STATE OF NORTH DAKOTA, ROBERT E. HANSON, STATE TREASURER OF NORTH DAKOTA, APPELLANTS V. UNITED STATES OF AMERICA No. 88-926 In the Supreme Court of the United States October Term, 1989 On Appeal from the United States Court of Appeals for the Eighth Circuit Brief for the United States TABLE OF CONTENTS Question Presented Opinions below Jurisdiction Constitutional, statutory, and regulatory provisions involved Statement Summary of argument Argument: The State of North Dakota's regulation of the United States military's purchase of alcoholic beverages from out-of-state suppliers for its North Dakota installations unconstitutionally interferes with federal procurement of those products A. Federal law requires the military to purchase alcoholic beverages at the lowest available price in order to maximize profits to support morale, welfare, and recreational activities on military bases B. North Dakota's liquor regulations are invalid under the Supremacy Clause since they prevent the United States military from obtaining alcoholic beverages from the most competitive source, as required by federal law C. The Twenty-first Amendment does not authorize the State of North Dakota to interfere with the federal government's exclusive authority to regulate military procurement of alcoholic beverages Conclusion OPINIONS BELOW The opinion of the court of appeals (J.S. App. A1-A22) is reported at 856 F.2d 1107. The opinion of the district court (J.S. App. A23-A32) is reported at 675 F. Supp. 555. JURISDICTION The judgment of the court of appeals was entered on September 9, 1988. The notice of appeal was filed on November 16, 1988 (J.S. App. A35), and the jurisdictional statement was docketed on December 5, 1988. The Court noted probable jurisdiction on March 27, 1989. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(2). /1/ CONSTITUTIONAL, STATUTORY, AND REGULATORY PROVISIONS INVOLVED 1. Article I, Section 8 of the United States Constitution provides in pertinent part: "The Congress shall have Power * * * To raise and support Armies * * * (and) To make Rules for the * * * Regulation of the land and naval Forces * * *." Article I, Section 8 of the United States Constitution further provides in pertinent part: "The Congress shall have Power * * * To exercise * * * Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings * * *." Article IV, Section 3 of the United States Constitution provides in pertinent part: "The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States * * *." Article VI, Section 2 of the United States Constitution provides in pertinent part: "This Constitution, and the laws of the United States which shall be made in Pursuance thereof * * * shall be the supreme Law of the Land * * *." Section 2 of the Twenty-first Amendment to the United States Constitution 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." 2. Title 10, United States Code, Section 2488 (Supp. V 1987), provides in pertinent part: (a) The Secretary of Defense shall provide that -- (1) covered alcoholic beverage purchases made for resale on a military installation located in the United States shall be made from the most competitive source, price and other factors considered, except that (2) in the case of malt beverages and wine, such purchases shall be made from, and delivery shall be accepted from, a source within the State in which the military installation concerned is located. Department of Defense Armed Services Military Club and Package Store Regulation 1015.3-R, ch. 4, Section C (codified at 32 C.F.R. 261.4), /2/ provides in pertinent part: The Department of Defense shall cooperate with local, state, and federal officials to the degree that their duties relate to the provisions of this chapter. However, the purchase of all alcoholic beverages for resale at any camp, post, station, base, or other DoD installation within the United States shall be in a manner and under such conditions as shall obtain for the government the most advantageous contract, price and other factors considered. These other factors shall not be construed as meaning any submission to state control, nor shall cooperation be construed or represented as an admission of any legal obligation to submit to state control, pay state or local taxes, or purchase alcoholic beverages within geographical boundaries or at prices or from suppliers prescribed by any state. 3. Section 84-02-01-05(7), N.D. Admin. Code (1986), provides: All liquor destined for delivery to a federal enclave in North Dakota for domestic consumption and not transported through a licensed North Dakota wholesaler for delivery to such bona fide federal enclave in North Dakota shall have clearly identified on each individual item that such shall be for consumption within the federal enclave exclusively. Such identification must be in a form and manner prescribed by the state treasurer. Section 84-02-01-05(1), N.D. Admin. Code (1986), provides: All persons sending or bringing liquor into North Dakota shall file a North Dakota Schedule A Report of all shipments and returns for each calendar month with the state treasurer. The report must be postmarked on or before the fifteenth day of the following month. QUESTION PRESENTED Whether regulations of the State of North Dakota, requiring out-of-state liquor suppliers to affix to each bottle of liquor sold to federal enclaves located in North Dakota a label stating that the liquor must be consumed on those premises and requiring those suppliers to file monthly reports, imperissibly interfere with the federal procurement scheme and otherwise fall outside the State's authority under the Twenty-first Amendment. STATEMENT 1. The State of North Dakota contains two federal enclaves, Grand Forks Air Force Base and Minot Air Force Base, over which the State and the federal government exercise concurrent jurisdiction. Each military installation contains clubs and package goods stores that sell alcoholic beverages exclusively to military personnel and their families. These clubs and stores are "non-appropriated fund instrumentalities" (NFIs) of the federal government. Although operated by the military, they do not receive congressionally appropriated funds. Instead, the facilities support themselves; any profits generated from liquor sales are used to finance recreational and other support services for each base's military personnel and their families. J.S. App. A3, A23. Under 10 U.S.C. 2488(a)(1) (Supp. V 1987), the military must obtain liquor (exclusive of beer and wine) for the NFIs from "the most competitive source, price and other factors considered * * *." /3/ In order to minimize cost, the military operates a "joint-military service consolidated purchasing program for distilled spirits" (J.A. 25). Under this program, at the time pertinent here, all military facilities in a thirteen-state area, including the two North Dakota installations, purchase alcoholic beverages in bulk directly from distillers/suppliers, as opposed to purchasing from local wholesalers. This program enables the military to negotiate the best possible price, since it can avoid buying from distributors at local wholesale prices (which include additional markups). /4/ Prices for liquor purchased by the military from out-of-state suppliers are significantly lower than those for liquor bought from licensed wholesalers within North Dakota. /5/ See J.A. 5, 25. 2. Effective January 1, 1986, the State of North Dakota issued specific regulations aimed at the federal government's purchase of liquor for the two military bases located in the State. /6/ The principal regulation, the labeling provision, requires all out-of-state liquor suppliers to affix to each bottle of liquor sold to those federal installations a label stating that the liquor must be consumed on those premises. N.D. Admin. Code Section 84-02-01-05(7) (1986). The regulation imposes no such labeling requirement on local suppliers and distributors. A companion provision calls for all suppliers to file a monthly report showing the quantity of liquor shipped into the State during the preceding month. N.D. Admin. Code Section 84-02-01-05(1) (1986). In early November 1986, the State held a meeting for representatives of out-of-state distillers/suppliers to explain the labeling and reporting requirements for direct sales of liquor to the two bases. /7/ As a result of the added administrative burdens and costs imposed by compliance with those new requirements, five out-of-state suppliers, Heublein, Inc., James B. Beam, Joseph Seagrams, Somerset Importers, and Hiram Walker & Sons, Inc., informed the military that they would no longer ship liquor to the bases in North Dakota. /8/ Another out-of-state distiller, Kobrand Importers, Inc., agreed to continue supplying liquor to the NFIs in North Dakota, but told the military that its prices would increase from $.85 to $20.50 per case in order to cover the additional costs of complying with the State's regulations. /9/ In light of these developments, the official responsible for the military's procurement of liquor stated: "If the installations in North Dakota are forced to purchase their distilled spirits requirements from in-State sources in the future, it will cost the installations involved between $200,000 and $250,000 per year more than if the purchases are made from out-of-State distillers/importers" (J.A. 27). J.S. App. A4, A25-A26; J.A. 23, 25, 26. /10/ 3. On November 26, 1986, the United States filed this action against appellants in the United States District Court for the District of North Dakota. Reciting the factual background set out above, the complaint alleged that the labeling and reporting requirements of the State's regulations interfere with the federal military's procurement of liquor, conflict with governing federal procurement law, and therefore violate the Supremacy Clause. The complaint sought a judgment declaring those regulations invalid and an injunction barring the State's enforcement of them as applied to military bases in North Dakota. J.S. App. A2; J.A. 3-8. Appellants answered by contending that their regulations did not conflict with federal law. Appellants also argued that in any event the Twenty-first Amendment