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James M. Beam Distilling Co. v. Georgia (89-680), 501 U.S. 529 (1991)
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JAMES M. BEAM DISTILLING CO. v. GEORGIA

No. 89-680

[June 20, 1991]

Justice O'Connor, with whom Chief Justice Rehnquist and Justice Kennedy join, dissenting.

The Court extends application of the new rule announced in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), retroactively to all parties, without consideration of the analysis described in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). Justice Souter bases this determination on "principles of equality and stare decisis." Ante, at 9. To my mind, both of these factors lead to precisely the opposite result.

Justice Blackmun and Justice Scalia concur in the judgment of the Court but would abrogate completely the Chevron Oil inquiry and hold that all decisions must be applied retroactively in all cases. I explained last Term that such a rule ignores well-settled precedent in which this Court has refused repeatedly to apply new rules retroactively in civil cases. See American Trucking Assns. v. Smith, 496 U. S. —, — — (slip op. 18-30) (opinion of O'Connor, J.). There is no need to repeat that discussion here. I reiterate, however, that precisely because this Court has "the power `to say what the law is,' Marbury v. Madison, 1 Cranch 137, 177 (1803)," ante, at 2 (Scalia, J., concurring), when the Court changes its mind, the law changes with it. If the Court decides, in the context of a civil case or controversy, to change the law, it must make the subsequent determination whether the new law or the old is to apply to conduct occurring before the law-changing decision. Chevron Oil describes our long-established procedure for making this inquiry.

I

I agree that the Court in Bacchus applied its rule retroactively to the parties before it. The Bacchus opinion is silent on the retroactivity question. Given that the usual course in cases before this Court is to apply the rule announced to the parties in the case, the most reasonable reading of silence is that the Court followed its customary practice.

The Bacchus Court erred in applying its rule retroactively. It did not employ the Chevron Oil analysis, but should have. Had it done so, the Court would have concluded that the Bacchus rule should be applied prospectively only. Justice Souter today concludes that, even in the absence of an independent examination of retroactivity, once the Court applies a new rule retroactively to the parties before it, it must thereafter apply the rule retroactively to everyone. I disagree. Without a determination that retroactivity is appropriate under Chevron Oil, neither equality nor stare decisis leads to this result.

As to "equality," Justice Souter believes that it would be unfair to withhold the benefit of the new rule in Bacchus to litigants similarly situated to those who received the benefit in that case. Ante, at 6, 9. If Justice Souter is concerned with fairness, he cannot ignore Chevron Oil; the purpose of the Chevron Oil test is to determine the equities of retroactive application of a new rule. See Chevron Oil, supra, at 107-108; Smith, supra, at — (slip op. 21). Had the Bacchus Court determined that retroactivity would be appropriate under Chevron Oil, or had this Court made that determination now, retroactive application would be fair. Where the Chevron Oil analysis indicates that retroactivity is not appropriate, however, just the opposite is true. If retroactive application was inequitable in Bacchus itself, the Court only hinders the cause of fairness by repeating the mistake. Because I conclude that the Chevron Oil test dictates that Bacchus not be applied retroactively, I would decline the Court's invitation to impose liability on every jurisdiction in the Nation that reasonably relied on pre-Bacchus law.

Justice Souter also explains that "stare decisis" compels its result. Ante, at 9. By this, I assume he means that the retroactive application of the Bacchus rule to the parties in that case is itself a decision of the Court to which the Court should now defer in deciding the retroactivity question in this case. This is not a proper application of stare decisis. The Court in Bacchus applied its rule retroactively to the parties before it without any analysis of the issue. This tells us nothing about how this case — where the Chevron Oil question is squarely presented — should come out.

Contrary to Justice Souter's assertions, stare decisis cuts the other way in this case. At its core, stare decisis allows those affected by the law to order their affairs without fear that the established law upon which they rely will suddenly be pulled out from under them. A decision not to apply a new rule retroactively is based on principles of stare decisis. By not applying a law-changing decision retroactively, a court respects the settled expectations that have built up around the old law. See, American Trucking, supra, at — — (slip op. 26-27) (opinion of O'Connor, J.) ("prospective overruling allows courts to respect the principle of stare decisis even when they are impelled to change the law in light of new understanding"); id., at — (slip op. 5) (Scalia, J., concurring in judgment) (imposition of retroactive liability on a litigant would "upset that litigant's settled expectations because the earlier decision for which stare decisis effect is claimed . . . overruled prior law. That would turn the doctrine of stare decisis against the very purpose for which it exists"). If a Chevron Oil analysis reveals, as it does, that retroactive application of Bacchus would unjustly undermine settled expectations, stare decisis dictates strongly against the Court's holding.

Justice Souter purports to have restricted the application of Chevron Oil only to a limited extent. Ante, at 12. The effect appears to me far greater. Justice Souter concludes that the Chevron Oil analysis, if ignored in answering the narrow question of retroactivity as to the parties to a particular case, must be ignored also in answering the far broader question of retroactivity as to all other parties. But it is precisely in determining general retroactivity that the Chevron Oil test is most needed; the broader the potential reach of a new rule, the greater the potential disruption of settled expectations. The inquiry the Court summarized in Chevron Oil represents longstanding doctrine on the application of nonretroactivity to civil cases. See American Trucking, supra, at — — (slip op. 18-30). Justice Souter today ignores this well-established precedent, and seriously curtails the Chevron Oil inquiry. His reliance upon stare decisis in reaching this conclusion becomes all the more ironic.

