing to do with any of them. Again, the inability of Cap N' Cork to substantiate any quantifiable harm reveals what is really at issue in this case: Cap N' Cork wants to reduce its delivery costs by using a common carrier; the individual Plaintiffs want to get their wine without driving across the state to pick it up. These incidental burdens have no bearing on interstate commerce and do not give the Court reason to invalidate § 7.1-3-15-3(d) under the Commerce Clause.

Even though ATC is moving for judgment as a matter of law, "when challenging a law that treats in-state and out-of-state entities identically, whoever wants to upset the law bears the[] burden" of showing that the law is unconstitutional. Baude 538 at 613. Having brought the constitutional challenge at bar, Cap N' Cork's failure to come forth with admissible evidence at the summary judgment stage is fatal. Celotex, 477 U.S. at 323 (holding that Rule 56(c) requires summary judgment "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial"). Cap N' Cork failed to show that the face-to-face requirement imposes any quantifiable burden, let alone one great enough to supersede the benefits of the face-to-face requirement, which provides a barrier to youth access to alcohol and reduces enforcement costs of so doing. Although the law may have minimally harmful effects for certain wineries based on their size, model, or economic position, it "takes more than lawyers' talk to invalidate a statute under Pike." Baude, 538 F.3d at 613. Given that this statute passes muster under Pike in light of both Granholm and Baude, the Court finds it constitutional. Baude, 538 F.3d at 614.

The Affidavit of Attorney James Tanford, [dkt. 30-1], does not substantively transform the "lawyers' talk" — it merely makes the same talk louder, and the Court must treat it as such. Cap N' Cork should be mindful that "a lawyer cannot ordinarily represent a client and simultaneously serve as the client's witness." United States v. Marshall, 75 F.3d 1097, 1106 (7th Cir. 1996).

Consequently, the Court awards summary judgment for ATC on Cap N' Cork's Commerce Clause challenge.

B) Cap N' Cork's Preemption Challenge § 7.1-3-15-3(d)

Cap N' Cork also argues that that the enforcement of the face-to-face delivery requirement set forth in § 7.1-3-15-3(d) regulates a service of a common carrier in a way that conflicts with the Federal Aviation Administration Authorization Act of 1994 ("FAAAA"), which says in relevant part that "a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier." 49 U.S.C. § 14501(c)(1). Cap N' Cork argues that the face-to-face delivery statute is preempted by the FAAAA, and that, accordingly, it must yield under the Supremacy Clause, Art. VI, cl. 2. [Dkt. 29. At 1-2.]

1. Preemption under Rowe

Cap N' Cork argues that § 7.1-3-15-3(d) is preempted by the FAAAA under Rowe v. N.H. Motor Transp. Assn., 552 U.S. 364 (2008). [Dkt. 29 at 24.]

In Rowe, the Supreme Court held that "[s]tate enforcement actions having a connection with, or reference to" carrier "rates, routes, or services" are preempted by FAAAA. 522 U.S. 364, 370. However, the Rowe court made clear that "not every state law that relates to a motor carrier's rate, route, or service is necessarily preempted. To be preempted, the statute at issue must have — directly or indirectly — a "significant and adverse impact in respect to the federal Act's ability to achieve its preemption-related objectives." Id. at 371-72. Therefore state laws that only have a tenuous, remote, or peripheral relationship to the rate, route or service of a motor carrier are not preempted. Id. at 370. Neither are statutes that do not adversely impact congressional objectives. Id. at 371-72.

Cap N' Cork argues, "The parties agree § 7.1-3-15-3(d) prohibits the permit holder from using common carriers to make its deliveries." [Dkt. 29 at 24.] As such, it contends, the Indiana law conflicts with the FAAAA. However, ATC argues that the Indiana law only regulates the method of wine delivery, not the common carriers themselves, which distinguishes this case from Rowe and alleviates concerns of preemption by the FAAAA. [Dkt. 31 at 16.]

The Court agrees that the case at issue is clearly distinguishable from that in Rowe. In Rowe, the Supreme Court invalidated two provisions of Maine laws governing the delivery of tobacco, which required tobacco retailers engaged in delivery sales to "utilize a [specific] delivery service," and then imposed stringent requirements on the carriers. 552 U.S. at 372. In addition, the statute at issue in Rowe imposed civil liability upon the carrier, "not simply for its knowing transport of (unpermitted) tobacco, but for the carrier's failure sufficiently to examine every package." Id. at 372-73 (emphasis in original).