authorized the regulations as necessary "to prevent the unlawful diversion of alcohol from military enclaves into the internal commerce of North Dakota" (J.A. 11). The parties thereafter entered into a stipulation of facts and filed cross-motions for summary judgment. /11/ 4. The district court granted appellants' motion for summary judgment, concluding that the State's regulations do not conflict with the federal law requiring the military to purchase liquor at the "lowest cost" (J.S. App. A28). The court reasoned that the "state's regulations may have indirectly caused the price of out-of-state supplies of alcoholic beverages to increase, but they do not prevent the federal government from obtaining those beverages at the 'lowest cost.' The 'lowest cost' has merely increased" (ibid.). Even if there were a conflict, the court stated, it would need to balance the State's authority to regulate liquor under the Twenty-first Amendment against the federal government's interests (J.S. App. A28-A29). In that regard, the court ruled that a State enjoys authority to impose regulations designed to prevent the unlawful diversion of liquor. The court accepted that proffered reason for the State's regulations, stating that it was not "pretextual," /12/ and therefore concluded that those regulations are "a valid exercise of (the State's) core power under the Twenty-first Amendment" (id. at A31). Turning to the competing interests, the court found that the State's "significant interest in preventing unlawful diversion of alcoholic beverages" clearly outweighed the federal government's interest "in keeping its costs down" (ibid.). Accordingly, the court held, alternatively, that the regulations at issue fall within the State's powers under the Twenty-first Amendment and are not barred by the Supremacy Clause (ibid.). 5. The court of appeals reversed (J.S. App. A1-A22). It first noted that Congress, in 10 U.S.C. 2488(a)(1) (Supp. V 1987), implemented "a longstanding policy of purchasing alcoholic beverages at the lowest available price and using the proceeds for the benefit of the welfare and morale of military personnel and their families" (J.S. App. A12). The court recognized the State's power under the Twenty-first Amendment, but observed that such power "reaches its limits when the state attempts to exercise that power over an instrumentality of the federal government itself" (id. at A10). Accordingly, the court concluded that the Twenty-first Amendment "provides no basis for regulating the means by which Congress has sought to order military liquor procurement and to provide for the welfare and morale activities of military personnel" (id. at A13). The court of appeals also weighed the competing interests at stake in concluding that federal law preempts the State's regulations (J.S. App. A13-A18). It recognized the State's "traditional power to regulate unlawful diversion of liquor in transit to the (military) bases" (id. at A17), but found that the State's efforts here impermissibly conflict with federal law. "Congress has mandated that the military procure liquor on a competitive basis in order to maximize profits for the support of welfare and morale activities" (id. at A15). The court observed that the State's regulations will increase the military's annual liquor bill by more than $200,000, and that "the effect (of the regulations) in large part is to require the military to make purchases within the State -- purchases that would not otherwise be competitive with out-of-state sources" (id. at A15-A16). The court held that "this result conflicts with Congress' desire for open competition designed to maximize revenue for welfare and morale activities" (id. at A16). Chief Judge Lay dissented (J.A. App. A18-A22). He concluded that the State's regulations, designed solely "to prevent diversion of out-of-state liquor destined for military bases," fall within the State's power under the Twenty-First Amendment (id. at A22). In his view, under those circumstances, "(t)he federal government must accept the resulting increase in the cost of out-of-state liquor when it considers sources from which to purchase its liquor" (ibid.). SUMMARY OF ARGUMENT A. Federal law mandates that the military purchase alcoholic beverages (exclusive of beer and wine) to be resold on military installations located in the United States "from the most competitive source, price and other factors considered * * *." 10 U.S.C. 2488(a)(1) (Supp. V 1987). As the statutory language suggests, the federal procurement scheme directs the military to purchase liquor for its facilities at the lowest available price. And as the legislative history of this provision makes plain, Congress, by this statute, reinstituted what until recently had been a longstanding military procurement policy -- the purchase of alcoholic beverages from suppliers and distillers at the lowest available price, regardless of whether those sources are located in a base's home state, in order to maximize the profits that support non-appropriated morale, welfare, and recreational activities on military bases. By contrast, Congress has specified in related legislation that in-state suppliers must be used for the military's purchase of beer and wine and for the purchase of distilled spirits for bases in Alaska and Hawaii. These distinctions, evident on the face of the pertinent military procurement statutes, are not inadvertent. They should not be subjected to state nullification. By enacting Section 2488(a)(1), Congress did not intend the military to consider price as only one of several equally competing factors in determining whether a particular liquor supplier is the "most competitive source." In choosing liquor suppliers, the military must take into account, among other factors, a supplier's reliability, service record, and access to particular brands. But as the court of appeals recognized (J.S. App. A12), and the legislative history of Section 2488(a)(1) confirms, Congress enacted the statute for the specific purpose of ensuring that the military purchases alcoholic beverages "in the most efficient and economic manner, without regard to the location of the source of the beverages, except as that location may affect cost * * *." S. Rep. No. 331, 99th Cong., 2d Sess. 283 (1986). B. As applied to the two military bases in North Dakota, the federal procurement scheme under 10 U.S.C. 2488(a)(1) (Supp. V 1987) effectively requires military procurement officials to purchase liquor in bulk quantities directly from out-of-state distillers/suppliers because those suppliers offer lower prices than licensed wholesalers within the State. In the face of this carefully crafted framework, North Dakota's liquor regulations imposed burdensome labeling and reporting requirements on the military's out-of-state sources of liquor; those requirements will, in effect, force the military to obtain liquor for its North Dakota facilities from less competitive in-state sources at an increased annual cost of more than $200,000. This forced change in military procurement wrought by North Dakota's new regulatory regime is precisely what Congress sought to preclude by enacting Section 2488(a)(1), since the military is required by that measure to purchase alcoholic beverages from "the most competitive source" in order to maximize profits from the resale of those beverages -- profits that are the principal source of funding for the Armed Services' nonappropriated morale, welfare, and recreational programs on military installations. Under the Supremacy Clause, federal law preempts State regulation where the latter "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941). That well-established principle applies here. North Dakota's protectionist regulations plainly interfere with and thwart the federal procurement scheme mandating "open competition" (J.S. App. A16). As a result, the State's regulatory efforts must fail under the Supremacy Clause. Moreover, a longstanding companion principle under the Supremacy Clause, namely "that the activities of the Federal Government are free from regulation by any state," Mayo v. United States, 319 U.S. 441, 445 (1943), likewise bars the State's regulatory efforts over the military's procurement of alcoholic beverages. In decisions such as Mayo v. United States, supra, Leslie Miller, Inc. v. Arkansas, 352 U.S. 187 (1956), and Paul v. United States, 371 U.S. 245 (1963), this Court applied that Supremacy Clause principle in striking down States' efforts to interfere with federal activities. Those decisions compel the conclusion that North Dakota may not regulate the military's procurement of distilled spirits for its installations. Just as the California minimum price regulation in Paul collided with the applicable federal procurement law requiring the "most advantageous contract -- price, quality, and other factors considered," 371 U.S. at 252, the restrictions imposed by North Dakota upon the military's procurement of alcoholic beverages clash with federal law governing the military's procurement of liquor. North Dakota's regulatory efforts may not evade this Supremacy Clause principle on the basis that the State's regulations apply only to third-party suppliers who happen to do business with the government. First, as is apparent from decisions such as Paul and Leslie Miller, Inc., the fact that a State's regulation applies by its terms only to the federal government's suppliers (as opposed to the government itself) does not free that regulation from the constraints of the Supremacy Clause. Second, although nominally aimed at out-of-state suppliers, North Dakota's regulations are, in point of fact, designed to regulate the federal enclaves' procurement of alcoholic beverages. Finally, although the district court stated that "the purpose advanced by the State (for its regulations) does not appear to be pretextual" (J.S. App. A31), and the court of appeals did not quarrel with that assessment (id. at A15), a close examination of North Dakota's regulatory scheme leads to the contrary conclusion -- appellants imposed the regulations for the very purpose of forcing the military to purchase its alcoholic beverages from in-state