Clayton Byrd v. Tenn. Wine & Spirits Retailers Ass'n

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 18a0035p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

CLAYTON BYRD, in his official capacity as Executive ┐

Director of the Tennessee Alcoholic Beverage │

Commission; TENNESSEE FINE WINES AND SPIRITS, LLC, │

dba Total Wine Spirits Beer & More; AFFLUERE │

INVESTMENTS, INC., dba Kimbrough Fine Wine │

& Spirits, > No. 17-5552

│

Plaintiffs-Appellees, │

│

v. │

│

│

TENNESSEE WINE AND SPIRITS RETAILERS ASSOCIATION, │

Defendant - Appellant. │

┘

Appeal from the United States District Court

for the Middle District of Tennessee at Nashville.

No. 3:16-cv-02738—Kevin H. Sharp, District Judge.

Argued: November 30, 2017

Decided and Filed: February 21, 2018

Before: DAUGHTREY, MOORE, and SUTTON, Circuit Judges.

_________________

COUNSEL

ARGUED: Richard L. Colbert, KAY GRIFFIN, PLLC, Nashville, Tennessee, for Appellant.

William J. Murphy, ZUCKERMAN SPAEDER LLP, Baltimore, Maryland, for Appellee

Tennessee Fine Wines and Spirits. Keith C. Dennen, FARRIS BOBANGO, PLC, Nashville,

Tennessee, for Appellee Affluere Investments. ON BRIEF: Richard L. Colbert, John J. Griffin,

Jr., Nina M. Eiler, KAY GRIFFIN, PLLC, Nashville, Tennessee, for Appellant. William J.

Murphy, ZUCKERMAN SPAEDER LLP, Baltimore, Maryland, Edward M. Yarbrough, W.

Justin Adams, BONE MCALLESTER NORTON PLLC, Nashville, Tennessee, for Appellee

Tennessee Fine Wines and Spirits. Keith C. Dennen, FARRIS BOBANGO, PLC, Nashville,

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 2

Tennessee, for Appellee Affluere Investments. Sarah K. Campbell, OFFICE OF THE

TENNESSEE ATTORNEY GENERAL, Nashville, Tennessee, for Appellee Clayton Byrd.

MOORE, J., delivered the opinion of the court in which DAUGHTREY, J., joined, and

SUTTON, J., joined in part. SUTTON, J. (pp. 24–34), delivered a separate opinion concurring

in part and dissenting in part.

_________________

OPINION

_________________

KAREN NELSON MOORE, Circuit Judge. Defendant-Appellant Tennessee Wine and

Spirits Retailers Association (“Association”) appeals the district court’s order granting summary

judgment regarding § 57-3-204(b) of Tennessee Code Annotated. Under § 57-3-204(b), to

receive a retailer-alcoholic-beverages license, a person, corporation, or firm needs to be a

Tennessee resident for at least two years, and to renew a license, there is a ten-year requirement.

After examination, the district court determined that these durational-residency requirements

violate the dormant Commerce Clause.

For the reasons discussed below, we AFFIRM the district court’s judgment declaring

§ 57-3-204(b)(2)(A), (3)(A)–(B), and (3)(D) in violation of the dormant Commerce Clause and

SEVER those provisions from the Tennessee statute.

I. BACKGROUND

In Tennessee, the distribution of alcoholic beverages occurs through a “three-tier

system.” Jelovsek v. Bredesen, 545 F.3d 431, 433 (6th Cir. 2008). “The Tennessee Alcoholic

Beverage Commission (‘TABC’) issues separate classes of licenses to manufacturers and

distillers, wholesalers, and liquor retailers.” Id. at 433–34 (citing Tenn. Code Ann. § 57-3-201).

“Manufacturers are limited to selling to wholesalers; wholesalers may sell to retailers, or in some

cases other wholesalers; consumers are required to buy only from retailers.” Id. at 434 (citing

Tenn. Code Ann. § 404(b)–(d)).

A license from the TABC is required to sell “alcoholic spirituous beverages, including

beer and malt beverages.” Tenn. Code Ann. § 57-3-204(a). However, to obtain a license, an

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 3

individual must have “been a bona fide resident of [Tennessee] during the two-year period

immediately preceding the date upon which application is made to the commission.” Id. § 57-3-

204(b)(2)(A). Additionally, the statute imposes a ten-year residency requirement to renew the

license. Id.

A corporation faces similar barriers, and it cannot receive a license “if any officer,

director or stockholder owning any capital stock in the corporation, would be ineligible to

receive a retailer’s license for any reason specified in subdivision (b)(2).” Id. § 57-3-

204(b)(3)(A). Moreover, “[a]ll of [a corporation’s] capital stock must be owned by individuals

who are residents of [Tennessee] and either have been residents of the state for the two (2) years

immediately preceding the date application is made to the commission or,” for renewal, “has at

any time been a resident of [Tennessee] for at least ten (10) consecutive years.” Id. § 57-3-

204(b)(3)(B).

Two entities—Plaintiff-Appellee Tennessee Fine Wines and Spirits, LLC, d/b/a Total

Wine Spirits Beer & More, and Plaintiff-Appellee Affluere Investments, Inc., d/b/a/ Kimbrough

Fine Wine & Spirits—did not satisfy these barriers prior to applying for retail licenses. As of

November 2016, Fine Wines’s principal address and Affluere’s principal address were outside of

Tennessee. R. 23-2 (Resp. Ex. 2) (Page ID #133); R. 23-3 (Resp. Ex. 3) (Page ID #134). And

Fine Wines’s members are not Tennessee residents. R. 55-1 (Mot. Summ. J. Ex. 1 ¶ 5) (Page ID

#298). Therefore, the TABC deferred voting on these applications. Id. ¶¶ 13, 15 (Page ID

#299); R. 1-1 (Compl. ¶ 15) (Page ID #7); R. 1-2 (Affluere Answer ¶ 15) (Page ID #38).

