The Northern District of Texas just declared two federal statutes unconstitutional—in part on Commerce Clause grounds. The government has appealed to the Fifth Circuit. And if the case proceeds to decision on appeal, the Fifth Circuit will have an opportunity to issue one of the most consequential appellate decisions in the modern era on the reach of the Commerce Clause. In particular, the revival of Commerce Clause arguments in cases that involve commerce would be a massive development in constitutional law.

Background

The case is Hobby Distillers Association v. Alcohol and Tobacco Tax and Trade Bureau (now McNutt v. Department of Justice in the Fifth Circuit), and it involves several plaintiffs challenging Congress’s regulation of home distilling of beverage alcohol (spirits)—including for strictly personal consumption. Judge Mark Pittman concluded that a credible threat of enforcement existed. And after determining that one of the plaintiffs in the case—along with an association plaintiff—had Article III standing to sue, the district court proceeded to the merits of the plaintiffs’ pre-enforcement challenge.

The plaintiffs claimed that Congress does not have the constitutional authority to regulate home distilling for personal use. The government cited the taxing power and the Commerce Clause as grounds for Congress’s enactment of the statutory provisions at issue: 26 U.S.C. §§ 5178(a)(1)(B) and 5601(a)(6). The statutes prohibit distilled spirits plants from being located in dwelling houses and criminalize home use of (or possession with intent to use) certain instruments for producing distilled spirits. Thus, the question before the court was whether Congress could rely on either the taxing power or the Commerce Clause to enact the challenged provisions. The court ruled that neither power could sustain the laws.

Taxing Power

Article 1, Section 8, of the Constitution confers a taxing and spending power on Congress. The government urged “that the provisions at issue are valid uses of the taxing power because they ensure protection of, and reduce fraud upon, the tax revenue generated on distilled spirits.” The court disagreed. It determined that the provisions—which merely spoke to the location of distilled spirits plants and prohibited their use at home, without raising any revenue—are not themselves taxes. And because (1) the prohibitions reach people who are not subject to the tax in question and (2) the provisions do not involve the taxable use of the stills, the court further concluded that the provisions are not incidental to the taxing power.

Commerce Clause

The Constitution also grants the power to Congress to “regulate commerce … among the several States.” As the court in Hobby Distillers Association explained, the Supreme Court has allowed Congress to regulate three types of interstate commerce: “(1) the channels of interstate commerce; (2) the instrumentalities of, and things and persons in interstate commerce; and (3) activities with a substantial effect on interstate commerce.” To win on the Commerce Clause issue, which centered on the third type of regulation (activities with a substantial effect), the plaintiffs had to distinguish this case from two landmark precedents: Wickard v. Filburn (1942) and Gonzales v. Raich (2005). In each of Wickard and Raich, the Court rejected a Commerce Clause challenge to a regulation of homegrown commodities. Wickard involved a penalty assessed against a farmer for producing too much wheat—despite the producer wanting to use the excess wheat for his own consumption. And Raich concerned Congress’s prohibition on “the local cultivation and use of marijuana.” Wickard and Raich each saw the Court assert an expansive view of the phrase “commerce … among the several states.”

The two decisions are related. The Court in Wickard took the position that home consumption substantially affected interstate commerce because “if we assume that [the wheat] is never marketed, it supplies a need of the man who grew it which would otherwise be reflected by purchases in the open market”—and that man’s “contribution, taken together with that of many others similarly situated, is far from trivial” in terms of impact on the interstate market for wheat. Then, in Raich, the Court cited Wickard for the proposition that “Congress had a rational basis for concluding that leaving home-consumed marijuana outside federal control would … affect price and market conditions.” Thus, in Wickard and in Raich, the Court sustained the government action at issue.

To be sure, the Court has issued several Commerce Clause decisions since the 1990s that—as Richard Fallon writes—“limit Congress’s general regulatory power under the Commerce Clause.” Fallon was discussing United States v. Lopez(1995) and United States v. Morrison (2000). But both of those cases involved a determination that the regulated activity at issue (possession of guns in school zones in Lopez and violence against women in Morrison) was not commerce. And a more recent Supreme Court decision—NFIB v. Sebelius (2012)—held that the Commerce Clause could not support the regulation of “individuals not currently engaged in commerce.” Like Lopez and Morrison, NFIB v. Sebelius rested on the conclusion that the activity (or, in that case, inactivity) at issue was not commerce.

Thus, the determination that an activity constitutes “commerce” could complicate a litigant’s efforts to cite Lopez, Morrison, and NFIB v. Sebelius in support of a limited view of the Commerce Clause as to such an activity. For that reason, a court distinguishing Wickard and Raich in a case involving commerce would be especially meaningful. That is what the Northern District of Texas did in Hobby Distillers Association—and it is what the Fifth Circuit has the opportunity to do on appeal in a precedential decision.

Commerce—But Not Interstate Commerce

The Constitution does not empower Congress to regulate just any commerce. It specifies that the commerce that Congress may regulate is limited to “commerce with foreign nations, among states, and with the Indian tribes.” Applying this limitation, the Northern District of Texas in Hobby Distillers Association concluded that Wickard and Raich did not control the outcome.