wholesalers subject to the State's taxing authority. C. The Twenty-first Amendment does not authorize North Dakota to interfere with the federal government's exclusive authority to regulate military procurement of distilled spirits. As this Court has held, that Amendment generally permits the States to regulate and tax private commerce in alcoholic beverages in a manner that, without the Amendment, would be prohibited under the Commerce Clause. See Craig v. Boren, 429 U.S. 190, 206 (1976). But even in this limited area, the Court has rejected the proposition that the Twenty-first Amendment renders the Commerce Clause inoperative simply because the State seeks to regulate alcoholic beverages. See Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 331-332 (1964). And outside the context of the Commerce Clause, the Court has made clear that "the relevance of the Twenty-first Amendment to other Constitutional provisions becomes increasingly doubtful." Craig v. Boren, 429 U.S. at 206. In light of the limited scope of the Twenty-first Amendment with respect to competing constitutional commands, this Court has held that the immunity of federal activities and property from state control or regulation remains wholly unaffected by the Amendment. See Collins v. Yosemite Park & Curry Co., 304 U.S. 518, 537-538 (1938). And the Court's companion decisions in United States v. Mississippi Tax Comm'n, 412 U.S. 363 (1973), and 421 U.S. 599 (1975), which struck down Mississippi's efforts to regulate shipments of liquor destined for both exclusive and concurrent jurisdiction military bases located in the State, establish beyond doubt that the Twenty-first Amendment does not confer authority on the States to regulate the federal government's procurement of alcoholic beverages. Here, North Dakota's regulations conflict with federal procurement law and with federal regulation of military enclaves; the State's regulatory regime thus does not survive scrutiny under the Supremacy Clause. Those regulations may not be resurrected under the Twenty-first Amendment. ARGUMENT THE STATE OF NORTH DAKOTA'S REGULATION OF THE UNITED STATES MILITARY'S PURCHASE OF ALCOHOLIC BEVERAGES FROM OUT-OF-STATE SUPPLIERS FOR ITS NORTH DAKOTA INSTALLATIONS UNCONSTITUTIONALLY INTERFERES WITH FEDERAL PROCUREMENT OF THOSE PRODUCTS A. Federal Law Requires The Military To Purchase Alcoholic Beverages At The Lowest Available Price In Order To Maximize Profits To Support Morale, Welfare, And Recreational Activities On Military Bases 1. In 10 U.S.C. 2488(a)(1) (Supp. V 1987), Congress mandated that the military purchase alcoholic beverages (exclusive of beer and wine) to be resold on military installations located in the United States "from the most competitive source, price and other factors considered * * *." /13/ As the statutory language suggests, the federal procurement scheme directs the military to purchase liquor for NFIs and other facilities at the lowest available price. In other words, the military, operating as a rational business firm, must follow practices designed to maximize profits by purchasing at the lowest prices the products that consumers demand. This straightforward reading of the statute is hardly surprising. The federal procurement regulation at issue in Paul v. United States, 371 U.S. 245 (1963), for example, directed officials to buy milk under "the most advantageous contract -- price, quality, and other factors considered" (id. at 252 (internal quotation marks omitted)). This Court construed that regulation as "command(ing) * * * federal officials to procure supplies at the lowest cost to the United States" (id. at 253). 2. The legislative purpose of Section 2488(a)(1) becomes all the more manifest when its language is contrasted with that of Section 2488(a)(2), requiring in-state purchases of beer and wine, and with that of contemporaneously enacted provisions requiring in-state purchases of distilled spirits for bases in Alaska and Hawaii (see pp. 20-21 & n.15, infra). Moreover, as the court of appeals found (J.S. App. A12), the legislative history of Section 2488 confirms that Congress, by this statute, reinstituted what until recently had been a longstanding military procurement policy -- the purchase of alcoholic beverages at the lowest available price in order to maximize the profits that support non-appropriated morale, welfare, and recreational (MWR) activities on military bases. a. In 1985, the House of Representatives, by voice vote, passed an amendment to the Department of Defense authorization bill for fiscal year 1986. That amendment required the military to purchase alcoholic beverages to be resold on military installations from suppliers and distributors in the State in which an installation was located. The House amendment, however, drew opposition in the Senate. Senate opponents of this in-state purchasing requirement contended that it would increase the military's costs of purchasing alcoholic beverages for its NFI facilities by as much as $30 million annually. See, e.g., 131 Cong. Rec. 35,490-35,491 (1985) (statement of Sen. Glenn). As Senator Kennedy, one of the sponsors of the Senate's amendment to delete the House provision pointed out: While these dollar amounts may not be very significant in comparison with the other sums the Senate will be discussing in the defense appropriation bill, these sums are of enormous importance to the services' morale, welfare, and recreation programs. These MWR funds depend heavily on revenues obtained from sales of alcohol on installations, and if installations were required to purchase their alcohol requirements from within the State in which they are located, the costs will skyrocket and the MWR funds will be correspondingly depleted. 131 Cong. Rec. 35,492 (1985). The Senate succeeded in deleting the in-state purchasing requirement from the Department of Defense authorization bill for fiscal year 1986. Nevertheless, Congress included such a provision in that fiscal year's Department of Defense Appropriations Act. See Act of Dec. 19, 1985, Pub. L. No. 99-190, Tit. VIII, Section 8099, 99 Stat. 1219. Consequently, from December 1985 through October 1986, all alcoholic beverages for military bases had to be procured in the State in which the particular base was located. b. The following year, Congress again confronted the issue of requiring military bases to purchase liquor only from in-state suppliers. The Senate Armed Services Committee decided to drop that requirement from the National Defense Authorization bill for fiscal year 1987. The Committee explained that it continues to object to such a requirement and has included a provision mandating that purchases of such alcoholic beverages for resale be made in the most efficient and economic manner, without regard to the location of the source of the beverage, except as that location may affect cost. * * * (T)he committee believes that procurement of alcoholic beverage(s) for resale should be subjected to the same favorable effects of competition as is useful in the procurement of other goods and services. Additionally, the committee does not believe it appropriate to impose upon the Department, or the morale and welfare activities of the Department, a requirement which will result in additional costs of tens of millions of dollars, caused by the imposition of indirect State taxation in (sic) the Federal government and the lack of competition. S. Rep. No. 331, 99th Cong., 2d Sess. 283 (1986). The House Armed Services Committee agreed to delete the in-state purchasing requirement for distilled spirits, but decided to include a provision which retained that requirement for beer and wine. The House Committee noted that it was customary for the military to buy beer and wine from local sources and that, accordingly, retaining the in-state purchasing requirement for those beverages would have little effect on the military's overall cost of procuring liquor for its facilities. H.R. Rep. No. 718, 99th Cong., 2d Sess. 183-184 (1986). On the other hand, the House Committee heeded the military's estimate that the in-state purchasing requirement "will raise its costs for alcoholic beverages by $20 million per year * * *(,) increased costs (that) relate almost entirely to distilled spirits that were previously purchased directly from manufacturers." H.R. Rep. No. 718, supra, at 183. The House Committee thus joined its Senate colleagues in recommending "a return to competitive procurement of alcoholic beverages," namely, "allow(ing) the (military) to return to direct procurement of distilled spirits -- the acceptable industry practice." H.R. Rep. No. 718, supra, at 184. The full House agreed with the Armed Services Committee's recommendation on this point, specifically voting down a proposed amendment to change it. /14/ On the Senate floor, however, Senator Andrews of North Dakota also sponsored an amendment to reinstitute the in-state purchasing requirement for all alcoholic beverages, and that amendment was adopted by a voice vote. See 132 Cong. Rec. 20,219-20,223 (1986). The House and Senate conferees then adopted instead the Committee-sponsored House provisions retaining the in-state purchasing requirement only for beer and wine and directing the military to buy distilled spirits at the lowest price available. See H.R. Conf. Rep. No. 1001, 99th Cong., 2d Sess. 39,464 (1986). Several weeks later, Congress passed the 1987 National Defense Authorization bill and the procurement provision was signed into law. See Act of Nov. 14, 1986, Pub. L. No. 99-661, Tit. III, Section 313, 100 Stat. 3853 (codified at 10 U.S.C. 2488(a) (Supp. V 1987)). Significantly, legislation enacted less than three weeks earlier required the military to purchase from in-state sources all alcoholic beverages for installations located in the States of Alaska and Hawaii, while explicitly providing otherwise for bases located in the contiguous 48 States and the District of Columbia. /15/ See Act of Oct. 30, 1986, Pub. L. No. 99-591, Tit. IX, Section 9090, 100 Stat. 3341-116. 