When the Association, which represents Tennessee’s business owners, discovered that

Fine Wines and Affluere had pending applications, it informed the TABC that litigation was

likely. R. 1-1 (Compl. ¶¶ 2, 16, 17) (Page ID #5, 8); R. 80 (Ass’n Am. Answer ¶¶ 2, 16, 17)

(Page ID #495, 498). Because of these conflicts, Tennessee’s Attorney General filed this action

in the Chancery Court for Davidson County, on behalf of Plaintiff-Appellee Clayton Byrd, the

Executive Director of the TABC, to obtain a declaratory judgment construing the

constitutionality of the durational-residency requirements. R. 1-1 (Compl. at 1) (Page ID #4).

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 4

The Defendant Association removed the case to the United States District Court for the Middle

District of Tennessee.1

The district court determined that the durational-residency requirements are

unconstitutional. See Byrd v. Tenn. Wine & Spirits Retailers Ass’n, 259 F. Supp. 3d 785, 797–98

(M.D. Tenn. 2017). Based on the statutory language, the district court found that the durational-

residency requirements are facially discriminatory. See id. at 790. And although the Twenty-

first Amendment does give Tennessee power to regulate alcoholic beverages, the district court

“agree[d] with the Fifth Circuit that ‘state regulations of the retailer and wholesaler tiers are not

immune from Commerce Clause scrutiny just because they do not discriminate against out-of-

state liquor.’” Id. at 790, 793 (quoting Cooper v. Tex. Alcoholic Beverage Comm’n (Cooper II),

820 F.3d 730, 743 (5th Cir.), cert. denied sub nom. Tex. Package Stores Ass’n, Inc. v. Fine Wine

& Spirits of N. Tex., LLC, --- U.S. ---, 137 S. Ct. 494 (2016)). Additionally, nondiscriminatory

alternatives could achieve the durational-residency requirements’ purposes—citizen health and

alcohol regulation. Id. at 796–97. The district court therefore determined that Tennessee’s

durational-residency requirements violate the dormant Commerce Clause and granted Fine

Wines’s motion for summary judgment. Id. at 797–98.

II. DISCUSSION

We review de novo a district court’s decision to grant summary judgment, Lenscrafters,

Inc. v. Robinson, 403 F.3d 798, 802 (6th Cir. 2005), and we also review de novo a district court’s

determination of the constitutionality of a state statute, Cmtys. for Equity v. Mich. High Sch.

Athletic Ass’n, 459 F.3d 676, 680 (6th Cir. 2006). Granting summary judgment is appropriate

when “there is no genuine dispute as to any material fact and the movant is entitled to judgment

as a matter of law.” Fed. R. Civ. P. 56(a). For this determination, we review all facts in a light

1

After the Association removed the action to federal court, R. 1 (Notice Removal at 1) (Page ID #1), the

district court realigned Fine Wines and Affluere as plaintiffs because, in his complaint, Byrd contended that the

durational-residency requirements may be unconstitutional, which the Attorney General highlighted in two opinions.

R. 52 (Op. Mem. at 11) (Page ID #282); R. 53 (Order ¶ 2) (Page ID #289). However, in his response to Fine

Wines’s motion for summary judgment, Byrd asserted that the durational-residency requirements are not

unconstitutional. See R. 73 (Resp. at 1–13) (Page ID #450–62). Byrd continues to assert during this appeal that the

durational-residency requirements are not unconstitutional. See Appellee Byrd Br. at 3.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 5

that is most favorable to, and draw all reasonable inferences in favor of, the nonmoving party.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

A. The Twenty-first Amendment Does Not Immunize Tennessee’s Durational-Residency

Requirements

Under the Supreme Court’s governing standard, Tennessee’s interests in the durational-

residency requirements are not closely related to its power under the Twenty-first Amendment.

Therefore, the Twenty-first Amendment does not immunize Tennessee’s durational-residency

requirements from scrutiny under the dormant Commerce Clause.

1. Tennessee’s Durational-Residency Requirements in Light of Granholm and

Bacchus

Section 2 of the U.S. Constitution’s Twenty-first Amendment states that “[t]he

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.” U.S. Const. amend XXI, § 2. Pursuant to the Twenty-first Amendment, a state has

the power to regulate the distribution of alcoholic beverages into the state or within its borders.

“Initially, the Supreme Court afforded the states nearly limitless power to regulate

alcohol under the [Twenty-first Amendment].” Heald v. Engler, 342 F.3d 517, 522 (6th Cir.

2003), aff’d sub nom. Granholm v. Heald, 544 U.S. 460 (2005). However, “as early as the

1960s, the Supreme Court signaled a break with this line of reasoning.”2 Id. And in 1984, the

2

The dissent summarizes the history of § 2 to support the conclusion that states have the authority to

impose durational-residency requirements on owners because these requirements are regarding intrastate distribution

of alcohol beverages, not the interstate flow of product. See Dissent Op. at 25–29. However, this history is less

persuasive than the dissent makes it sound.

The Supreme Court already conducted an extensive historical analysis in Granholm, 544 U.S. at 476–87, to

reach its own interpretation of modern precedent: “[w]hen a state statute directly regulates or discriminates against

interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, [the

Supreme Court has] generally struck down the statute without further inquiry,” id. at 487 (emphasis added) (quoting

Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986)). Thus, contrary to the

dissent’s conclusion, the proper backdrop to understand the interplay between the Twenty-first Amendment and the

Commerce Clause is this statement in Granholm—a state cannot use the Twenty-first Amendment to impede

directly or indirectly on interstate commerce; even an effect on interstate commerce is invalid.

Additionally, the dissent fails to acknowledge that the Supreme Court has explicitly transitioned from its

original interpretation of the Twenty-first Amendment. For instance, the Supreme Court’s opinion in Granholm,

544 U.S. at 484–86, abrogated State Bd. of Equalization v. Young’s Mkt. Co., 299 U.S. 59 (1936), which the dissent

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 6

Supreme Court reiterated in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), that the

Commerce Clause limits a state’s power under the Twenty-first Amendment. Heald, 342 F.3d at

523.