In contrast to the Maine statutes, the Indiana statute regulates wine dealers — not common carriers. Ind. Code § 7.1-3-15-3(d). There is no requirement, explicitly or implicitly, in § 7.1-3-15-3(d) that burdens carriers in any way. Prohibiting alcoholic beverage retailers from directly shipping alcohol in contravention of the three-tier system does not equate to fixing the "price, route, or service of any motor carrier" directly or indirectly. Rowe, 522 U.S. at 370. Moreover, neither § 7.1-3-15-3(d) nor § 7.1-5-11-1.5 imposes any liability on common carriers. Finally, the Indiana statute regulates alcohol, which — quite unlike tobacco — is afforded the protection of the Twenty-First Amendment. Granholm, 544 U.S. at 462. Because the statute at issue does not regulate common carriers and is presumptively protected by the Twenty-First Amendment, the Indiana statute is not preempted by the FAAAA under Rowe.

2. Preemption under Murphy

In addition to claiming preemption under the authority of Rowe, Cap N' Cork also asserts that Indiana's direct shipping ban and delivery restrictions conflict with the federal policy promoted by FAAAA and is therefore preempted under Aux Sable Liquid Prods. v. Murphy, 526 F.3d 1028, 1032-33 (7th Cir. 2008). [Dkt. 29 at 24.] Although Cap N' Cork does not provide a cogent argument on this point, it appears that Cap N' Cork is making a conflict preemption claim, [dkt. 31 at 18], thereby implicitly arguing that "it would be impossible for a party to comply with both local and federal requirements, or that the challenged statute stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hoagland v. Town of Clear Lake, 415 F.3d 693 (7th Cir. 2005).

Cap N' Cork noted in its response brief that it was not prepared to argue this point on summary judgment because it anticipated genuine disputes about material facts. [Dkt. 29 at 4.] However, it says, "the State has elected not to question the adverse impact of the common carrier ban, but rather to make a purely legal argument that the law regulates wine retailers, not common carriers,. . . ." [ Id.] As such, Cap N' Cork concedes that the issue can be decided as a matter of law. [ Id.]

Preemption can take on three different forms: express preemption, field preemption, and conflict preemption, Hoagland, 415 F.3d at 696, but the analysis in Murphy is limited to conflict preemption. See 526 F.3d at 1028.

To determine whether state and federal laws are in conflict, it is necessary to "examine the federal statute as a whole and identify its purpose and intended effects." Murphy, 526 F.3d 1033. This analysis requires that we "consider the relationship between state and federal laws as they are interpreted and applied, not merely as they are written." Frank Bros. v. Wis. Dep't of Transp., 409 F.3d 880, 894 (7th Cir. 2005). Within this analytical framework, the Court must first determine the congressional objective for the statute at issue. Murphy, 526 F.3d 1033.

Although Congress' objective with respect to the delivery of alcohol or youth access to alcohol cannot be gleaned from the FAAAA itself, Congress expressed support for state regulation of alcohol shortly after the enactment of the FAAAA when it enacted the Sober Truth on Preventing Underage Drinking Ac, Pub.L. No. 109-422. In this Act, Congress stated:

Alcohol is a unique product and should be regulated differently than other products by the States and Federal Government. States have primary authority to regulate alcohol distribution and sale, and the Federal Government should support and supplement these State efforts.

States also have a responsibility to fight youth access to alcohol and reduce underage drinking. Continued State regulation and licensing of the manufacture, importation, sale, distribution, transportation and storage of alcoholic beverages are clearly in the public interest and are critical to promoting responsible consumption, preventing illegal access to alcohol by persons under 21 years of age from commercial and non-commercial sources, maintaining industry integrity and an orderly marketplace and furthering effective State tax collection.

42 U.S.C. § 290bb-25b(b)(7). Cap N' Cork does not dispute these objectives, nor does it provide alternative Congressional objectives that would change the assessment about whether either § 7.1-3-15-3(d) conflicts with those objectives.

In sum, Cap N' Cork has presented the Court no evidence or cogent argument that the Indiana law at issue conflicts whatsoever with congressional intent regarding state regulation of the delivery of alcohol or youth access to alcohol. Since Cap N' Cork has failed to provide evidence that it cannot comply with both state and federal law without compromising Congress' objectives, the Court finds that § 7.1-3-15-3(d) is not conflict-preempted under Murphy.

Because the Indiana statute is outside the scope of criticism under either Rowe or Murphy, the Court awards summary judgment for ATC on Cap N' Cork's preemption challenge.