3. In sum, with the exception of legislation relating to bases located in Alaska and Hawaii, Congress has made no pertinent change in the federal law governing the military's procurement of alcoholic beverages since the enactment of 10 U.S.C. 2488(a). See, e.g., Act of Oct. 1, 1988, Pub. L. No. 100-463, Tit. VIII, Section 8122, 102 Stat. 2270-40. Accordingly, Congress has maintained the policy of requiring the military to purchase liquor for its NFI facilities from suppliers and distillers at the lowest available price, regardless of whether those sources are located in a base's home state. In contending otherwise, appellants and their supporting amici are asking this Court effectively to nullify the very distinctions Congress deliberately drew between the acquisition of beer and wine and the acquisition of distilled spirits and, with respect to the latter, between acquisitions for bases in Alaska and Hawaii and those for bases in the 48 other States. Those telling differences on the face of closely related procurement provisions are not drafting errors; they are clear distinctions that Congress purposefully adopted. Those distinctions should be fully honored by the courts to achieve their intended pro-competitive purpose. As we have recounted (see p. 20 & n. 14, supra), members of the House and Senate from North Dakota tried, but failed, to eliminate those distinctions on the floor of Congress. Under the Supremacy Clause, it is not the proper role of the State to attempt through regulation to nullify those federal statutory distinctions, in whole or in part. To be sure, under the federal procurement scheme, price is the predominant, but not the sole, determinant. In choosing liquor suppliers, the military must also take into account, among other factors, a supplier's reliability, service record, and access to particular brands. But as the court of appeals recognized, "the history of military alcohol procurement reflects a longstanding policy of purchasing alcoholic beverages at the lowest available price and using the proceeds for the benefit of the welfare and morale of military personnel and their families" (J.A. App. A12); see United States v. South Carolina, 578 F. Supp. 549, 553 (D.S.C. 1983). Indeed, as detailed above, the legislative history of Section 2488(a)(1) makes plain that Congress enacted the statute for the specific purpose of ensuring that the military purchases its alcoholic beverages "in the most efficient and economic manner, without regard to the location of the source of the beverages, except as that location may affect cost * * *." S. Rep. No. 331, supra, at 283 (1986); see H.R. Rep. No. 718, supra, at 183-184. /16/ B. North Dakota's Liquor Regulations Are Invalid Under The Supremacy Clause Since They Prevent The United States Military From Obtaining Alcoholic Beverages From The Most Competitive Source, As Required By Federal Law 1. a. As we have explained, under governing federal law, /17/ the military must purchase liquor from the "most competitive source." As applied to the two military bases in North Dakota, that federal scheme requires military procurement officials to purchase the liquor in bulk quantities directly from out-of-state distillers/suppliers because those suppliers offer lower prices than licensed wholesalers within the State. See J.A. 5, 25; see also note 4, supra. By virtue of the added administrative burdens and costs of complying with the State's labeling and reporting requirements, however, five major out-of-state suppliers informed the military that they would no longer ship liquor to the bases in North Dakota. Another major out-of-state supplier advised the military that it would increase its prices on North Dakota sales by as much as $20.50 per case in order to recover the additional costs of complying with the state-imposed regime. J.S. App. A4. In sum, the record shows that the State's regulations, if left intact, will effectively force the military to obtain liquor for its North Dakota facilities from less competitive in-state sources at an increased annual cost of more than $200,000. J.S. App. A4, A15-A16, A25-A26; J.A. 25-27. This forced change in military procurement is precisely what Congress sought to preclude by enacting 10 U.S.C. 2488(a)(1). Congress directed that distilled spirits be procured from "the most competitive source" in order to maximize profits from the resale of those beverages -- profits that are the principal source of funding for the Armed Services' non-appropriated MWR programs on military installations. Congress was acutely aware that the military's annual cost of purchasing alcoholic beverages could increase by as much as $30 million if the military were required to purchase its liquor from less competitive in-state sources, and was concerned that such increased cost would have a devastating effect on the funding of the MWR programs -- programs that do not receive appropriated funds. See, e.g., S. Rep. No. 331, supra, at 283; 131 Cong. Rec. 35,490-35,491 (1985) (statement of Sen. Glenn); id. at 35,491-35,492 (statement of Sen. Kennedy). b. The Court has long held that, under the Supremacy Clause, federal law preempts state regulation where the latter "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941); e.g., California v. ARC America Corp., 109 S. Ct. 1661, 1665 (1989); Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 699 (1984). That established principle applies with full force in this case. Under Section 2488(a)(1), as the court of appeals correctly observed, "Congress has mandated that the military procure liquor on a competitive basis in order to maximize profits for the support of welfare and morale activities" (J.S. App. A15). That is a legitimate federal legislative purpose which fully justifies pro tanto displacement of state regulatory authority over a subject matter otherwise principally regulated by the States. Cf. United States v. Oregon, 366 U.S. 643 (1961) (upholding federal statutory provision that estate of a veteran who dies in a VA hospital intestate and without legal heirs shall escheat to the United States, notwithstanding contrary state law on devolution of property). Here, as detailed above, the record shows that the State's regulations will, in effect, increase the military's annual liquor bill by more than $200,000 and "require the military to make purchases within the State -- purchases that would not otherwise be competitive with out-of-state sources" (J.S. App. A15-A16). In these circumstances, the State's regulations plainly interfere with and thwart the federal procurement scheme mandating "open competition" (id. at A16). Under the Supremacy Clause, the State's regulatory efforts must fall. 2. a. A longstanding companion principle under the Supremacy Clause likewise bars the State's attempt to regulate the military's procurement of alcoholic beverages. As this Court has explained: Since the United States is a government of delegated powers, none of which may be exercised throughout the Nation by any one state, it is necessary for uniformity that the laws of the United States be dominant over those of any state. Such dominancy is required also to avoid a breakdown of administration through possible conflicts arising from inconsistent requirements. The supremacy clause of the Constitution states this essential principle. Article VI. A corollary to this principle is that the activities of the Federal Government are free from regulation by any state. No other adjustment of competing enactments or legal principles is possible. Mayo v. United States, 319 U.S. 441, 445 (1943) (footnote omitted; emphasis added). Thus, putting aside for the moment the potential impact of the Twenty-first Amendment (see pp. 35-42, infra), there can be no serious doubt that the constitutional command of the Supremacy Clause, as construed by this Court since M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), together with the specific constitutional authority to provide for, maintain, and regulate the nation's military forces, /18/ would bar North Dakota from directly regulating the military's procurement of alcoholic beverages. /19/ A close look at this case reveals that the State's liquor regulations represent a thinly veiled effort to accomplish that forbidden goal. The corollary Supremacy Clause principle, as the Court's decisions show, imposes limits on state power as regards the federal government that extend well beyond taxation, the issue in M'Culloch v. Maryland. In Johnson v. Maryland, 254 U.S. 51, 55-57 (1920), for example, the Court held that Maryland could not require a post office employee to obtain a state driver's license in order to drive a postal truck. In so holding, the Court viewed the principle expressed in M'Culloch and succeeding cases as providing to "the instruments of the United States (an immunity) from state control in the performance of their duties." 