In Bacchus, the Supreme Court noted that “[i]t is by now clear that the [Twenty-first]

Amendment did not entirely remove state regulation of alcoholic beverages from the ambit of the

Commerce Clause.” 468 U.S. at 275. “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 . . . be an absurd oversimplification.” Id. (quoting Hostetter v.

Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 331–32 (1964)). The Supreme Court stated

does not acknowledge. In particular, the Supreme Court explicitly rejected the paragraph in Young’s Market that the

dissent quotes on page twenty-eight:

The aim of the Twenty-first Amendment was to allow States to maintain an effective and

uniform system for controlling liquor by regulating its transportation, importation, and use. The

Amendment did not give States the authority to pass nonuniform laws in order to discriminate

against out-of-state goods, a privilege they had not enjoyed at any earlier time.

Some of the cases decided soon after ratification of the Twenty-first Amendment did not

take account of this history and were inconsistent with this view. In State Bd. of Equalization of

Cal. v. Young’s Market Co., 299 U.S. 59, 62 (1936), for example, the Court rejected the argument

that the Amendment did not authorize discrimination:

“The plaintiffs ask us to limit this broad command [of § 2]. They 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 Court reaffirmed the States’ broad powers under § 2 in a series of cases, see Mahoney v.

Joseph Triner Corp., 304 U.S. 401 (1938); Indianapolis Brewing Co. v. Liquor Control Comm’n,

305 U.S. 391 (1939); Ziffrin, Inc. v. Reeves, 308 U.S. 132 (1939); Joseph S. Finch & Co. v.

McKittrick, 305 U.S. 395 (1939), and unsurprisingly many States used the authority bestowed on

them by the Court to expand trade barriers. T. Green, Liquor Trade Barriers: Obstructions to

Interstate Commerce in Wine, Beer, and Distilled Spirits 4, and App. I (1940) (stating in the wake

of Young’s Market that “[r]ivalries and reprisals have thus flared up”).

It is unclear whether the broad language in Young’s Market was necessary to the result

because the Court also stated that “the case [did] not present a question of discrimination

prohibited by the commerce clause.” 299 U.S., at 62. The Court also declined, contrary to the

approach we take today, to consider the history underlying the Twenty-first Amendment. Id., at

63–64. This reluctance did not, however, reflect a consensus that such evidence was irrelevant or

that prior history was unsupportive of the principle that the Amendment did not authorize

discrimination against out-of-state liquors. . . .

Granholm, 544 U.S. at 484–86 (alterations in original). The Supreme Court also implied that Young’s Market is

inconsistent with the Wilson Act and the Webb-Kenyon Act. See id. at 484–85. Therefore, cases such as Young’s

Market are not reliable for this analysis.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 7

that “both the Twenty-first Amendment and the Commerce Clause are parts of the same

Constitution and each must be considered in light of the other and in the context of the issues and

interests at stake in any concrete case.” Id. (quoting Hostetter, 377 U.S. at 332). Additionally,

the Supreme Court emphasized that “[s]tate laws that constitute mere economic protectionism

are therefore not entitled to the same deference as laws enacted to combat the perceived evils of

an unrestricted traffic in liquor.” Id. at 276. Because of these issues, the Supreme Court stated

that a court needs to consider “whether the interests implicated by a state regulation are so

closely related to the powers reserved by the Twenty-first Amendment that the regulation may

prevail, notwithstanding that its requirements directly conflict with express federal policies.” Id.

at 275–76 (quoting Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714 (1984)).

The Supreme Court examined Hawaii’s tax exemption at the wholesale tier for okolehao,

which is a root from an indigenous shrub, and pineapple wine in Bacchus. Id. at 265. The

question before the Supreme Court was “whether the principles underlying the Twenty-first

Amendment are sufficiently implicated by the exemption for okolehao and pineapple wine to

outweigh the Commerce Clause principles that would otherwise be offended.” Id. at 275. The

Supreme Court noted that Hawaii did “not seek to justify its tax on the ground that it was

designed to promote temperance or to carry out any other purpose of the Twenty-first

Amendment, but instead acknowledges that the purpose was ‘to promote a local industry.’” Id.

at 276. Thus, the Supreme Court determined that the Twenty-first Amendment did not immunize

Hawaii’s law “because the tax violates a central tenet of the Commerce Clause but is not

supported by any clear concern of the Twenty-first Amendment.” Id.

In Granholm, the Supreme Court examined whether “a State’s regulatory scheme that

permits in-state wineries directly to ship alcohol to consumers but restricts the ability of out-of-

state wineries to do so violate[s] the dormant Commerce Clause in light of § 2 of the Twenty-

first Amendment.” 544 U.S. at 471. When considering this question, the Supreme Court stated

that “[s]tate policies are protected under the Twenty-first Amendment when they treat liquor

produced out of state the same as its domestic equivalent.” Id. at 489. And because the “instant

cases” before the Supreme Court “involve[d] straightforward attempts to discriminate in favor of

local producers . . . [t]he discrimination [was] contrary to the Commerce Clause and [was] not

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 8

saved by the Twenty-first Amendment.” Id. The Supreme Court also reasserted its previous

recognition that “the three-tier system itself is ‘unquestionably legitimate.’” Id. at 489 (quoting

North Dakota v. United States, 495 U.S. 423, 432 (1990)).

The interaction between Bacchus and Granholm has created some uncertainty. Does

scrutiny under the dormant Commerce Clause apply only when an alcoholic-beverages law

regulates producers or products? And does the Twenty-first Amendment automatically

immunize a state law regarding retailers and wholesalers of alcoholic beverages? The Second,

Fourth, Fifth, and Eighth Circuits have attempted to reconcile the cases. Cooper II, 820 F.3d at

743; S. Wine & Spirits of Am., Inc. v. Div. of Alcohol & Tobacco Control, 731 F.3d 799, 809,

810 (8th Cir. 2013); Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 190 (2nd Cir. 2009); Brooks v.

