North Dakota v. United States
495 U.S. 423, 109 L. Ed. 2d 420, 1990 U.S. LEXIS 2574 (1990)
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Rule of Law:
State liquor regulations that incidentally increase costs for federal contractors or suppliers, but do not directly regulate the federal government or discriminate against it, are generally valid under the Supremacy Clause and intergovernmental immunity doctrine, especially when supported by the State's Twenty-first Amendment powers, unless Congress has clearly pre-empted such regulations.
Facts:
- Since 1978, North Dakota has required all persons bringing liquor into the state to file monthly reports documenting the volume of liquor imported.
- Since 1986, North Dakota has required out-of-state distillers who sell liquor directly to a federal enclave to affix labels to each bottle, indicating it is for domestic consumption only within the enclave.
- The United States operates Grand Forks Air Force Base and Minot Air Force Base within North Dakota, over which both the State and Federal Government exercise concurrent jurisdiction.
- Effective October 30, 1986, federal law (10 U.S.C. § 2488(a)) directed military bases to procure distilled spirits from the "most competitive source, price and other factors considered," eliminating a prior requirement to purchase within the home state for most states.
- The Department of Defense (DoD) developed a joint-military purchasing program to buy liquor in bulk directly from primary distributors offering the lowest prices.
- Following the new federal procurement policy and North Dakota's regulations, five out-of-state distillers and importers informed federal procurement officials they would no longer ship liquor to the North Dakota bases due to the burden of complying with state regulations.
- A sixth supplier, Kobrand Importers, Inc., increased its prices for liquor sold to the bases by $0.85 to $20.50 per case to reflect the cost of labeling and reporting.
Procedural Posture:
- The United States instituted an action in the United States District Court for the District of North Dakota, seeking declaratory and injunctive relief against the application of the State's regulations.
- The District Court denied the United States’ cross-motion for summary judgment and granted the State’s motion for summary judgment, reasoning there was no conflict because the state regulations did not prevent the Government from obtaining beverages at the "lowest cost."
- A divided United States Court of Appeals for the Eighth Circuit reversed the District Court's decision, holding that the North Dakota regulations impermissibly made out-of-state distillers less competitive with local wholesalers. (North Dakota was the appellant, United States was the appellee).
- The Supreme Court of the United States noted probable jurisdiction.
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Issue:
Does the Supremacy Clause, via the intergovernmental immunity doctrine or federal procurement statute 10 U.S.C. § 2488(a), invalidate North Dakota's liquor labeling and reporting requirements imposed on out-of-state suppliers selling distilled spirits to federal military bases operating under concurrent jurisdiction, when these requirements increase procurement costs for the United States?
Opinions:
Majority - Justice Stevens
No, the Supremacy Clause, intergovernmental immunity doctrine, or federal procurement statute do not invalidate North Dakota's labeling and reporting requirements. The State's regulations fall within the core of its power under the Twenty-first Amendment, which grants states "virtually complete control" over liquor distribution within their borders to promote temperance, ensure orderly markets, and prevent unlawful diversion. The labeling and reporting requirements are necessary components of this legitimate regulatory regime, especially since federal enclaves are not subject to state sales laws, creating a risk of diversion into the civilian market. The Court applies a functional approach to intergovernmental immunity, holding that a state regulation is invalid only if it directly regulates the United States or discriminates against it or those with whom it deals. These regulations operate against suppliers, not the federal government directly, and are akin to neutral state laws that may incidentally increase costs for federal contractors, which have been consistently upheld. Furthermore, the North Dakota system does not discriminate against the federal government; instead, it favors it by allowing purchases from out-of-state suppliers (with compliance), an option not available to civilian retailers who must purchase from in-state wholesalers. The burden imposed is merely a "normal incident" of two governments operating in the same territory. The federal procurement statute, 10 U.S.C. § 2488, which requires procurement from the "most competitive source," does not expressly pre-empt these state regulations. An incidental increase in costs for out-of-state shippers does not prevent the military from obtaining liquor at the most competitive price, but simply raises that price, which is permissible. The DoD regulation restates the statutory requirement but does not carry greater pre-emptive power, nor does its text pre-empt state laws; it explicitly envisions cooperation with state officials. The Court concluded that the record does not establish substantial burdens, noting the reporting requirement existed since 1978 without issue, and labeling costs are minimal, with no showing that other suppliers won't enter the market. Congress, not the Court, is best suited to balance these competing interests.