The court distilled the following test from Wickard and Raich: “[A] regulation of local, non-commercial behavior falls within Congress’s commerce power when it: (1) substantially affects interstate commerce in the aggregate; (2) serves a comprehensive statute that regulates commercial activity on its face; and (3) is necessary to make that broader commercial regulation effective.” (citations omitted). And, as the court saw it, “where regulating a purely local activity does not serve a broader, overarching statutory scheme, Congress cannot not reach it.”

This understanding of Wickard and Raich—as requiring a tie to a “broader, overarching statutory scheme”—establishes an important limitation on the cases. This limitation follows from the language of the opinions. The Wickard Court took care to explain that “[t]he general scheme of the Agricultural Adjustment Act of 1938 as related to wheat is to control the volume moving in interstate and foreign commerce in order to avoid surpluses and shortages and the consequent abnormally low or high wheat prices and obstructions to commerce.” With that general scheme in mind, the Court noted that the Act restricted production overall when explaining why an individual’s consumption should be understood as part of an aggregated sum of consumption.

Raich was more explicit. It read Wickard as holding that “Congress can regulate purely intrastate activity that is not itself ‘commercial,’ in that it is not produced for sale, if it concludes that failure to regulate that class of activity would undercut the regulation of the interstate market in that commodity.” (emphasis added). The Court noted the similarity between (1) the Agricultural Adjustment Act’s regulation of the interstate wheat market, and (2) the Controlled Substances Act’s “control [of] the supply and demand of controlled substances in both lawful and unlawful drug markets.” Based on the existence of this underlying regulatory scheme, the Raich Court took the position that “Congress had a rational basis for concluding that leaving home-consumed marijuana outside federal control would similarly affect price and market conditions.”

Drawing on this important element of Wickard and Raich, the court in Hobby Distillers Association opined that the government “skip[ped] the requirement that Congress must first have an established, comprehensive regulatory regime in place.” The relevant statute in Hobby Distillers Association was the Federal Alcohol Administration Act, and the court opined that the Act does not comprehensively regulate the whole market—both interstate and intrastate—for spirits. As the court saw it, the Act “addresses just about every facet of the interstate alcohol market,” but it leaves “many aspects of the alcohol industry … untouched.”

In particular, “the Act does not directly regulate the supply and demand of alcohol, does not make Congress a production manager over each distillery to inflate prices, and is not part of a federal directive to either promote or eliminate a national marketplace for alcohol.” Thus, for the purposes of the court’s analysis, the Federal Alcohol Administration Act differs from the Agricultural Adjustment Act and the Controlled Substances Act because the regulatory scheme did not fully occupy the relevant field—to borrow a phrase from federal preemption doctrine.

Notably, the court concluded that although home distilling constitutes commerce, the Act did not constitute a comprehensive-enough hook to reach that commerce under the Commerce Clause. That is legally significant because it acknowledges a limitation on federal power in a case involving commerce. Although the Commerce Clause suggests that such a limitation would exist (given the fact that the Commerce Clause qualifies the types of commerce that Congress may regulate), much of Commerce Clause jurisprudence has not vindicated that limitation. In this case, however, the district court’s opinion puts the limitation into practice in a way that is consistent with Wickard and Raich. And now that the government has appealed, the prospect of a precedential Fifth Circuit decision could give the imprimatur of a citable federal appellate opinion to the district court’s understanding of Wickard, Raich, and the Commerce Clause.

The court continued its analysis by taking the position that “[e]ven if the Act were comprehensive, the prohibition is not necessary to effectuate it.” Here, the court focused on the particular nature of the prohibited behavior: “possession of a still with the intent to produce beverage alcohol in or near a residence, boat, vessel, or any site of business.” That is not the same as possession “where the still’s components travelled in interstate commerce,” or possession with the intent to distribute. This part of the court’s opinion implicated the third part of the test that Judge Pittman distilled from Wickardand Raich: even if the regulatory scheme is comprehensive, the regulated activity needs to undermine that scheme. Here, the court concluded, home distilling does not undercut the Act’s regulatory program. Thus, prohibiting home distilling is not so necessary to the Act’s operation that Congress could justify the regulation of this local activity by reference to the Act’s broader regulatory framework.

What’s Next

The government will file its brief soon in the Fifth Circuit, after which the plaintiffs will have an opportunity to respond and the government will get to reply to that response. The Fifth Circuit denied the plaintiffs’ motion to expedite the appeal. The case represents one of the most important, live Commerce Clause disputes in the federal courts today, and the Fifth Circuit may not be the case’s last stop. Indeed, to the extent that the Supreme Court is interested in clarifying the limits on the reach of Wickard and Raich, this case presents a unique opportunity to do just that. And as Devin Watkins—one of the attorneys for the Hobby Distillers Association—points out: “Although the HDA case is about distilled spirits, any meaningful limitation on the federal government’s power has important implications for many other actions the federal government takes. Whenever the federal government’s power is limited, then state government becomes the final decision-maker.”

The case is No. 4:23-cv-1221 in the district court and No. 24-10760 in the Fifth Circuit.

Eli Nachmany is an associate at Covington & Burling LLP. The views expressed in this essay do not necessarily reflect the views of the author’s employer or any of its clients.