Vassar, 462 F.3d 341, 352 (4th Cir. 2006).

For example, in Arnold’s Wines the Second Circuit examined a state law allowing in-state

licensed retailers to deliver alcoholic beverages to customers’ homes but preventing out-of-state

retailers from doing the same. 571 F.3d at 188. The court stated that “[t]he Granholm Court set

forth the test for determining the constitutionality of state liquor regulations,” which was that

“[i]f the state measure discriminates in favor of in-state producers or products, the regulatory

regime is not automatically saved by the Twenty-first Amendment simply by virtue of the special

nature of the product regulated.” Id. at 189. Additionally, the court reasoned that “[i]t is only

where states create discriminatory exceptions to the three-tier system, allowing in-state, but not

out-of-state, liquor to bypass the three regulatory tiers, that their laws are subject to invalidation

based on the Commerce Clause.” Id. at 190. Thus, “Appellants’ challenge to the ABC Law’s

provisions requiring all wholesalers and retailers be present in and licensed by the state . . . [was]

a frontal attack on the constitutionality of the three-tier system itself.” Id. “Appellants’

argument [was] therefore directly foreclosed by the Granholm Court’s express affirmation of the

legality of the three-tier system.” Id. at 190–91.

In Southern Wine, the Eighth Circuit examined Missouri’s law requiring a corporation—

including its directors, officers, and super-majority of shareholders—to be residents of Missouri

for three years prior to obtaining a wholesaler-alcoholic-beverages license. 731 F.3d at 802–03.

When reviewing “the current state of the relationship between the dormant Commerce Clause

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 9

and the Twenty-first Amendment,” the Eighth Circuit noted that, “in its most recent

pronouncement on the subject, the Supreme Court simultaneously cited Bacchus and said that

‘state policies are protected under the Twenty-first Amendment when they treat liquor produced

out of the state the same as its domestic equivalent.’” Id. at 809 (citing Granholm, 544 U.S. at

489). “Given Granholm’s recency and specificity,” the court decided that Granholm provided

the “best guidance.” Id. The Eighth Circuit concluded that “[i]f it is beyond question that States

may require wholesalers to be ‘in-state’ without running afoul of the Commerce Clause, then . . .

States have flexibility to define the requisite degree of ‘in-state’ presence to include the in-state

residence of wholesalers’ directors and officers, and a super-majority of their shareholders.” Id.

at 810 (citation omitted). “Insofar as Granholm imported [Bacchus’s] balancing approach to

regulations of the three-tier system, . . . it drew a bright line between the producer tier and the

rest of the system.” Id. Therefore, in the view of the Eighth Circuit, the residency requirement

for alcoholic-beverages wholesalers did not violate the dormant Commerce Clause. See id. at

809.

Conversely, the Fifth Circuit determined that Bacchus is still good law. In Cooper II, the

defendant, a Texas trade association, moved for relief from an injunction under Federal Rule of

Civil Procedure 60(b) on the ground that Granholm created a significant change in the law since

the Fifth Circuit enjoined a state durational-residency requirement in Cooper v. McBeath

(Cooper I), 11 F.3d 547 (5th Cir. 1994). Cooper II, 820 F.3d at 734, 742. However, the Fifth

Circuit disagreed. After examining the language in Granholm, the Fifth Circuit held that

Granholm did not overrule or alter Bacchus. Id. at 742. And regarding Granholm’s statement

that “state policies are protected under the Twenty-first Amendment when they treat liquor

produced out of state the same as its domestic equivalent,” the Fifth Circuit determined that this

statement did not limit scrutiny under the Commerce Clause to producers because the statement

was dicta. Id. at 743. Instead, the Fifth Circuit “interpreted [Granholm] as reaffirming the

applicability of the Commerce Clause to state alcohol regulations, but to a lesser extent when the

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 10

regulations concern the retailer or wholesaler tier as distinguished from the producer tier, of the

three-tier distribution system.”3 Id.

We find the Fifth Circuit’s reconciliation of Bacchus and Granholm persuasive for six

reasons. First, the Supreme Court explicitly declined to overrule Bacchus in Granholm. Second,

in Granholm, the Supreme Court reiterated Bacchus’s concern about the protection of economic

interests across state lines, suggesting that the Twenty-first Amendment does not automatically

immunize a state’s alcoholic-beverages law regarding wholesalers or retailers. Third, the

Supreme Court emphasized that the Twenty-first Amendment does not permit a state to

discriminate on the basis of citizenship; accordingly, the flow of products across state lines is not

the sole concern under the dormant Commerce Clause. Fourth, the Supreme Court again stated

that the Commerce Clause limits the Twenty-first Amendment. Fifth, the Supreme Court also

stated that there are times when the three-tier system is invalid. And lastly, Granholm did not

limit its application of the Commerce Clause to alcoholic-beverages laws regarding producers.4

Thus, Bacchus and Granholm are reconcilable.

3

The dissent argues that the Fifth Circuit misread Granholm because the Fifth Circuit’s test would allow a

court to replace the views of the state legislature with a court’s own perspective. See Dissent Op. at 32. For this

argument, the dissent states that Granholm “gave [states] ‘virtually complete control’ over ‘how to structure th[at]

. . . . system.” Id. (second alteration in original) (quoting Granholm, 544 U.S. at 488).

However, the dissent skews this statement in Granholm. First, Granholm itself did not grant states

complete control regarding the composition of a distribution system; instead, the Supreme Court stated that “[t]he

Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of

liquor and how to structure the liquor distribution system.” Granholm, 544 U.S. at 488 (emphasis added) (quoting

Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980)). By using the word

“virtually,” the Supreme Court noted that there are limits to a state’s power. Additionally, immediately after making

this statement, the Supreme Court qualified the type of control that is acceptable: “A State which chooses to ban the

sale and consumption of alcohol altogether could bar its importation; and, as our history shows, it would have to do

so to make its laws effective. States may also assume direct control of liquor distribution through state-run outlets

or funnel sales through the three-tier system.” Id. at 488–89. After noting the types of restrictions that are valid, the

Supreme Court declared that other “discrimination is contrary to the Commerce Clause and is not saved by the

Twenty-first Amendment.” Id. at 489. In the preceding paragraph, the Supreme Court noted that “the Twenty-first

Amendment did not give the States complete freedom to regulate where other constitutional principles are at stake.