IV. CONCLUSION

For the foregoing reasons, the Court DENIES Cap N' Cork's Motion for Summary Judgment, [dkt. 16], and further GRANTS ATC's Motion for Summary Judgment, [dkt. 26]. Cap N' Cork shall take nothing by way of its Complaint. Judgment will issue accordingly.

12/06/2010

because the Rule is directed at construction equipment and not the construction site itself. While there is surprisingly little precedent interpreting section 110(a)(5) and seemingly no case law illuminating the precise question presented here, we think the plain language of the statute disposes of NAHB's argument.

NAHB correctly observes that Rule 9510 is ultimately directed at emissions that come from construction equipment. This fact by itself, however, cannot mean that Rule 9510 falls outside the bounds of section 110(a)(5)'s "indirect source review program." Emissions from any indirect source come from the direct sources located there; that is precisely what makes an indirect source indirect. Every regulation of the emissions from an indirect source, then, will ultimately regulate direct sources. If an indirect source review program were not allowed in some circumstances to impute direct sources of emissions to an indirect source as a whole, there could be no regulation of the emissions from indirect sources and no indirect source review program could exist.

NAHB relies heavily on the proviso in the statute reading, "Direct emissions sources or facilities at, within, or associated with, any indirect source shall not be deemed indirect sources for the purpose of this paragraph." 42 U.S.C. § 7410(a)(5)(C). According to NAHB, because Rule 9510 regulates emissions from a direct emissions source — construction equipment — the Rule institutes a program of reviewing direct sources, not indirect ones.

The statutory proviso on which NAHB relies only makes sense if it is read to prohibit an indirect source review program from targeting direct sources "at, within, or associated with, any indirect source" apart from the program's regulation of an indirect source. If the proviso were read to prohibit a regulatory effect on direct sources while they are at an indirect source, there could be no indirect source review programs. As we have explained, regulation of emissions from an indirect source necessarily regulates emissions from direct sources.

We cannot conclude that Rule 9510 comes within section 110(a)(5)'s "direct emissions sources" proviso, for the simple reason that Rule 9510 does not target direct sources apart from its regulation of the indirect source as a whole. The Rule, after all, measures the emissions it regulates by reference to a particular development site. The "baseline" amount of emissions, and the required reduction in emissions from that baseline, are both calculated in terms of the development as a whole. The Rule and the emissions reductions it requires are site-based rather than engine-or vehicle-based. See 42 U.S.C. § 7410(a)(5)(C) (requiring that an indirect source review program be a "facility-by-facility" review). It regulates an indirect source as a whole.

That Rule 9510 targets sites rather than equipment can also be seen by its scope of application. By its terms, the Rule's restrictions apply to certain kinds of developments, rather than to certain kinds of construction equipment. See supra p. 732 n. 2. Whether the Rule's mandates reach certain construction equipment depends not on the character of construction equipment but the character of the site where the equipment happens to be located.

Far from prohibiting Rule 9510, the plain language of section 110(a)(5) affirmatively authorizes it. A development site easily qualifies as "real property," or a "facility," "structure," or "installation." 42 U.S.C. § 7410(a)(5)(C). By measuring emissions by, and requiring emission reductions from, development sites as a whole, the Rule qualifies as a "facility-by-facility" review of indirect sources. Id. Finally, the Rule's clear purpose is "to assure, or assist in assuring" that these sites "will not attract" construction equipment that would contribute to the exceedance of, or the failure to maintain, national air quality standards in the San Joaquin Valley. Id. Rule 9510 is authorized by section 110(a)(5) of the Act.

We note that the California Court of Appeal recently came to the same conclusion in parallel state litigation about Rule 9510. Cal. Bldg. Indus. Ass'n v. San Joaquin Valley Air Pollution Control Dist., 178 Cal.App.4th 120, 100 Cal.Rptr.3d 204 (2009). The court concluded that the District had the authority to promulgate and enforce Rule 9510 under section 110(a)(5) and a state regulation that is materially indistinguishable from section 110(a)(5). Id. at 218. "The District's definition of `indirect source, `"the court noted, "is not only reasonable but is also the only logical way to interpret the term." Id.

B.

Because the plain language of the Act's "indirect source review program" provision, section 110(a)(5), authorizes Rule 9510, we must cautiously examine the Act before we conclude that another of its provisions, section 209(e)(2), preempts Rule 9510. It would be odd if the Act took away from the states with one hand what it granted with the other. "[W]here possible, provisions of a statute should be read so as not to create a conflict." La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 370, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986) (discussing the scope of preemption under the Communications Act of 1934).

