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December 14, 1966

Louis J. EPSTEIN and Julius Epstein t/a Stratford International Tobacco Co., Plaintiffs,
Joseph P. LORDI, Director of the Division of Alcoholic Beverage Control of the Department of Law and Public Safety of New Jersey, Defendant

The opinion of the court was delivered by: COOLAHAN


 The plaintiffs bring this action pursuant to Sections 2281 and 2284 of Title 28, U.S.C. to enjoin the enforcement against their business of certain provisions of the New Jersey Alcoholic Beverage Law, N.J.S.A. 33:1-1 to 33:1-96. As the basis for an injunction, the complaint seeks a declaration that the state statute, as applied, is repugnant to the Commerce, Export-Import, and Supremacy clauses of the United States Constitution. General jurisdiction is founded upon 28 U.S.C. § 1331, a matter in controversy exceeding $10,000.00, and arising under the Constitution or laws of the United States.

 The concrete question posed is whether New Jersey can require the plaintiffs to obtain a wholesale liquor license before they engage in the sale of in bond tax free liquor to vessels docked in New Jersey, where such liquor is sold for use in foreign commerce.

 The portion of the New Jersey Alcoholic Beverage Law in question is N.J.S.A. 33:1-11 which requires a state issued license for the conduct of wholesale liquor operations in New Jersey. *fn1" At first, plaintiffs sought such a wholesale license from the appropriate state administrative authorities, but they rejected the wholesale license ultimately proffered because it was restricted. Now they contend that New Jersey can only require them to obtain a transportation license, *fn2" and that requiring a wholesale license is unconstitutional.

 The pertinent facts have been stipulated by the parties; the remaining determinations are issues of law. Plaintiffs conduct their business as a partnership under the name Stratford International Tobacco Co. [Stratford] from 504 Clinton Avenue, Newark, New Jersey, which premises are not licensed by the State.

 Stratford's operations are carried on pursuant to Federal importer's and exporter's basic permits which authorize it to import in-bond liquor into the United States and to sell, deliver and ship such liquor in interstate and foreign commerce. Stratford also holds a license and its drivers are bonded and hold identification cards, all issued by the Bureau of Customs, which authorize its drivers to transport in-bond liquor in Stratford's trucks.

 Liquor imported by Stratford enters the Port of New York or the Port of New Jersey [a division of the Port of New York area], where it is consigned to the custody and care of the Collector of Customs. In addition to importing liquors from abroad, Stratford also purchases in bond liquor from bonded distilleries in the United States, which is delivered by bonded carrier into bonded warehouses in New Jersey.

 All the liquor, whether imported or domestic, is brought into New Jersey by Stratford solely for export. As such, the liquor is constantly subject to the control and custody of the United States Treasury Department, Bureau of Customs or Bureau of Internal Revenue, from the moment of entry into the state until its ultimate release for consumption in foreign commerce. The control is effected through a comprehensive scheme of regulation and inspection procedure pursuant to Sections 309, 311 and 317 of the Tariff Act of 1930, as amended, 19 U.S.C. §§ 1309, 1311 and 1317, related portions of the Internal Revenue Code, as amended, 26 U.S.C. §§ 5012, 5062 and Treasury Regulations promulgated by the Bureau of Customs, 19 C.F.R. parts 8, 12, 18, 19, 21, 23 and 25. *fn3"

 On the basis of these facts, the plaintiffs now contend that the wholesale licensing provision of N.J.S.A. § 33:1-11 is inapplicable to their enterprise and that they are not licensable under it. In the alternative they argue that if Section 33:1-11 is construed to require a wholesale license for their enterprise, it is unconstitutional.

 New Jersey's position throughout this controversy has been threefold; that Stratford's operation is licensable under Section 33:1-11; that plaintiffs cannot solicit, sell and deliver in bond liquor in the manner described without first obtaining a Class B plenary wholesale license; and that this requirement is constitutional.

 Plaintiffs' present contentions differ substantially from their position in the State courts. A brief review of the prior proceedings is necessary to fully understand the nature of this variance.


 About four years ago the plaintiffs, who had been tobacco merchants for many years, expanded their operation to include the sale of tax free tobacco to ships in the Port of New York. However, they soon ascertained that this business is precarious unless they also sell tax free in bond liquor, since purchasing agents for the shipping companies prefer to buy both items from the same source of supply. Prior to plaintiffs' entry into the field, the firm of Marine Tobacco Co. was the exclusive supplier of tax free liquor to ships in the New Jersey Division of the Port of New York.

