In Part 1, we examined how our legal system developed to the point where a statutory framework that blatantly favors one class of businesses over another is constitutionally permissible. Then, we took a look at what North Carolina’s system of microbrewery regulations looks like, and why it looks that way. By doing so, we have set the stage for this analysis of whether microbrewery operators have any avenues through which to challenge the current regulatory system as unconstitutional.
Since the days of Nebbia and West Coast Hotel, challenges to economic regulation have almost universally failed. Particularly in the realm of alcohol, where the State historically plays a role in regulating the distribution and consumption of an intoxicating product, it would be difficult to challenge any type of regulation as unconstitutionally “arbitrary” or “discriminatory.” Add to this the fact that state regulation of alcohol is explicitly authorized in the 21st Amendment, and it becomes clear that a challenge under the federal Constitution would fall flat.
But there is another fundamental document that North Carolinians often forget – our state Constitution. Originally authored in 1776 and then reorganized in 1868 and 1971, the state Constitution provides North Carolinians with many protections that are non-existent in federal law. And while the U.S. Constitution provides a rights “floor,” state courts are free to interpret their state constitutions as providing more protections than are conferred by federal law.
For example, take Article 1 Section 1: “We hold it to be self-evident that all persons are created equal; that they are endowed by their Creator with certain inalienable rights; that among these are life, liberty, the enjoyment of the fruits of their own labor, and the pursuit of happiness.” This provision was intended to echo the United States Declaration of Independence. While it does not create a constitutionally protected interest in any particular job, the “fruits of their labor” clause mandates that state regulation of business must be rationally related to a substantial government purpose – a higher standard than exists under federal law.
Article 1 Section 19 provides that “no person shall be…in any manner deprived of his life, liberty, or property, but by the law of the land” and that “no person shall be denied equal protection of the laws.” These are state guarantees of due process and equal protection. While decisions of the United States Supreme Court construing the federal due process clause are persuasive, they are not binding upon the North Carolina Supreme Court in interpreting the state Constitution’s “law of the land” clause. So, while North Carolina courts have historically interpreted the due process provisions of the state and federal constitutions in the same way, they are not required to do so. The equal protection clause is also interpretted in the same way as its federal counterpart.
Article I Section 34 declares that “Perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed.” In interpreting this provision, our state courts have conceded that the legislature has the power to “enact laws, within constitutional limits, to protect or promote health, morals, order, safety, and general welfare of society.” State v. Balance, 229 N.C. 764, 769 (1949). However, when it is clear that “the Legislature has exceeded limitations upon its powers … Courts will interpose to declare an act void or nullify manifest purpose of legislative will.” Freeman v. Bd. of Comm’rs of Madison Cty., 217 N.C. 209 (1940). This provision seeks to prevent “horizontal restraints” which “impede competition and lead inexorably to increased prices.” Am. Motors Sales Corp. v. Peters, 311 N.C. 311, 318 (1984).
And finally, there is the capstone to our state Constitution’s Declaration of Rights — Article I Section 35. This provision states: “A frequent recurrence to fundamental principles is absolutely necessary to preserve the blessings of liberty.” Far from being mere fluff language, these words have been interpreted to have meaning and significance of their own. They require other constitutional provisions to “receive a liberal interpretation in favor of a citizen, especially with respect to those provisions which are designed to safeguard the liberty and security of the citizen in regard to both person and property.” Corum v. Univ. of N. Carolina Through Bd. of Governors, 330 N.C. 761, 783 (1992). The section further requires that “the meaning of the Constitution … be found in its spirit, not letter thereof, which gives way to promote equity of the spirit.” Under this section and others, “the right to earn a living is an inalienable right.” State v. Harris, 216, N.C. 746 (1940).
Does any of this mean that, as of right now, the state’s regulation of microbreweries is unconstitutional? No. But it does provide potential for microbreweries to make a principled, constitutionally-rooted argument that the state’s current three-tier system favors distributors and large-scale producers in such a way as to violate the rights of microbreweries and their operators. What might such an argument look like?
It would begin with the propositions that North Carolinians have an “inalienable right to earn a living,” as well as rights to equal protection and due process of law. Any regulations implicating these rights must pass constitutional muster. On this basis, microbrewery operators might offer three primary arguments, and a fourth reinforcing the other three:
- The 25,000-barrel cap is a regulation on a microbrewery owner’s “inalienable right to earn a living” that is not “rationally related to a substantial governmental purpose,” and therefore violates Article 1 Section 1 of the North Carolina Constitution.
- The 25,000-barrel cap artificially transfers wealth from microbrewery operators to distributors and larger-scale competitors in such a away as to violate the “law of the land” and equal protection clauses of Article 1 Section 19 of the North Carolina Constitution.
- The state’s malt beverage regulatory scheme favors distributors and large-scale breweries to such an extent that it creates an impermissible monopoly in favor of entrenched interests, and therefore violates Article 1 Section 34 of the North Carolina Constitution.
- The aforementioned constitutional provisions are all intended to “safeguard the liberty and security of the citizen in regard to both person and property,” and therefore must all “receive a liberal interpretation in favor of” citizens and against the State.
Despite the potential for such arguments, a betting man would still expect such a lawsuit to fail. That is because economic regulations, and particularly those of traditionally dangerous substances like alcohol, have historically been upheld. Further, North Carolina courts have followed their federal and state counterparts in allowing almost any economic regulation to survive rational-basis review.
That being said, more can be learned from the Nebbia and West Coast Hotel sagas than simply that courts have scaled back their power of judicial review. That episode also demonstrates that American courts are open to change. Perhaps, if microbreweries advance a legitimate argument under the North Carolina Constitution that they are being deprived of their rights, courts will listen, and develop a legal test that maintains deferrence to the legislature while increasing protections for economic liberties. After all, constitutions exist to protect our most fundamental freedoms from our own government. When entrenched business interests with the capacity to lobby are using the law to protect their profits at the expense of emerging small businesses, it would seem that there must be a constitutional remedy. Perhaps in the future our state courts will have the opportunity to decide whether, and how, our state’s constitution can protect a flourishing new industry from the influence of economic incumbents in Raleigh.