II

Faithful to this Court's decisions, the Georgia Supreme Court in this case applied the analysis described in Chevron Oil in deciding the retroactivity question before it. Subsequently, this Court has gone out of its way to ignore that analysis. A proper application of Chevron Oil demonstrates, however, that Bacchus should not be applied retroactively.

Chevron Oil describes a three-part inquiry in determining whether a decision of this Court will have prospective effect only:

"First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed. Second, . . . we must . . . weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation. Finally, we [must] weig[h] the inequity imposed by retroactive application, for [w]here a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the injustice or hardship by a holding of nonretroactivity." 404 U. S., at 106-107 (citations and internal quotations omitted).

Bacchus easily meets the first criterion. That case considered a Hawaii excise tax on alcohol sales that exempted certain locally produced liquor. The Court held that the tax, by discriminating in favor of local products, violated the Commerce Clause, U. S. Const., Art. I, 8, cl. 3, by interfering with interstate commerce. 468 U. S., at 273. The Court rejected the State's argument that any violation of ordinary Commerce Clause principles was, in the case of alcohol sales, overborne by the State's plenary powers under 2 of the Twenty-first Amendment to the United States Constitution. That section provides:

"The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

The Court noted that language in some of our earlier opinions indicated that 2 did indeed give the States broad power to establish the terms under which imported liquor might compete with domestic. See 468 U. S., at 274, and n. 13. Nonetheless, the Court concluded that other cases had by then established "that the [Twenty-first] Amendment did not entirely remove state regulation of alcoholic beverages from the ambit of the Commerce Clause." Id., at 275. Relying on Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324 (1964), California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), and Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984), the Court concluded that 2 did not protect the State from liability for economic protectionism. 468 U. S., at 275-276.

The Court's conclusion in Bacchus was unprecedented. Beginning with State Board of Equalization of California v. Young's Market Co., 299 U.S. 59 (1936), an uninterrupted line of authority from this Court held that States need not meet the strictures of the so-called "dormant" or "negative" Commerce Clause when regulating sales and importation of liquor within the State. Young's Market is directly on point. There, the Court rejected precisely the argument it eventually accepted in Bacchus. The California statute at issue in Young's Market imposed a license fee for the privilege of importing beer into the State. The Court concluded that "[p]rior to the Twenty-first Amendment it would obviously have been unconstitutional to have imposed any fee for that privilege" because doing so directly burdens interstate commerce. 299 U. S., at 62. Section 2 changed all of that. The Court answered appellees' assertion that 2 did not abrogate negative Commerce Clause restrictions. The contrast between this discussion and the Court's rule in Bacchus is stark:

"[Appellees] request us to construe the Amendment as saying, in effect: The State may prohibit the importation of intoxicating liquors provided it prohibits the manufacture and sale within its borders; but if it permits such manufacture and sale, it must let imported liquors compete with the domestic on equal terms. To say that, would involve not a construction of the Amendment, but a rewriting of it.

"The plaintiffs argue that, despite the Amendment, a State may not regulate importations except for the purpose of protecting the public health, safety or morals; and that the importer's license fee was not imposed to that end. Surely the State may adopt a lesser degree of regulation than total prohibition. Can it be doubted that a State might establish a state monopoly of the manufacture and sale of beer, and either prohibit all competing importations, or discourage importation by laying a heavy impost, or channelize desired importations by confining them to a single consignee?" Id., at 62-63.

Numerous cases following Young's Market are to the same effect, recognizing the States' broad authority to regulate commerce in intoxicating beverages unconstrained by negative Commerce Clause restrictions. See, e. g., Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138 (1939); United States v. Frankfort Distilleries, Inc., 324 U.S. 293, 299 (1945); Seagram & Sons, Inc. v. Hostetter, 384 U.S. 35, 42 (1966); Heublein, Inc. v. South Carolina Tax Comm'n, 409 U.S. 275, 283-284 (1972); see generally Bacchus, supra, at 281-282 (Stevens, J., dissenting).

The cases that the Bacchus Court cited in support of its new rule in fact provided no notice whatsoever of the impending change. Idlewild, Midcal, and Capital Cities, supra, all involved States' authority to regulate the sale and importation of alcohol when doing so conflicted directly with legislation passed by Congress pursuant to its powers under the Commerce Clause. The Court in each case held that 2 did not give States the authority to override congressional legislation. These essentially were Supremacy Clause cases; in that context, the Court concluded that the Twenty-first Amendment had not "repealed" the Commerce Clause. See Idlewild, supra, at 331-332; Midcal, supra, at 108-109; Capital Cities, supra, at 712-713.