254 U.S. at 57. Similarly, in Mayo v. United States, supra, the Court made clear that the Supremacy Clause precludes any State from attempting to regulate the activities of the federal government. There, the Court struck down a Florida law insofar as it would have required agents of the United States Department of Agriculture, as a condition of distributing fertilizer under a federal statute, to submit the fertilizer for state inspection and pay the accompanying inspection fee. 319 U.S. at 444-448. Such attempted state regulation of federal activities, the Court concluded, was fundamentally at odds with Supremacy Clause principles and thus the federal government's "inherent freedom continues" (id. at 448). And in Public Utilities Comm'n v. United States, 355 U.S. 534 (1958), the Court held that California could not prohibit common carriers from transporting federal government property at rates lower than those approved by the State's Public Utilities Commission. The State's law, the Court concluded, impermissibly interfered with federal law requiring negotiated rates and the use of the "least costly means of transportation." Id. at 542. See also United States v. Georgia Public Service Comm'n, 371 U.S. 285 (1963). In this same vein, the Court has specifically vindicated Congress's exclusive right under Article I, Section 8 of the Constitution to authorize the military to procure goods and services from whatever sources it chooses, free of state limitations or restrictions. In Leslie Miller, Inc. v. Arkansas, 352 U.S. 187 (1956), for example, the Air Force had awarded a base construction contract to a private firm under Section 3 of the Armed Services Procurement Act of 1947, ch. 65, 62 Stat. 23, 41 U.S.C. 152 (1952), providing that awards on advertised bids "shall be made * * * to that responsible bidder whose bid, conforming to the invitation for bids, will be most advantageous to the Government, price and other factors considered * * *" (352 U.S. at 188 (internal quotation marks omitted)). The State then instituted proceedings against the contractor for its failure to obtain a license before executing the contract and starting to build, as required by state law. The Court rebuffed that regulatory intrusion, concluding that the state licensing standards, designed to ensure a contractor's reliability, created "a virtual power of review over the federal determination of 'responsibility'" (id. at 190). Accordingly, following the rationale of Johnson v. Maryland, supra, the Court held that the State had no authority to regulate the Air Force's awarding of the base construction contract, since application of state law would "frustrate the expressed federal policy of selecting the lowest responsible bidder" (352 U.S. at 190). More recently, the case of Paul v. United States, 371 U.S. 245 (1963), involved California's efforts to apply its minimum milk price regulation to military bases' milk purchases, where the applicable federal regulation required procurement by the method that would "obtain for the Government the most advantageous contract -- price, quality, and other factors considered" (id. at 252 (internal quotation marks and citation omitted)). The Court struck down the State's regulation under the Supremacy Clause, recognizing that the "collision between the federal policy of negotiated prices and the state policy of regulated prices is * * * clear and acute" (id. at 253), and concluding that the State's regulation precluded the military from complying with federal law to obtain milk at the lowest cost. As the Court explained: While the federal procurement policy demands competition, the California policy, as respects milk, effectively eliminates competition. The California policy defeats the command to federal officers to procure supplies at the lowest cost to the United States, by having a state officer fix the price on the basis of factors not specified in the federal law. Ibid. b. This Court's decisions compel the conclusion that North Dakota may not regulate the military's procurement of distilled spirits for its installations. Just as the California minimum price regulation in Paul collided with the applicable federal procurement law requiring the "most advantageous contract -- price, quality, and other factors considered," the restrictions imposed by North Dakota upon the military's procurement of alcoholic beverages clash with federal law governing the military's procurement of liquor. Congress has mandated that the military obtain its liquor from the "most competitive source, price and other factors considered" (10 U.S.C. 2488(a)(1) (Supp. V 1987)). Yet in the face of this federal directive, the State seeks to impose labeling and reporting requirements on the military's out-of-state suppliers of distilled spirits that will essentially eliminate those suppliers as available sources of those products. As a result, the State's regulations will, in effect, require the military to procure those beverages locally at an annual increased cost of more than $200,000. In these circumstances, as the court of appeals correctly held (J.S. App. A11-A18), the Supremacy Clause invalidates the State's liquor regulations directed solely to procurement by the federal government, just as it did the attempted state regulation of federal activities in Paul, Leslie Miller, Inc., Mayo, and Public Utilities Comm'n. 3. Appellants (Br. 17-20), joined by the National Beer Wholesalers' Association, Inc. (Br. 9-14)), the National Alcoholic Beverage Control Association, et al. (Br. 7-9), and the National Conference of State Legislatures, et al. (Br. 17-19), as amici curiae, contend that this case does not even implicate the federal government's constitutional immunity from state regulation of its activities since North Dakota's regulations apply only to third-party suppliers who do business with the federal government. In their view, the fact that suppliers may choose to treat the regulations as so onerous as to cause them to stop dealing with the military entirely, or to raise their prices on military sales, does not implicate Supremacy Clause principles. For several reasons, that argument misses the mark. a. First, as is apparent from this Court's decisions in Paul, Leslie Miller, Inc., and Public Utilities Comm'n, the fact that a State's regulation applies by its terms to the federal government's suppliers, as opposed to the federal government itself, does not free that regulation from the constraints of the Supremacy Clause. In each of those decisions, the Court struck down on Supremacy Clause grounds state laws that were both applicable to and enforceable against only third parties with whom the government did business. The Court thus recognized that a State's attempted regulation of the conditions or terms upon which the United States chooses to do business with a third party contravenes the Supremacy Clause, notwithstanding the fact that the State ostensibly has aimed its regulatory efforts at the activities of the third party. Here, North Dakota's liquor regulations are just as much an impermissible attempt to regulate the activities of the federal government as were the ill-fated regulatory efforts in Paul, Leslie Miller, Inc., and Public Utilities Comm'n. b. Second, although nominally aimed at out-of-state suppliers, North Dakota's regulations admittedly are designed to regulate the federal enclaves' procurement and handling of alcoholic beverages. /20/ The State has contended throughout the litigation that it imposed the labeling and reporting requirements "in order to prevent the unlawful diversion of liquor, either en route to the military enclaves or off the enclaves after delivery, into the state's domestic commerce" (J.S. 9). Indeed, appellants have now made clear that the real targets of their regulatory efforts are the State's two federal military installations, not the military's out-of-state suppliers: "The State's significant interest underlying the regulations challenged here is predicated on the fact that liquor is diverted off the military bases into the State's commerce. The NFIs sell packaged liquor to authorized purchasers who reside off base. This practice alone guarantees that liquor will be diverted into the State's territory * * *." (Appellants' Br. 21). In other words, appellants object, so they claim, to the military's practice of selling packaged alcoholic beverages (obtained from out-of-state sources) to military personnel who reside off-base, and seek through the State's regulations to put a stop to, or at least inhibit, this practice. But in our federal system it is simply not the province of the States to regulate activities of the United States or its instrumentalities. This Court made that point with unmistakable clarity in Mayo v. United States, 319 U.S. at 445, stating that "the activities of the Federal Government are free from regulation by any state." And that constitutional principle, as the Court has held, obtains with particular force where a State seeks to regulate the government's exclusive authority over military procurement derived from Article I, Section 8 of the Constitution. E.g., Paul v. United States, 371 U.S. at 253; Leslie Miller, Inc. v. Arkansas, 352 U.S. at 190. /21/ Furthermore, the Secretary of Defense, under his rulemaking authority conferred by 50 U.S.C. App. 473, has promulgated a regulation that specifically states that military package stores, such as the NFIs located on the two bases in North Dakota, "shall provide the sale of alcoholic beverages purchased for off-premise consumption by authorized patrons * * * ." 47 Fed. Reg. 34,533 (1982) (codified at 32 C.F.R. 261.3). Accordingly, to the extent the State's regulations are aimed at preventing, inhibiting, or burdening the military from selling packaged alcoholic beverages to military personnel who reside off-base (where, as here, consumption of alcoholic beverages off-base is not in itself prohibited by the State), the regulations directly contravene federal law and must, accordingly, fall by virtue of the Supremacy Clause. /22/ c. Finally, although the district court indicated that "the purpose advanced by the State (for its regulations) does not appear to be pretextual" (J.S. App. A31, and the court of appeals accepted that assessment (id. at A15), a close examination of North Dakota's regulatory scheme leads to the contrary conclusion -- appellants imposed the regulations in order to force the military to purchase more of its alcoholic beverages from in-state wholesalers subject to the State's taxing authority. Appellants now assert (Br. 21) that the liquor regulations' principal purpose is to put a stop to the diversion of liquor from the two federal enclaves into the State's commerce that results from the military's practice of selling packaged alcoholic beverages to military personnel who reside off-base. The military facilities, however, not only sell packaged liquor purchased from out-of-state suppliers; those facilities also sell packaged beer and wine that, as required by federal law, are obtained from licensed wholesalers located in the State, see 10 U.S.C. 2488(a)(2) (Supp. V 1987), and, if prices are competitive, the facilities are entirely at liberty to purchase packaged liquor from such local wholesalers. But the State's labeling and reporting requirements apply only to liquor obtained by the federal enclaves from out-of-state suppliers. The State's wholesalers, unlike out-of-state suppliers, are not required to affix special labels to the alcoholic beverages they sell to the military installations stating that the items must be consumed on those premises, or