Concurring - Justice Scalia
No, the North Dakota labeling requirement does not discriminate against the Federal Government or its contractors, and is therefore valid. Justice Scalia agrees with the principle that discriminatory state taxes or regulations against the Federal Government are invalid. However, he finds no discrimination in this case because the Federal Government has an option to avoid the discriminatory burden: it can purchase liquor from in-state distributors, a course of action that all other retailers in North Dakota must follow. Scalia distinguishes this from Washington v. United States by arguing that if the state could not compel the federal government to purchase in-state, then requiring a choice between a discriminatory tax/regulation and purchasing in-state would be invalid. However, he asserts that the Twenty-first Amendment does empower North Dakota to require all liquor sold for use in the State to be purchased from a licensed in-state wholesaler, and that the Twenty-first Amendment is binding on the Federal Government regarding liquor import regulation. Therefore, since the Federal Government can legitimately be required to buy in-state, the option to buy out-of-state with the labeling requirement is a favor, not discrimination.
Concurring-in-part-and-dissenting-in-part - Justice Brennan
No, North Dakota's reporting requirement is lawful. Yes, North Dakota's labeling requirement is unlawful. Justice Brennan concurs that the reporting requirement is lawful as it does not discriminate or significantly obstruct federal operations. However, he dissents regarding the labeling requirement. He argues that the labeling requirement is not a "trifling inconvenience" but substantially interferes with federal operations and the explicit federal policy to procure distilled spirits from the "most competitive source." This interference is evident as five primary suppliers refused to ship, and one significantly increased prices, forcing the military to lose competitive advantages. He states that state laws violate federal immunity not only when discriminatory but also when they "actually and substantially interfere with specific federal programs." The labeling regulation obstructs Congress's command for competitive procurement by deterring suppliers. Furthermore, Justice Brennan argues the labeling regulation does discriminate against the Federal Government and its suppliers because it applies only to liquor destined for federal enclaves. An out-of-state distiller selling to a North Dakota wholesaler does not face this labeling requirement, placing those dealing with the federal government at a disadvantage compared to their private-sector counterparts. He rejects the majority's broad "entire regulatory system" comparison as flawed and speculative, asserting that Washington v. United States requires a comparison of like obligations, not entirely dissimilar ones. Finally, he rejects Justice Scalia's Twenty-first Amendment argument, citing United States v. Mississippi Tax Comm’n II, which held that the Twenty-first Amendment did not abolish federal immunity from state taxation, even for concurrent jurisdiction enclaves. He believes concurrent jurisdiction federal enclaves are not within a "State" for Twenty-first Amendment purposes and notes that North Dakota's own laws ceded jurisdiction over the military bases, implying the State's authority is limited.
Analysis:
This decision significantly clarifies the modern functional approach to intergovernmental immunity, emphasizing that states retain substantial regulatory authority even when their actions incidentally increase costs for federal operations or contractors, particularly when those state actions are supported by powers like those under the Twenty-first Amendment. The ruling establishes a high bar for finding implicit pre-emption by federal procurement policies, requiring a direct conflict rather than mere financial burden. While reinforcing the non-discrimination principle, the majority's broad interpretation of what constitutes "non-discriminatory" by viewing the entire regulatory scheme may make it more challenging for future litigants to prove discrimination. The case highlights the Court's inclination to defer to Congress to explicitly resolve conflicts between federal and state interests, rather than implying pre-emption or expanded immunity.