Preemption would be an especially strange result given the history of the Act. Congress added section 110(a)(5) to the Act in 1977 after the EPA had tried to force the states to regulate indirect sources of pollution. See Manchester Envtl. Coal v. EPA, 612 F.2d 56, 57-58 (2d Cir. 1979). When the states had not regulated indirect sources to the EPA's satisfaction, the EPA began to promulgate its own rules for indirect sources. Id. at 58. The EPA's move "drew heavy criticism because [it] represented a significant federal intrusion into the traditionally local domain of land use control." Id. (citations omitted). In response to the EPA's actions, a 1977 amendment to the Act "severely limit[ed] the EPA's authority" over indirect sources, id., but "left largely to the states" the matter of "whether and how to regulate" indirect sources, Sierra Club v. Larson, 2 F.3d 462, 467 (1st Cir. 1993). In light of the underlying purpose of section 110(a)(5)"to return power to states and localities — it would be surprising if the Act nevertheless preempted a local rule that qualified as an indirect source review program under section 110(a)(5).

C.

Keeping in mind that Rule 9510 is a proper indirect source review program under section 110(a)(5), we proceed to examine the arguments NAHB makes, and the authorities it advances, in favor of preemption.

1.

NAHB contends that Rule 9510 establishes a "standard[]" within the meaning of section 209(e)(2) and is therefore preempted. It relies heavily on South Coast, a Supreme Court case concerning section 209(a) of the Act, which preempts states from adopting or attempting to enforce "any standard relating to the control of emissions from new motor vehicles or new motor vehicle engines." 42 U.S.C. § 7543(a). The question in South Coast was whether this provision preempted local rules requiring certain fleets of vehicles — street sweepers, airport taxicabs, and solid waste collection vehicles, among others — to purchase or lease certain lowemissions vehicles when adding or replacing vehicles in their fleets. South Coast, 541 U.S. at 249-51, 124 S.Ct. 1756.

Looking to the dictionary, the Court held that "standard" in section 209(a) meant "that which `is established by authority, custom, or general consent, as a model or example; criterion; test. `" Id. at 252-53, 124 S.Ct. 1756 (quoting Webster's Second New International Dictionary 2455 (1945)). The South Coast district's six rules were standards within the meaning of section 209(a) because they required fleet operators to buy vehicles with certain emissions characteristics. It did not matter that the rules were directed at purchasers rather than manufacturers. How a standard is enforced or complied with, South Coast held, is different from whether there is a standard at all. Id. at 253, 124 S.Ct. 1756. A standard itself is simply that which requires a "vehicle or engine" not to "emit more than a certain amount of a given pollutant, . . . be equipped with a certain type of pollution-control device, or . . . have some other design feature related to the control of emissions." Id.

NAHB argues that, like the rules in South Coast, Rule 9510 establishes a "standard[]," in this case, one "relating to the control of emissions" from construction equipment. 42 U.S.C. § 7543(e)(2)(A). It does not matter that a developer can comply with Rule 9510 in several different ways, because South Coast teaches that "the means of enforcing standards" should not be confused with whether or not a standard exists. 541 U.S. at 253, 124 S.Ct. 1756. Rule 9510 is a standard simply because it requires construction equipment not to "emit more than a certain amount of a given pollutant." Id.

NAHB also appeals to Pacific Merchant Shipping, in which we held that section 209(e)(2) preempted California rules requiring the auxiliary diesel engines on certain ocean-going vessels not to emit more than a certain amount of pollutants. 517 F.3d at 1114-15. In that case, we reasoned that the California rules were "standards" or "other requirements" because they "require[d] that engines `not emit more than' the amount of [pollutants] they would emit if using the specified [low-sulfur] fuels." 517 F.3d at 1114 (quoting South Coast, 541 U.S. at 253, 124 S.Ct. 1756). It did not matter that the rules allowed vessel operators to use certain fuels to meet the standard. Nor, says NAHB, should it matter here that developers can meet the mandates of rule 9510 through cleaner fuels or other alternative means. As in South Coast, "the means of compliance are irrelevant." Id. (citing South Coast, 541 U.S. at 253, 124 S.Ct. 1756).

The parties agreed that the regulated vessels qualified as nonroad vehicles under section 209(e)(2). 517F.3d at 1113.