to file monthly reports concerning their sales. This disparate treatment of out-of-state liquor suppliers and in-state wholesalers is telling evidence that the real aim of the State's regulations is not to prevent the diversion of alcoholic beverages from the federal enclaves into the State's commerce. To the contrary, those regulations seek to compel the military to purchase its alcoholic beverages from in-state wholesalers -- transactions in which the State has a direct pecuniary interest since it imposes a tax on such wholesale transactions. See N.D. Cent. Code Sections 5-03-04 and 5-03-07 (1975). C. The Twenty-First Amendment Does Not Authorize The State Of North Dakota To Interfere With The Federal Government's Exclusive Authority To Regulate Military Procurement Of Alcoholic Beverages Appellants (Br. 12-14), again joined by the National Beer Wholesalers' Association, Inc. (Br. 14-28), the National Alcoholic Beverage Control Association, et al. (Br. 5-7), and the National Conference of State Legislatures, et al. (Br. 19-22), as amici curiae, seek to vindicate North Dakota's interference with the military's procurement of alcoholic beverages on the basis of the State's reserved power under the Twenty-first Amendment to regulate intrastate commerce in alcoholic beverages. To be sure, as the court of appeals fully recognized, "the state has always had the right pursuant to its police power to take reasonable measures to prevent the unlawful diversion of liquor into its stream of commerce" (J.S. App. A16 (citations omitted)). But contrary to the assertion of the State and amici, the Twenty-first Amendment does not authorize the States to pursue that objective by regulating federal procurement of liquor to be supplied to federal military enclaves. /23/ 1. Section 2 of the Twenty-first Amendment /24/ generally permits the States to regulate and tax private commerce in alcoholic beverages in a manner that, without the Amendment, would be prohibited under the Commerce Clause as a burden on interstate commerce. See Craig v. Boren, 429 U.S. 190, 206 (1976). Thus, in State Bd. of Equalization v. Young's Market Co., 299 U.S. 59, 62-63 (1936), the Court held that the Twenty-first Amendment permitted California to impose a license fee upon private parties wishing to import beer into the State, although the Commerce Clause would otherwise have barred such a fee. But even in this limited area, the Court has rejected the proposition that the Twenty-first Amendment renders the Commerce Clause inoperative simply because the State seeks to regulate alcoholic beverages. /25/ "To draw a conclusion * * * that the Twenty-first Amendment has somehow operated to 'repeal' the Commerce Clause wherever regulation of intoxicating liquors is concerned would, however, be an absurd oversimplification." Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 331-332 (1964). Thus, in Hostetter, the Court held that New York had no authority to interfere with the sale of liquor at a local airport for delivery to consumers in foreign countries, where the airport was under the supervision of the Bureau of Customs (now the Customs Service). And the Court there noted that to conclude that Congress had retained no regulatory power over commerce in alcoholic beverages would be "patently bizarre and * * * demonstrably incorrect" (377 U.S. at 332). See Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 274 (1984); California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980); see also Healy v. Beer Institute, Inc., No. 88-449 (June 19, 1989), slip op. 17-19. 2. As this Court has made clear, "(o)nce passing beyond consideration of the Commerce Clause, the relevance of the Twenty-first Amendment to other constitutional provisions becomes increasingly doubtful." Craig v. Boren, 429 U.S. at 206. For example, in Department of Revenue v. James B. Beam Distilling Co., 377 U.S. 341 (1964), Kentucky attempted to tax the importation of Scotch whiskey into the State for later sale throughout the United States. Recognizing that the tax violated the Export-Import Clause (U.S. Const. Art. I, Section 10, Cl. 2), the State argued that the Twenty-first Amendment nevertheless authorized its imposition. In rejecting the State's argument, the Court distinguished those cases involving conflicts between state liquor laws and the Commerce Clause and noted that it had never so much as intimated that the Twenty-first Amendment permits what the Export-Import Clause explicitly forbids (377 U.S. at 344). Indeed, the Court emphasized: Nothing in the language of the Amendment nor in its history leads to such an extraordinary conclusion. * * * (N)ow that the claim for the first time is squarely presented, we expressly reject it. Id. at 345-346. Similarly, the Twenty-first Amendment has not insulated state liquor provisions from the commands of the Fourteenth Amendment. In striking down under the Equal Protection Clause a state law prohibiting the sale of 3.2% beer to males under 21 years of age, but permitting such sales to women aged 18 years or over, the Court in Craig v. Boren, supra, specifically held that "the operation of the Twenty-first Amendment does not alter the application of equal protection standards that otherwise govern this case" (429 U.S. at 209). And in Wisconsin v. Constantineau, 400 U.S. 433, 436-439 (1971), where a state statute authorized the posting in a public place of the names of excessive drinkers, the Court held that the Twenty-first Amendment could not save that statute from violating the Due Process Clause, where such persons were not first given notice and an opportunity to be heard. /26/ 3. In light of the limited scope of the Twenty-first Amendment with respect to competing constitutional commands, this Court has held that the immunity of federal activities and property from state control or regulation remains wholly unaffected by the Amendment. In Collins v. Yosemite Park & Curry Co., 304 U.S. 518 (1938), for example, California sought to apply its liquor licensing requirements to a corporation selling alcoholic beverages in Yosemite National Park under a lease from the United States. The Court squarely held that the Twenty-first Amendment did not give the State jurisdiction to regulate the sale of alcoholic beverages on an enclave of exclusive federal jurisdiction, and thus the State could not apply its regulations. 304 U.S. at 537-538. In more recent decisions involving Mississippi's efforts to regulate military facilities' procurement of alcoholic beverages, the Court has made clear that the rationale of Collins is not limited to situations where the federal government exercises exclusive jurisdiction. In United States v. Mississippi Tax Comm'n, 412 U.S. 363 (1973) (Mississippi Tax Comm'n I), Mississippi sought to compel the four military facilities located in that State to purchase liquor either from the State Tax Commission (at a 17 or 20% markup) or from distillers who were required to collect and remit the same markup to the State. Since two of the four bases were areas of exclusive federal jurisdiction, the case initially turned on the resolution of a conflict between the State's asserted power under the Twenty-first Amendment and the federal government's exclusive authority over such bases under Article I, Section 8, Clause 17 of the Constitution. See 412 U.S. at 364-368. Following Collins, the Court held that "the Twenty-first Amendment confers no power on a State to regulate -- whether by licensing, taxation, or otherwise -- the importation of distilled spirits into territory over which the United States exercises exclusive jurisdiction" (id. at 375). Indeed, the Court recognized that a different result would not obtain even if it were assumed that some of the liquor purchased on the installations would be consumed off-base and hence within the State's jurisdiction (id. at 376-377). The Court, however, remanded the case for consideration, among other issues, of whether the Twenty-first Amendment empowers the State to regulate shipments of liquor destined for its two concurrent jurisdiction bases. See 412 U.S. at 379-381. On appeal from the remand, this Court squarely held that the State's reliance on the Twenty-first Amendment to regulate the military's importation of liquor for the two concurrent jurisdiction bases rested on no stronger foundation than its ill-fated attempt to regulate out-of-state shipments to exclusive jurisdiction bases. United States v. Mississippi Tax Comm'n, 421 U.S. 599, 613-614 (1975) (Mississippi Tax Comm'n II). As the Court made clear: Nor does the Twenty-first Amendment require a different result. When the case was last here we held that "the Twenty-first Amendment confers no power on a State to regulate -- whether by licensing, taxation, or otherwise -- the importation of distilled spirits into territory over which the United States exercises exclusive jurisdiction (pursuant to Art. I, Section 8, cl. 17, of the Constitution)." 412 U.S., at 375; see Collins v. Yosemite Park & Curry Co., 304 U.S. 518, 538 (1938). Cf. James v. Dravo Contracting Co., 302 U.S. 134, 140 (1937). We reach the same conclusion as to the concurrent jurisdiction bases to which Art. I, Section 8, cl. 17, does not apply * * *. 