 In the Spring of 1963, the plaintiffs applied for a Class B plenary wholesale license. Marine Tobacco Co. intervened in opposition. The Acting Director found that there was a "public need" for an additional wholesaler in this area. Re Epstein, A.B.C. Bulletin, 1565, Item 3. He tendered plaintiffs a Class B license, subject to the following special condition:

"That no sales of alcoholic beverages will be made in New Jersey except only such sales as are made in bond to steamship companies to become part of ships stores for use beyond the jurisdiction of this State."

 Plaintiffs rejected this offered license and appealed the decision to the New Jersey Superior Court, Appellate Division. The plaintiffs challenged the Acting Director's statutory authority for adding the proposed restriction to the normal terms of a Class B license; they argued that since he had found a public need for an additional wholesaler, they were entitled to an unrestricted Class B license.

 The Appellate Division did not reach the question of the Director's authority to supplement the statutory provisions with additional restrictions upon the license. The Court simply agreed with the Acting Director that the Epsteins had overstated his findings. Since the Acting Director had only found a public need for an additional competitor in the specific area of sales for overseas consumption, and not for another "plenary license as such", the court affirmed the denial of an unrestricted license. Epstein v. Director of Alcoholic Beverage Control, App.Div. A-98-63 (May 21, 1964), cert. denied 43 N.J. 260, 203 A.2d 714 (1964).

 Thereafter, on March 6, 1964, the plaintiffs applied for a Class D liquor transportation license. It was stipulated that notwithstanding their failure to obtain a wholesale state license, they had continued to solicit and sell tax free liquor to ships docked in New Jersey.

 At this point, for the first time in the State proceedings, the plaintiffs formally challenged the constitutionality of requiring a wholesale license for their business. The Director held that Stratford's solicitation and sales activity were subject to New Jersey's Alcoholic Beverage Law "within the confines of the Twenty-first Amendment as it relates to the Commerce Clause." Defendant's Brief, pg. 4.

 The Director concluded that since the plaintiffs had not procured a wholesale license for their solicitation and sales of tax free liquor, they could not be granted a transportation license to transport liquor for such unlicensed activity.

 The plaintiffs allege that this specific threat to their business and their personal liberty constitutes an appropriate case for a three judge court's adjudication and grant of the requested relief.

 Thus, the plaintiffs now claim they are not within the purview of the licensing statute and, that in any event they cannot constitutionally be required to obtain a license; but their formal position in the State proceedings, until they applied for the transport license, was that they were entitled to such a license and sought one.

 While the defendant has alluded to this change in tactics, he has presented no legal ground for denying the plaintiffs' standing to challenge the constitutionality of the licensing statute, as applied, merely because they did not choose to challenge it initially in the State Court proceedings.

 Moreover, at both the original hearing on Stratford's application for a Class B wholesale license and the appeal from the denial of such a license, the plaintiffs testified that in their view no state license could be required for the sale of tax free liquor in interstate and foreign commerce in the manner they anticipated using. They indicated that the application for such a license was being made only to avoid aggravation and the expense of litigation. Re Epstein, ABC Bulletin, supra, at 5; Epstein v. Director of Alcoholic Beverage Control, App.Div. supra, Transcript, at 41.


 After commencement of this lawsuit, the Chief Judge constituted this three judge Court to consider the matter in accordance with 28 U.S.C. § 2281. Invocation of Section 2281 presents two threshold questions as to whether adjudication by a three judge tribunal is appropriate.

 First, if prior cases have rendered the constitutional issues moot or settled, the proper procedure is to disband the three judge court and remand the matter to the single district judge before whom it was originally brought. Where previous decisions have foreclosed the possibility that the challenged State statute can stand in the face of constitutional provisions to which it is allegedly repugnant, a three judge Court is not required. Turner v. City of Memphis, 369 U.S. 350, 353, 82 S. Ct. 805, 7 L. Ed. 2d 762 (1961); Bailey v. Patterson, 369 U.S. 31, 33, 82 S. Ct. 549, 7 L. Ed. 2d 512 (1961) [past cases had established the unconstitutionality of the state laws on their face]. And see Ex parte Poresky, 290 U.S. 30, 54 S. Ct. 3, 78 L. Ed. 152 (1933) [challenge to state law's constitutionality was insubstantial on its face].

 The possibility of applying this doctrine to the case before us stems from the substantial parallels between it and the situations before the Court in Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 84 S. Ct. 1293, 12 L. Ed. 2d 350 (1963); and in Department of Alcoholic Bev. Control for State of California, et al v. Ammex Warehouse, 378 U.S. 124, 84 S. Ct. 1657, 12 L. Ed. 2d 743 (1963). If the Hostetter and the Ammex cases on their face were dispositive of the constitutional issues, as the defendant contends, then a three judge court would be unwarranted. However, as set forth below, the operative facts in the present matter, insofar as they bear on the constitutional questions, are not completely congruent with those presented by the earlier cases. ...

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