. . . [T]he Twenty-first Amendment does not immunize all laws from Commerce Clause challenge.” Id. at 488

(discussing Bacchus, Brown-Forman, and Healy). Thus, contrary to the dissent’s argument, the Fifth Circuit’s

reasoning is in line with the Supreme Court’s determinations in Granholm—the Twenty-first Amendment does not

validate a state legislature’s discriminatory laws.

4

Even after the Supreme Court decided Granholm, we have continued to rely on Bacchus. See Jelovsek,

545 F.3d at 437 (“The parties, as well as the district court, spent a great deal of effort examining whether, and to

what extent, Granholm applies to the cases before us. We believe Bacchus is also instructive in this case.”).

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First, the Supreme Court in Granholm explicitly declined to overrule Bacchus; therefore,

the reasoning in Bacchus still stands:

Recognizing that Bacchus is fatal to their position, the States suggest it

should be overruled or limited to its facts. As the foregoing analysis makes clear,

we decline their invitation. Furthermore, Bacchus does not stand alone in

recognizing that the Twenty-first Amendment did not give States complete

freedom to regulate where other constitutional principles are at stake. A retreat

from Bacchus would also undermine Brown-Forman and Healy. These cases

invalidated state liquor regulations under the Commerce Clause. Indeed, Healy

explicitly relied on the discriminatory character of the Connecticut price

affirmation statute. 491 U.S., at 340–41. Brown-Forman and Healy lend

significant support to the conclusion that the Twenty-first Amendment does not

immunize all laws from Commerce Clause challenge.

Granholm, 544 U.S. at 488. Clearly, the Supreme Court refused to overrule Bacchus or limit

Bacchus to its facts.

Second, in Granholm, the Supreme Court focused on a general Commerce Clause

principle—the prohibition of discrimination against out-of-state economic interests. The Court

began by discussing this general principle: “[t]ime and again this Court has held that, in all but

the narrowest circumstances, state laws violate the Commerce Clause if they mandate

‘differential treatment of in-state and out-of-state economic interests that benefits the former and

burdens the latter.’” Id. at 472 (emphasis added) (quoting Or. Waste Sys., Inc. v. Dep’t of Envtl.

Quality, 511 U.S. 93, 99 (1994)). “When a state statute directly regulates or discriminates

against interstate commerce, or when its effect is to favor in-state economic interests over out-of-

state interests, [the Supreme Court has] generally struck down the statute without further

inquiry.”5 Id. at 487 (emphasis added) (quoting Brown-Forman, 476 U.S. at 579).

5

The dissent seems to argue that the Commerce Clause limits only state actions regarding alcohol

distribution that regulate interstate activity, not intrastate activity having an effect on interstate commerce.

However, the Supreme Court’s statement that “[s]tates may not enact laws that burden out-of-state producers or

shippers simply to give a competitive advantage to in-state businesses,” seems to suggest otherwise. Granholm,

544 U.S. at 472. Additionally, the Supreme Court has stated that “[w]hen a state statute directly regulates or

discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state

interests, [the Supreme Court has] generally struck down the statute without further inquiry.” Id. at 487 (emphasis

added) (quoting Brown-Forman, 476 U.S. at 579). In Brown-Forman, the Supreme Court determined that the

Twenty-first Amendment did not protect New York’s law that required a distiller or agent to affirm that its alcohol

prices were not lower in any other state because that law would have a negative economic effect in other states. See

Brown-Forman, 476 U.S. at 585. Here, because Tennessee is favoring in-state economic interests over out-of-state

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 12

Third, the Supreme Court also discussed the general principle that a state cannot bar out-

of-state citizens from engaging in its economy; thus, a state’s alcoholic-beverages law is not

automatically valid just because it “treat[s] liquor produced out of state the same as its domestic

equivalent.”6 Id. at 489. The Supreme Court stated that “[t]he rule prohibiting state

discrimination against interstate commerce follows also from the principle that States should not

be compelled to negotiate with each other regarding favored or disfavored status for their own

citizens.” Id. at 472. Laws cannot “deprive citizens of their right to have access to the markets

of other States on equal terms.” Id. at 473. Additionally, the Supreme Court has “viewed with

particular suspicion state statutes requiring business operations to be performed in the home

State that could more efficiently be performed elsewhere.” Id. at 475. For instance, in

Granholm, the Supreme Court stated that “New York’s in-state presence requirement runs

contrary to [the Supreme Court’s] admonition that States cannot require an out-of-state firm ‘to

become a resident in order to compete on equal terms.’” Id. at 475 (first quoting Halliburton Oil

Well Cementing Co. v. Reily, 373 U.S. 64, 72 (1963); and then citing Ward v. Maryland,

12 Wall. 418 (1871)). Therefore, scrutiny under the dormant Commerce Clause is not limited to

laws regarding products.

Fourth, the Supreme Court again emphasized in Granholm that the Commerce Clause

limits a state’s power under the Twenty-first Amendment. According to the Court, “[t]he central

purpose of the [Twenty-first Amendment] was not to empower States to favor local liquor

industries by erecting barriers to competition.” Id. at 487 (quoting Bacchus, 468 U.S. at 276).

Regardless of the Twenty-first Amendment, “state regulation of alcohol is limited by the

nondiscrimination principle of the Commerce Clause.” Id. (first citing Bacchus, 468 U.S. at 276;

then citing Brown-Forman, 476 U.S. at 573; and then citing Healy v. Beer Inst., 491 U.S. 324

economic interests by preventing out-of-state citizens from engaging in Tennessee’s economy for several years,

Tennessee is not merely regulating the distribution of alcohol within its borders—it is dictating who can and cannot

engage in its economy.

