Over the last several years, a number of states have opened up their markets for interstate shipments of wine as we have reported. Usually, the states are reacting to a court's review of the Constitution's Interstate Commerce Clause. Recently, a new decision regarding the scope of this clause and the ability of states to enact legislation impacting commerce was issued.
The U.S. Sixth Circuit Court of Appeals has authored an opinion discussing the "Dormant Commerce Clause" in a case brought against Michigan entitled American Beverage Association v. Snyder, et.al. The Dormant Commerce Clause is called "dormant" because the Constitution only specifically grants the power to regulate interstate commerce to Congress. The Constitution is dormant (silent) on limiting states' attempt to regulate this commerce. However, courts imply that the Constitution does limit a state's ability to regulate interstate commerce - this power is left to the United States Congress.
American Beverage challenged a Michigan law requiring that bottles sold in Michigan must have a distinct bottle mark showing bottle deposits paid in Michigan. Michigan was addressing an issue created by people receiving bottle deposit refunds in Michigan, even though they had purchased the bottles in other states. Michigan estimated that fraudulent refunds caused a loss of over $15 million a year in Michigan deposits.
The Sixth Circuit threw out the requirement of bottle mark that could only be placed on bottles sold in Michigan. The Court did not use the most common interstate commerce ground - that the provision discriminated against interstate commerce in favor of local business. Instead, it used an analysis of whether the law had an "extraterritorial effect" controlling conduct beyond the boundaries of the state.
The Court found that the Michigan requirement mandated that beverage companies must package a product unique to Michigan, and that Michigan was, in effect, dictating where that product can be sold. The Court did not impose a rigorous denial of the law. Instead, the Court stated that Michigan must consider less burdensome alternatives. If other alternatives were considered and reasonably rejected, then Michigan may have a good argument for this type of law. However, there was no consideration of other alternatives.
This lawsuit points out the complexity of the Constitutional issues, primarily interstate commerce issues, facing states in their efforts to enact legislation that reaches beyond the boundaries of the states. No one argued that Michigan did not have a legitimate interest in controlling who received bottle deposits. Instead, the Court reminds us to be mindful of any attempts to control beverage marketing, even if the attempts appear to be only intrastate in nature.