These cases are irrelevant to Bacchus because they involved the relation between 2 and Congress' authority to legislate under the (positive) Commerce Clause. Bacchus and the Young's Market line concerned States' authority to regulate liquor unconstrained by the negative Commerce Clause in the absence of any congressional pronouncement. This distinction was clear from Idlewild, Midcal, and Capital Cities themselves. Idlewild and Capital Cities acknowledged explicitly that 2 trumps the negative Commerce Clause. See Idlewild, supra, at 330 (" `Since the Twentyfirst Amendment, . . . the right of a state to prohibit or regulate the importation of intoxicating liquor is not limited by the commerce clause . . . .' "), quoting Indianapolis Brewing Co. v. Liquor Control Comm'n, 305 U.S. 391, 394 (1939); Capital Cities, supra, at 712 (" `This Court's decisions . . . have confirmed that the [Twenty-first] Amendment primarily created an exception to the normal operation of the Commerce Clause.' . . . 2 reserves to the States power to impose burdens on interstate commerce in intoxicating liquor that, absent the Amendment, would clearly be invalid under the Commerce Clause"), quoting Craig v. Boren, 429 U.S. 190, 206 (1976).

In short, Bacchus' rule that the Commerce Clause places restrictions on state power under 2 in the absence of any congressional action came out of the blue. Bacchus overruled the Young's Market line in this regard and created a new rule. See Bacchus, 468 U. S., at 278-287 (Stevens, J., dissenting) (explaining just how new the rule of that case was).

There is nothing in the nature of the Bacchus rule that dictates retroactive application. The negative Commerce Clause, which underlies that rule, prohibits States from interfering with interstate commerce. As to its application in Bacchus, that purpose is fully served if States are, from the date of that decision, prevented from enacting similar tax schemes. Petitioner James Beam argues that the purposes of the Commerce Clause will not be served fully unless Bacchus is applied retroactively. The company contends that retroactive application will further deter States from enacting such schemes. The argument fails. Before our decision in Bacchus, the State of Georgia was fully justified in believing that the tax at issue in this case did not violate the Commerce Clause. Indeed, before Bacchus it did not violate the Commerce Clause. The imposition of liability in hindsight against a State that, acting reasonably would do the same thing again, will prevent no unconstitutionality. See American Trucking, 496 U. S., at — (slip op. 10-11) (opinion of O'Connor, J.).

Precisely because Bacchus was so unprecedented, the equities weigh heavily against retroactive application of the rule announced in that case. "Where a State can easily foresee the invalidation of its tax statutes, its reliance interests may merit little concern . . . . By contrast, because the State cannot be expected to foresee that a decision of this Court would overturn established precedents, the inequity of unsettling actions taken in reliance on those precedents is apparent." American Trucking, supra, at — (slip op. 12) (opinion of O'Connor, J.). In this case, Georgia reasonably relied not only on the Young's Market line of cases from this Court, but a Georgia Supreme Court decision upholding the predecessor to the tax statute at issue. See Scott v. Georgia, 187 Ga. 702, 705, 2 S. E. 2d 65, 66 (1939), relying on Young's Market and Indianapolis Brewing.

Nor is there much to weigh in the balance. Before Bacchus, the legitimate expectation of James Beam and other liquor manufacturers was that they had to pay the tax here at issue and that it was constitutional. They made their business decisions accordingly. There is little hardship to these companies from not receiving a tax refund they had no reason to anticipate.

The equitable analysis of Chevron Oil places limitations on the liability that may be imposed on unsuspecting parties after this Court changes the law. James Beam claims that if Bacchus is applied retroactively, and the Georgia excise tax is declared to have been collected unconstitutionally from 1982 to 1984, the State owes the company a $2.4 million refund. App. 8. There are at least two identical refund actions pending in the Georgia courts. These plaintiffs seek refunds of almost $28 million. See Heublein, Inc. v. Georgia, Civ. Action No. 87-3542-6 (DeKalb Super. Ct., Apr. 24, 1987); Joseph E. Seagram & Sons, Inc. v. Georgia, Civ. Action No. 87-7070-8 (DeKalb Super. Ct., Sept. 4, 1987). Brief for Respondents 26, n. 8. The State estimates its total potential liability to all those taxed at $30 million. Id., at 30. To impose on Georgia and the other States that reasonably relied on this Court's established precedent such extraordinary retroactive liability, at a time when most States are struggling to fund even the most basic services, is the height of unfairness.

We are not concerned here with a State that reaped an unconstitutional windfall from its taxpayers. Georgia collected in good faith what was at the time a constitutional tax. The Court now subjects the State to potentially devastating liability without fair warning. This burden will fall not on some corrupt state government, but ultimately on the blameless and unexpecting citizens of Georgia in the form of higher taxes and reduced benefits. Nothing in our jurisprudence compels that result; our traditional analysis of retroactivity dictates against it.

A fair application of the Chevron Oil analysis requires that Bacchus not be applied retroactively. It should not have been applied even to the parties in that case. That mistake was made. The Court today compounds the problem by imposing widespread liability on parties having no reason to expect it. This decision is made in the name of "equality" and "stare decisis." By refusing to take into account the settled expectations of those who relied on this Court's established precedents, the Court's decision perverts the meaning of both those terms. I respectfully dissent.