421 U.S. at 613 (brackets in original)). /27/ 4. Taken together, this Court's decisions in Mississippi Tax Comm'n I and Mississippi Tax Comm'n II, when considered in light of settled doctrine that the Twenty-first Amendment has little force outside the Commerce Clause arena, establish that the Amendment does not confer authority on the States to regulate the federal government's procurement of alcoholic beverages. In this area, as in all others, the Supremacy Clause precludes state regulation of federal activities. E.g., Leslie Miller, Inc. v. Arkansas, 352 U.S. at 190; Mayo v. United States, 319 U.S. at 448; Johnson v. Maryland, 254 U.S. at 57. Here, as we have shown, North Dakota's regulations conflict with federal procurement law and with federal regulation of military enclaves and thus do not survive scrutiny under the Supremacy Clause. And, as this Court's decisions make clear, those regulations may not be resurrected under the Twenty-first Amendment. /28/ 5. Confronted with this daunting line of precedent, appellants and their supporting amici seize upon the Court's statement in Mississippi Tax Comm'n I, 412 U.S. at 377 -- that a State may, "in the absence of conflicting federal regulation," regulate liquor shipments destined for military bases located within the State -- as support for North Dakota's regulations. Appellants and amici have grasped a straw man. First, the Court plainly stated that as a necessary (but not sufficient) condition, any state regulatory effort must not conflict with federal law. Here, as we have shown and as the court of appeals correctly held, the State's regulations contravene applicable federal procurement law. See pp. 16-30, supra. Thus, North Dakota has not even satisfied the criteria for valid state liquor regulation suggested in Mississippi Tax Comm'n I. Second, after stating that there was no need at that time to delineate the precise contours of the State's authority to regulate liquor passing through its territory, the Court in Mississippi Tax Comm'n I, 412 U.S. at 378, concluded that the State could not regulate direct transactions between the two exclusively federal enclaves in Mississippi and its out-of-state suppliers. And in Mississippi Tax Comm'n II, as discussed above, the Court made clear that its earlier holding was not grounded on rigid notions of territoriality. To the contrary, after noting its earlier conclusion that the Twenty-first Amendment "confers no power on a State to regulate -- whether by licensing, taxation, or otherwise -- the importation of distilled spirits into territory over which the United States exercises exclusive jurisdiction * * *," the Court expressly held that "(w)e reach the same conclusion as to the concurrent jurisdiction bases * * *." Mississippi Tax Comm'n II, 421 U.S. at 613 (internal quotation marks and citations omitted)). Accordingly, the Twenty-first Amendment does not save North Dakota's regulations, which, in contravention of the Supremacy Clause, interfere with the federal government's procurement of liquor for bases located within the State. /29/ CONCLUSION The judgment of the court of appeals should be affirmed. Respectfully submitted. KENNETH W. STARR Solicitor General SHIRLEY D. PETERSON Assistant Attorney General LAWRENCE G. WALLACE Deputy Solicitor General MICHAEL R. LAZERWITZ Assistant to the Solicitor General RICHARD FARBER Attorney JULY 1989 /1/ The Court's appellate jurisdiction conferred in Section 1254(2) was repealed by the Act of June 27, 1988, Pub. L. No. 100-352, Section 2(a), 102 Stat. 662, but the repeal did not take effect until September 25, 1988 (Section 7, 102 Stat. 664). The repeal does not apply to this case, because it does "not * * * affect the right to review or the manner of reviewing the judgment or decree of a court which was entered before such effective date" (ibid.). /2/ In 1983, the Department of Defense amended the regulation by substituting the phrase "price and other factors considered" for the phrase "price and other considered factors." Department of Defense Change No. 1 for Armed Services Military Club and Package Store Regulation 1015.3-R, ch. 4, Section C. The Code of Federal Regulations inaccurately contains the original phrasing. We have inserted the corrected phrasing in our citation to the codified version of the regulation in the Code of Federal Regulations and will refer to that corrected version. /3/ Department of Defense Armed Services Military Club and Package Store Regulation 1015.3-R, ch. 4, Section C, also requires the military to obtain liquor for the NFIs "under such conditions as shall obtain for the government the most advantageous contract, price and other factors considered" (32 C.F.R. 261.4). The Secretary of Defense promulgated the Department of Defense Armed Services Military Club and Package Store Regulations under his rulemaking authority conferred by 50 U.S.C. App. 473, which empowers him "to make such regulations as he may deem to be appropriate governing the sale, consumption, possession of or traffic in beer, wine, or any other intoxicating liquors to or by members of the Armed Forces." /4/ In response to prodding by Congress, the military recently has further consolidated its purchasing program for alcoholic beverages sold by NFIs located on Army and Air Force bases. See H.R. Rep. No. 563, 100th Cong., 2d Sess. 200-201 (1988); H.R. Conf. Rep. No. 753, 100th Cong., 2d Sess. 375-376 (1988). Effective March 25, 1989, the Army and Air Force Exchange Service (AAFES) became solely responsible for operating those NFIs. See Transfer of Function Agreement Between the Departments of the Army and Air Force and the Army and Air Force Exchange Service for the Management and Operation of Army and Air Force Class VI (Package Beverage) Stores (Nov. 1, 1988). AAFES, whose primary purpose is to provide discount goods and services to military personnel, is an established entity within the Army and the Air Force. See Department of the Army Regulation 60-10/Department of the Air Force Regulation 147-7, ch. 1 (1984). As a result of this transfer of authority, AAFES currently coordinates alcoholic beverage purchases for NFIs on military bases located throughout the country; AAFES purchases in bulk quantities whenever appropriate and utilizes a central distribution system. With respect to purchases of alcoholic beverages for the North Dakota installations, AAFES continues to buy most of those spirits directly from out-of-state distillers/suppliers. /5/ Under the State's regulatory scheme, there are three levels of liquor suppliers: out-of-state distillers/suppliers, state-licensed wholesalers, and state-licensed retailers. The State imposes a tax at the wholesale and retail levels. See N.D. Cent. Code Sections 5-03-04 and 5-03-07 (1975); N.D. Cent. Code Section 57-39.2-03.2 (1983 & Supp. 1987). /6/ Appellant Robert E. Hanson, as the State Treasurer of North Dakota, promulgated the regulations under his statutory authority to regulate the State's liquor distribution system. See N.D. Cent. Code Section 5-03-05 (1975). The regulations "have the force of law thirty days after the date of mailing to the persons affected by such regulations" (ibid.). /7/ From December 1985 through October 1986, federal law required the military to procure liquor from suppliers within the State in which the base was located. See Act of Dec. 19, 1985, Pub. L. No. 99-190, Tit. VIII, Section 8099, 99 Stat. 1219. As of November 1, 1986, however, Congress authorized the military once again to purchase liquor from the most competitive source regardless of location. See Act of Oct. 30, 1986, Pub. L. No. 99-591, Tit. IX, Section 9090, 100 Stat. 3341-116; Act of Nov. 14, 1986, Pub. L. No. 99-661, Tit. III, Section 313, 100 Stat. 3853. Hence, the labeling and reporting requirements imposed by appellants' regulations had no practical effect until November 1986. /8/ We have been informed by military officials responsible for liquor procurement that these suppliers are the primary distillers or importers of many popular brands of distilled spirits, including Smirnoff vodka, Jose Cuervo tequila, Johnnie Walker Black Label and Red Label scotch, Tanqueray gin, Canadian Club whiskey, Courvoisier cognac, Jim Beam bourbon, Chivas Regal scotch, and Seagrams 7 Crown whiskey. /9/ Kobrand imports Beefeaters gin, another popular brand of liquor. /10/ That official also estimated that the State's regulations would impose an additional cost of $50,000 for the military's immediate liquor procurement needs in November and December 1986 (J.A. 26-27). /11/ Appellants did not dispute the declaration submitted by the United States detailing the expected additional costs imposed by the regulations. Nor did appellants dispute that the five identified out-of-state suppliers would no longer service the bases in North Dakota and that another supplier would substantially raise its prices. See Declaration of Kim Keltz, Chief of the Special Contracts Branch, Air Force Nonappropriated Fund Purchasing Office, San Antonio, Texas (J.A. 25-27). In support of their position, however, appellant submitted an affidavit of appellant Robert E. Hanson. That affidavit stated that "(v)arious distillers/suppliers have notified (him) that they intend to comply with (the regulations)" (J.A. 34). The affidavit did not identify those out-of-state suppliers. Moreover, the affidavit declared that Hanson, in his capacity as State Treasurer, is "aware of the diversion of alcoholic beverages from North Dakota federal enclaves into the state's domestic commerce in contravention of the state's established liquor distribution system" (J.A. 35). The affidavit did not identify any such diversions, although it mentioned two such incidents in Hawaii and Washington (J.A. 36). In a second affidavit, Hanson ultimately did mention two instances of apparent diversion of liquor from the North Dakota military bases. Hanson could neither confirm that those diversions actually occurred nor relate the amount of liquor involved. J.A. 49-52. /12/ The court stated that "(w)hether or not there have been actual cases of unlawful diversion is not particularly relevant" (J.S. App. A31); see note 11, supra. /13/ In enacting the statute, Congress, in effect, codified the provisions of Department of Defense Armed Services Military Club and Package Store Regulation 1015.3-R, ch. 4, Section C (codified at 32 C.F.R. 261.4), which similarly states that the purchase of all alcoholic beverages for resale on any military installation "shall be in a manner and under such conditions as shall obtain for the government the most advantageous contract, price and other factors considered." /14/ On the House floor, Representative Robinson of Arkansas had sponsored an amendment to reinstitute the in-state purchasing requirement for all alcoholic beverages. See 132 Cong. Rec. 21,225 (1986). That amendment, which Representative Dorgan of North Dakota supported (see 132 Cong. Rec. 21,639 (1986)), was defeated by a recorded vote (see 132 Cong. Rec. 21,638-21,640 (1986)). /15/ That statute provides in pertinent part: None of the funds appropriated by this Act shall be used for the support of any