6

The dissent also attempts to limit Granholm’s holding to the statement that a law is invalid only when it

“treat[s] liquor produced out of state the same as its domestic equivalent.” See Dissent Op. at 31 (quoting

Granholm, 544 U.S. at 489). However, the dissent does not acknowledge Section II.A in Granholm, which devotes

two pages to the principle that a state cannot bar out-of-state citizens from engaging in its economy. See Granholm,

544 U.S. at 472–73.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 13

(1989)). Therefore, in Granholm, the Supreme Court continued to recognize that the Commerce

Clause does limit the Twenty-first Amendment.

Fifth, a state’s alcoholic-beverages law is not immune simply because it is part of a three-

tier system. In Granholm, New York and Michigan “argue[d] that any decision invalidating their

direct-shipment laws would call into question the constitutionality of the three-tier system.” Id.

at 488. But the Supreme Court disagreed, noting that, although three-tier systems are

“unquestionably legitimate,” those systems are not valid when they “involve straightforward

attempts to discriminate in favor of local producers.” Id. at 488, 489. Based on this language, a

state’s alcoholic-beverages law is not automatically valid simply because it addresses a portion

of a three-tier system.7

7

The dissent asserts that the Supreme Court “never purported to overrule its prior statements and holdings

approving state authority over alcohol distribution as opposed to production.” Dissent Op. at 34. And, according to

the dissent, “[u]ntil the Supreme Court says so, we may not assume that the Twenty-first Amendment no longer

‘create[s] an exception to the normal operation of the Commerce Clause.’” Id. (second alteration in original)

(quoting Capital Cities, 467 U.S. at 712).

But the Supreme Court has said so. In fact, it categorized its modern precedent into three distinct

categories: (1) the Twenty-first Amendment does not protect state laws that violate other parts of the Constitution,

(2) the Twenty-first Amendment does not eliminate Congress’ Commerce Clause power over alcoholic beverages,

i.e., “products,” and (3) the Commerce Clause limits state regulation of alcohol, i.e., distribution. See Granholm,

544 U.S. at 486–87. The language that the Supreme Court uses to describe these boundaries is particularly

compelling:

The modern § 2 cases fall into three categories.

First, the Court has held that state laws that violate other provisions of the Constitution

are not saved by the Twenty-first Amendment. The Court has applied this rule in the context of

the First Amendment, 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996); the

Establishment Clause, Larkin v. Grendel’s Den, Inc., 459 U.S. 116 (1982); the Equal Protection

Clause, [Craig v. Boren, 429 U.S. 190, 204–09 (1976)]; the Due Process Clause, Wisconsin v.

Constantineau, 400 U.S. 433 (1971); and the Import–Export Clause, Department of Revenue v.

James B. Beam Distilling Co., 377 U.S. 341 (1964).

Second, the Court has held that § 2 does not abrogate Congress’ Commerce Clause

powers with regard to liquor. Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984); California

Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980). The argument that

“the Twenty-first Amendment has somehow operated to ‘repeal’ the Commerce Clause” for

alcoholic beverages has been rejected. Hostetter, 377 U.S., at 331–332. Though the Court’s

language in Hostetter may have come uncommonly close to hyperbole in describing this argument

as “an absurd oversimplification,” “patently bizarre,” and “demonstrably incorrect,” ibid., the

basic point was sound.

Finally, and most relevant to the issue at hand, the Court has held that state regulation of

alcohol is limited by the nondiscrimination principle of the Commerce Clause. Bacchus, 468 U.S.,

at 276; Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573 (1986);

Healy v. Beer Institute, 491 U.S. 324 (1989). “When a state statute directly regulates or

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 14

And lastly, the Supreme Court did not state that the Commerce Clause applies only to

alcoholic-beverages laws regarding producers. The statement that “[s]tate policies are protected

under the Twenty-first Amendment when they treat liquor produced out of state the same as its

domestic equivalent” must be read in its context. Id. at 489. The Supreme Court wrote the full

paragraph as follows:

The States argue that any decision invalidating their direct-shipment laws

would call into question the constitutionality of the three-tier system. This does

not follow from our holding. “The Twenty-first Amendment grants the States

virtually complete control over whether to permit importation or sale of liquor and

how to structure the liquor distribution system.” Midcal, supra, at 110. A State

which chooses to ban the sale and consumption of alcohol altogether could bar its

importation; and, as our history shows, it would have to do so to make its laws

effective. States may also assume direct control of liquor distribution through

state-run outlets or funnel sales through the three-tier system. We have

previously recognized that the three-tier system itself is “unquestionably

legitimate.” North Dakota v. United States, 495 U.S., at 432. See also id., at 447

(Scalia, J., concurring in judgment) (“The Twenty-first Amendment . . .

empowers North Dakota to require that all liquor sold for use in the State be

purchased from a licensed in-state wholesaler”). State policies are protected

under the Twenty-first Amendment when they treat liquor produced out of state

the same as its domestic equivalent. The instant cases, in contrast, involve

straightforward attempts to discriminate in favor of local producers. The

discrimination is contrary to the Commerce Clause and is not saved by the

Twenty-first Amendment.

Id. at 488–89 (emphasis added). A fair reading of this passage leads to one conclusion: the

Supreme Court discussed the relationship between the dormant Commerce Clause and the

Twenty-first Amendment in the context of “producers” simply because Granholm involved

statutes addressing that step in the three-tier system. The Supreme Court did not give any

indication that the Twenty-first Amendment automatically protects laws regarding wholesalers

and retailers.

discriminates against interstate commerce, or when its effect is to favor in-state economic interests

over out-of-state interests, we have generally struck down the statute without further inquiry.”

Brown-Forman, supra, at 579.