Neither South Coast nor Pacific Merchant Shipping is on point. Both cases addressed rules that regulated emissions from vehicles. Rule 9510 does not target vehicles or engines. It targets emissions, and requires emissions reductions, from a development site as a whole. It does not require "a vehicle or engine" not to "emit more than a certain amount of a given pollutant," 541 U.S. at 253, 124 S.Ct. 1756 "it requires a development site not to do so. In other words, the dispositive question is not whether Rule 9510 establishes a standard or other requirement. The question is whether it establishes a standard or other requirement "relating to the control of emissions from [ nonroad] vehicles or engines," i.e., construction equipment. 42 U.S.C. § 7543(e)(2)(A) (emphasis added). Because Rule 9510 is targeted at a development site as a whole, its standard or requirement relates to emissions from an indirect source, not from nonroad vehicles or engines.

NAHB scorns this distinction, characterizing it as artificial and pointing out that the emissions from a development site during its construction phase come from construction equipment. But the distinction NAHB deprecates comes from the Clean Air Act itself. The Act, by allowing states to regulate indirect sources of pollution, necessarily contemplates imputing mobile sources of pollution to an indirect source as a whole. If an indirect source review program could not attribute the emissions from mobile sources, while they are stationed at an indirect source, to the indirect source as a whole, states could not adopt any indirect source review program. What allows Rule 9510 to qualify as an indirect source review program under section 110(a)(5) is precisely what allows the Rule to avoid preemption under section 209(e)(2): its site-based regulation of emissions. In this way, the two sections do not conflict, but rather fit together neatly like two interlocking puzzle pieces. See La. Pub. Serv. Comm'n, 476 U.S. at 370, 106 S.Ct. 1890.

Compare South Coast, which noted that section 246 of the Act, 42 U.S.C. § 7586, man-dates purchase restrictions for fleet vehicles, but only "under federal standards designed precisely for federally required cleanfuel fleet vehicle programs — which programs, in turn, must be federally approved as meeting detailed federal specifications." 541 U.S. at 257, 124 S.Ct. 1756. Section 110(a)(5), by contrast, is a grant of power to the states and does not require compliance with specific federal specifications. Perhaps most importantly, the district in South Coast did not defend its rules as being authorized by section 246. Id. at 254, 124 S.Ct. 1756.

2.

Relying on a number of regulations, NAHB argues that section 209(e)(2) preempts states from regulating the emissions from groups of construction equipment just as much as it preempts state regulation of emissions from individual pieces of equipment. According to NAHB, Rule 9510 merely regulates groups of, rather than individual, vehicles and engines.

Under its delegated power to adopt and enforce " standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles or new motor vehicle engines," 42 U.S.C. § 7521(a)(1) (emphasis added), the EPA has promulgated regulations that require manufacturers to produce vehicles that — on average" meet a particular emissions limit. See, e.g., 40 C.F.R. § 86.1811-04(d). Thus a manufacturer may make one model that emits more pollutants than the "fleet-average" standard, but still complies with the standard because it makes another model that emits fewer pollutants than the fleet-average standard. If an emissions limit gauged by reference to a fleet of vehicles as a whole qualifies as a "standard," NAHB argues, then an emissions limit gauged by reference to the "fleet" of vehicles operating at a particular site is also a standard. In fact, the EPA itself has stated that section 209(e)(2) preempts states from enforcing their own fleet-average standards against nonroad vehicles like construction equipment. The fact that Rule 9510 regulates groups of construction equipment rather than individual vehicles or engines is therefore irrelevant.

See EPA, Response to the Petition of American Road and Transportation Builders Association to Amend Regulations Regarding the Preemption of State Standards Regulating Emissions from Nonroad Engines 14 (Aug. 21, 2008), Docket No. EPA-HQ-OAR-2004-0008-0921.

We agree that Rule 9510 escapes preemption not merely because Rule 9510 affects groups of construction equipment rather than individual engines or vehicles. An emissions limit calculated by reference to a fleet of engines or vehicles is as much a "standard" as an emissions limit calculated by reference to an individual engine or vehicle. Rather, Rule 9510 escapes preemption because its regulation of construction equipment is indirect. Rule 9510 does not measure emissions by fleets or groups of vehicles; it measures emissions on a "facility-by-facility" basis. 42 U.S.C. § 7410(a)(5)(D). Its unit of measurement is the indirect source, not the fleet. It regulates development sites directly, but as the term "indirect source" implies, it regulates mobile emissions only indirectly. For that reason, the fleet-based regulations are not analogous to Rule 9510.

V.

Rule 9510 is an indirect source review program that is not preempted by section 209(e) of the Clean Air Act. The district court's judgment is therefore affirmed.

AFFIRMED.