nonappropriated fund activity of the Department of Defense that procures malt beverages and wine with nonappropriated funds for resale * * * on a military installation located in the United States, unless such malt beverages and wine are procured in that State, or in the District of Columbia, within the District of Columbia, in which the military installation is located: Provided, That in a case in which a military installation is located in more than one State, purchases may be made in any State in which the installation is located: Provided further, That such local procurement requirements for malt beverages and wine shall apply to all alcoholic beverages for military installations in states which are not contiguous with another state: Provided further, That alcoholic beverages other than wine and malt beverages in contiguous states and the District of Columbia shall be procured from the most competitive source, price and other factors considered. Act of Oct. 30, 1986, Pub. L. No. 99-591, Tit. IX, Section 9090, 100 Stat. 3341-116. /16/ Without support in the statutory language or history, appellants (Br. 16-17, 22), joined by the National Beer Wholesalers' Association, Inc. (Br. 6-7 & n.6), the National Alcoholic Beverage Control Association, et al. (Br. 9-10), and the National Conference of State Legislatures, et al. (Br. 16), as amici curiae, appear to suggest that federal law itself directs the military to consider complying with state liquor control laws as a factor overriding price considerations in choosing its suppliers for alcoholic beverages. That notion is not only antithetical to the federal statutory purpose, it flies in the face of the controlling federal regulation, Department of Defense Armed Services Military Club and Package Store Regulation 1015.3-R, ch. 4, Section C (codified at 32 C.F.R. 261.4). That regulation provides that, although the Department of Defense will cooperate with state and local officials regarding alcoholic beverages, the purchase of all alcoholic beverages for resale at any military facility shall be under such conditions as shall obtain for the government the most advantageous contract, price and other factors considered. These other factors shall not be construed as meaning any submission to state control, nor shall cooperation be construed or represented as an admission of any legal obligation to submit to state control, pay state or local taxes, or purchase alcoholic beverages within geographical boundaries or at prices or from suppliers prescribed by any state. Department of Defense Armed Services Military Club and Package Store Regulation 1015.3-R, ch. 4, Section C (emphasis added). The National Conference of State Legislatures, et al. (Br. 14-15), as amici curiae, seek to blunt the force of that regulation by pointing out that the Secretary of Defense promulgated it not under Section 2488(a)(1), but rather under 50 U.S.C. App. 473. That observation, although factually accurate, see note 3, supra, is legally irrelevant, since it is undisputed that the Secretary's regulation has the force of law, and is wholly consistent with Congress's statutory directive. /17/ 10 U.S.C. 2488(a)(1) (Supp. V 1987); see Department of Defense Armed Services Military Club and Package Store Regulation 1015.3-R, ch. 4, Section C (codified at 32 C.F.R. 261.4). /18/ See U.S. Const. Art. I, Section 8, Cls. 12, 14. /19/ Appellants (Br. 18-19 & n.5), together with the National Beer Wholesalers' Association, Inc. (Br. 6-7 & n.6), the National Alcoholic Beverage Control Association, et al. (Br. 9-11), and the National Conference of State Legislatures, et al. (Br. 17-19), as amici curiae, appear to concede as much. /20/ By its express terms, the State's labeling regulation applies only to sales by out-of-state suppliers to the federal military installations located within the State. See N.D. Admin. Code Section 84-02-01-05(7) (1986) (quoted p. 4, supra). /21/ Appellants (Br. 18-19), together with the National Alcoholic Beverage Control Association, et al. (Br. 7), and the National Conference of State Legislatures, et al. (Br. 12-14 & n.13), as amici curiae, mistakenly rely on Penn Dairies, Inc. v. Milk Control Comm'n, 318 U.S. 261, 269-275 (1943). In that case, the Court upheld a State's refusal to renew the license of a milk dealer who had sold milk to a military installation at prices below those prescribed by state law. In holding that state law did not impermissibly interfere with federal procurement law, the Court made clear that the then-applicable federal regulation, which otherwise called for competitive procurement, suspended that requirement "when the price is fixed by federal, state, municipal or other competent legal authority" (318 U.S. at 277 (internal quotation marks and citation omitted)). In other words, the State's regulatory efforts had not been preempted because Congress effectively had implemented a "hands off policy" concerning state minimum price laws (id. at 278). By contrast, here, as in Paul v. United States, 371 U.S. at 254-255 (implementing a procurement policy revised by Congress after Penn Dairies), applicable federal law requires, without exception, that the military's procurement proceed on a competitive basis. Thus, as the court of appeals correctly concluded (J.S. App. A16-A17), Penn Dairies does not save North Dakota's regulations. /22/ For that reason as well, this case is readily distinguishable from the hypothetical examples cited by appellants (Br. 17-18) and the National Conference of State Legislatures, et al. (Br. 12), as amici curiae, where a particular State's health or safety regulation applies equally to all firms, whether owned by private parties, state or local governments, or the United States. /23/ To the extent the real aim of the State's regulations is to force the military to purchase its alcoholic beverages from in-state sources and thereby to increase the State's liquor tax revenues, appellants and amici can take no refuge in the Twenty-first Amendment. /24/ Section 2 of the Twenty-first Amendment 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. /25/ The Court's decision in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 274-276 (1984), even casts doubt on the continuing vitality of Young's Market Co. /26/ Furthermore, the Court has not given controlling weight to state law when resolving conflicts between State regulation of alcoholic beverages under the Twenty-first Amendment and competing federal law. Thus, in South Dakota v. Dole, 483 U.S. 203 (1987), the State, which had established 19 as its legal drinking age for 3.2% beer, challenged a federal law that required the Secretary of Transportation to withhold a percentage of federal highway funds available to the State if the State did not raise its minimum drinking age to 21. The federal government defended the provision as a valid exercise of Congress's spending power; the State relied upon its exclusive right, under the Twenty-first Amendment, to set the drinking age for its residents. 483 U.S. at 205-206. In upholding the federal law, the Court concluded that the Twenty-first Amendment could not nullify Congress's valid exercise of its spending power (id. at 209-212). See also Kleppe v. New Mexico, 426 U.S. 529 (1976) (recognizing Congress's broad power under the Property Clause (U.S. Const. Art. IV, Section 3, Cl. 2)). /27/ See also United States v. Texas, 695 F.2d 136, 139-141 (5th Cir.) (invalidating state regulation of military's procurement of alcoholic beverages), cert. denied, 464 U.S. 933 (1983); United States v. South Carolina, 578 F. Supp. 549, 553 (D.S.C. 1983) (same). /28/ Appellants suggest (Br. 20-24) that the Court should balance the State's interests in regulating the sale of alcoholic beverages with the federal government's interest in military procurement. That suggestion is inappropriate. To be sure, this Court has applied a balancing test in certain cases to determine the validity of state liquor laws enacted under authority of the Twenty-first Amendment that conflict with other constitutional provisions or federal law. But none of those cases has involved the federal government's immunity under the Supremacy Clause from state regulation of its affairs. Rather, each of those decisions involved a challenge to state liquor laws by private parties claiming the protection of federal law or overriding federal policy. See, e.g., Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984) (conflict between Hawaii liquor tax provision and Commerce Clause resolved in favor of Commerce Clause); California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980) (conflict between State's wine minimum pricing system and the Sherman Act resolved in favor of federal interests reflected in the Sherman Act); Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324 (1964) (conflict between New York State liquor regulation and Commerce Clause resolved in favor of Commerce Clause). See also 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987); Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573 (1986); Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984). /29/ The National Beer Wholesalers' Association, Inc. (Br. 22-24 & n.9) and the National Conference of State Legislatures, et al. (Br. 18), as amici curiae, seek to blunt the force of Mississippi Tax Comm'n II by suggesting that the decision "has only forbidden state taxation -- and specifically, only where the state places the legal incidence of the tax on the United States or its instrumentalities" (National Beer Wholesalers' Association, Inc. Br. 22). That contention cannot be squared with the Court's express conclusion (421 U.S. at 613) that the Twenty-first Amendment does not empower the States to regulate the federal government's direct importation of liquor into federal enclaves, like military bases, where the government exercises exclusive or concurrent jurisdiction. Moreover, as we have shown (see pp. 31-34, supra), North Dakota, through its regulations, is effectively trying to "tax" the federal government (and favor in-state business interest in the process) by forcing it to change its procurement policy and purchase liquor from in-state suppliers.