Id. (emphasis added). Therefore, the Supreme Court has stated that the Commerce Clause applies to the production

of alcoholic beverages and their distribution.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 15

In summary, based on the language in Granholm, the Supreme Court’s reasoning in

Bacchus continues to apply along with Granholm itself. Therefore, we now examine

Tennessee’s durational-residency requirements in light of Granholm and Bacchus.

2. Tennessee’s Interests in the Durational-Residency Requirements Are Not So

Closely Related to the Powers Reserved by the Twenty-first Amendment

To determine whether the Twenty-first Amendment immunizes a state’s alcoholic-

beverages law from scrutiny under the dormant Commerce Clause, a court needs to examine

“whether the interests implicated by a state regulation are so closely related to the powers

reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its

requirements directly conflict with express federal policies.” Bacchus, 468 U.S. at 275–76

(quoting Capital Cities, 467 U.S. at 714).

In Cooper I, the Fifth Circuit examined a Texas law that required an applicant for a

mixed-beverage permit to be a Texas resident for one year before submitting an application.

11 F.3d at 549, 550. The law also had a section that “include[d] what is commonly known as the

‘51 percent rule,’ which forbids the issuance of a permit to any corporation ‘unless at least

51 percent of the stock of the corporation is owned at all times by citizens who have resided

within the state for a period of three years.’” Id. at 549. When examining the state’s interest in

these residency restrictions, the Fifth Circuit stated that “the state’s interest in facilitating

background checks of permit applicants by discriminating against nonresidents is not within the

‘core concerns’ of the Twenty-first Amendment.” Id. at 555 (comparing North Dakota, 495 U.S.

423). The Fifth Circuit emphasized that “[t]he statutory barrier Texas has erected against non-

residents who wish to obtain mixed beverage permits results in shielding the State’s operators

from the rigors of outside competition.” Id. Therefore, it determined that “[t]he discriminatory

. . . residency requirement inherent in the challenged statutory provisions cannot stand.” Id. at

555–56.

Then, in Cooper II, the Fifth Circuit bolstered its reasoning in Cooper I and stated that

Bacchus’s reasoning still stands:

In Wine Country [Gift Baskets.com v. Steen, 612 F.3d 809 (5th Cir. 2010)],

we interpreted [Granholm] as reaffirming the applicability of the Commerce

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 16

Clause to state alcohol regulations, but to a lesser extent when the regulations

concern the retailer or wholesaler tier as distinguished from the producer tier, of

the three-tier distribution system. Id. at 820–21. State regulations of the producer

tier “are protected under the Twenty-first Amendment when they treat liquor

produced out of state the same as its domestic equivalent.” [Granholm], 544 U.S.

at 489, 125 S.Ct. 1885. But state regulations of the retailer and wholesaler tiers

are not immune from Commerce Clause scrutiny just because they do not

discriminate against out-of-state liquor.

Because of the Twenty-first Amendment, states may impose a physical-

residency requirement on retailers and wholesalers of alcoholic beverages despite

the fact that the residency requirements favor in-state over out-of-state businesses.

Wine Country, 612 F.3d at 821. The Twenty-first Amendment does not, however,

authorize states to impose a durational-residency requirement on the owners of

alcoholic beverage retailers and wholesalers. Id. (citing Cooper [I], 11 F.3d at

555). Distinctions between in-state and out-of-state retailers and wholesalers are

permissible only if they are an inherent aspect of the three-tier system. See id. at

818.

820 F.3d at 743 (footnote omitted). In this language, the Fifth Circuit created an important

distinction: requiring retailer- or wholesaler-alcoholic-beverages businesses to be within the

state may be essential to the three-tier system, but imposing durational-residency requirements is

not, particularly when those durational-residency requirements govern owners.8

Here, Tennessee’s durational-residency requirements are nearly identical to the

requirements in Cooper I. In Tennessee, to obtain a retail-alcoholic-beverages permit,

individuals, corporations, firms, directors, officers, and stockholders all need to reside within the

state for two years. See Tenn. Code Ann. § 57-3-204(b). And although requiring wholesaler or

retailer businesses to be physically located within Tennessee may be an inherent aspect of a

three-tier system, see Cooper II, 820 F.3d at 743, imposing durational-residency requirements is

not inherent—a three-tier system can still function without these restrictions.

8

The dissent asserts that in-state distribution regulations are always discriminatory in some manner, and in

some ways, the dissent is correct that “[w]hat matters is what type of discrimination is permissible.” Dissent Op. at

32. However, the Fifth Circuit has acknowledged this dilemma, and it rectified the issue—requiring wholesalers and

retailers to be in the state is permissible, but requiring owners to reside within the state for a certain period is not.

See Cooper II, 820 F.3d at 743. Additionally, the dissent argues that Jelovsek has not answered this question, see

Dissent Op. at 31–32, which is contrary to Jelovsek’s statement that the two-year durational-residency requirement

“impermissibly favor[s] Tennessee interests at the expense of interstate commerce.” Jelovsek, 545 F.3d at 438.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 17

Tennessee’s durational-residency requirements do not relate to the flow of alcoholic

beverages within the state. Instead, they regulate the flow of individuals who can and cannot

engage in economic activities. The Twenty-first Amendment gives a state the power to oversee

the alcoholic-beverages business, but it does not give a state the power to dictate where

individuals live, because a state’s alcoholic-beverages laws “cannot deprive citizens of their right

to have access to the markets of other States on equal terms.” Granholm, 544 U.S. at 473. “The

central purpose of the [Twenty-first Amendment] was not to empower States to favor local liquor

industries by erecting barriers to competition.” Bacchus, 468 U.S. at 276. Therefore, the

Twenty-first Amendment does not immunize Tennessee’s durational-residency requirements

from scrutiny under the dormant Commerce Clause.

B. Tennessee’s Durational-Residency Requirements Violate the Dormant Commerce

Clause

Under the Commerce Clause, Congress can “regulate Commerce . . . among the several

States.” U.S. Const. art. I, § 8, cl. 3. While the Commerce Clause gives Congress authority to

regulate interstate commerce, the converse is that states cannot impede Congress’s power by

“unjustifiably . . . discriminat[ing] against or burden[ing] the interstate flow of articles of

commerce.” Or. Waste, 511 U.S. at 98. This dormant Commerce Clause prevents “economic

protectionism”—e.g., a state protecting in-state economic interests by burdening out-of-state

economic interests. Am. Beverage Ass’n v. Snyder, 735 F.3d 362, 369 (6th Cir. 2013) (quoting

Dept. of Revenue of Ky. v. Davis, 553 U.S. 328, 337–38 (2008)). The dormant Commerce

Clause helps to “effectuate[] the Framers’ purpose to ‘prevent a State from retreating into

economic isolation or jeopardizing the welfare of the Nation as a whole.’” Fulton Corp. v.

Faulkner, 516 U.S. 325, 330–31 (1996) (quoting Okla. Tax Comm’n v. Jefferson Lines, Inc.,

514 U.S. 175, 180 (1995)).

“To determine whether a statute violates the Commerce Clause, [we] must first determine

whether the statute discriminates against interstate commerce, either by discriminating on its

face, by having a discriminatory purpose, or by discriminating in practical effect.” Cherry Hill

Vineyards, LLC v. Lilly, 553 F.3d 423, 431–32 (6th Cir. 2008) (citing E. Ky. Res. v. Fiscal Court,

127 F.3d 532, 540 (6th Cir. 1997)). “If the statute is discriminatory, . . . it is virtually per se

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 18

invalid, unless the state can demonstrate that it ‘advances a legitimate local purpose that cannot

be adequately served by reasonable nondiscriminatory alternatives.’” Id. at 432 (quoting

Granholm, 544 U.S. at 489). In contrast, a nondiscriminatory statute is presumed valid “unless

the burdens on interstate commerce are ‘clearly excessive in relation to the putative local

benefits.’” Id. (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)).

Because Tennessee’s durational-residency requirements are facially discriminatory and

there is no evidence that Tennessee cannot achieve its goals through nondiscriminatory means,

we hold that § 57-3-204(b)(2)(A), (3)(A)–(B), and (3)(D) are unconstitutional.

1. The Durational-Residency Requirements Are Facially Discriminatory

In Jelovsek, we examined § 57-3-207(d) of Tennessee Code Annotated, which

“require[d] a two-year Tennessee residency before a winery license may be obtained and, if the

applicant is a corporation, all of the capital stock must be owned by two-year Tennessee

residents.” 545 F.3d at 438. When reviewing this language, we found that the provision was

“discriminatory on [its] face, and in [its] purpose.” Id. This “provision[] impermissibly

favor[ed] Tennessee interests at the expense of interstate commerce.” Id.

The statutory language presently before us is very similar to the statutory language that

we already examined in Jelovsek; the relevant statute here provides the following:

No retail license under this section may be issued to any individual: . . . Who has

not been a bona fide resident of this state during the two-year period immediately

preceding the date upon which application is made to the commission or, with

respect to renewal of any license issued pursuant to this section, who has not at

any time been a resident of this state for at least ten (10) consecutive years[.]

Tenn. Code Ann. § 57-3-204(b)(2)(A). And the statute here imposes similar requirements on

corporations:

(A) No retail license shall be issued to any corporation if any officer, director or

stockholder owning any capital stock in the corporation, would be ineligible to

receive a retailer’s license for any reason specified in subdivision (b)(2), if

application for such retail license had been made by the officer, director or

stockholder in their individual capacity;

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 19

(B) All of its capital stock must be owned by individuals who are residents of this

state and either have been residents of the state for the two (2) years immediately

preceding the date application is made to the commission or, with respect to

renewal of any license issued pursuant to this section, who has at any time been a

resident of this state for at least ten (10) consecutive years;

....

(D) No stock of any corporation licensed under this section shall be transferred to

any person who is not a resident of this state and either has not been a resident of

the state for at least two (2) years next preceding or who at any time has not been

a resident of this state for at least ten (10) consecutive years.

Id. § 57-3-204(b)(3)(A)–(B), (D). Because the statute contains these durational-residency

requirements, it prevents out-of-state residents from obtaining retail licenses and protects in-state

residents who are retailers.9 Therefore, we hold that § 57-3-204(b)(2)(A), (3)(A)–(B), and (3)(D)

are facially discriminatory.

2. Tennessee Could Achieve Its Goals with a Reasonable, Nondiscriminatory

Alternative

Tennessee has provided purposes in the statute for imposing oversight of alcoholic

beverages; the statute states the following:

Because licenses granted under this section include the retail sale of liquor, spirits

and high alcohol content beer which contain a higher alcohol content than those

contained in wine or beer, . . . it is in the interest of this state to maintain a higher

degree of oversight, control and accountability for individuals involved in the

ownership, management and control of licensed retail premises. For these

reasons, it is in the best interest of the health, safety and welfare of this state to

require all licensees to be residents of this state as provided herein and the

commission is authorized and instructed to prescribe such inspection, reporting

and educational programs as it shall deem necessary or appropriate to ensure that

the laws, rules and regulations governing such licensees are observed.

9

Because Jelovsek dealt with wine production, the dissent argues that Jelovsek does not dictate the outcome

here. See Dissent Op. at 31–32. Nevertheless, the language in Jelovsek suggests otherwise. In Jelovsek, this court

stated that “[o]ther provisions of the Grape and Wine Law are discriminatory on their face, and in their purpose.

For example, the Grape and Wine Law requires a two-year Tennessee residency before a winery license may be

obtained and, if the applicant is a corporation, all of the capital stock must be owned by two-year Tennessee

residents.” Jelovsek, 545 F.3d at 438 (emphasis added). Although the surrounding language does discuss the

portions of the statute addressing wine production, in the sentence actually examining the durational-residency

requirement, this court did not use the words “product” or “producers.” See id. Thus, this court declared that a two-

year residency requirement is invalid in a statement separate and apart from any portion of the opinion addressing

wine production; unlike the dissent, we cannot shrug off this holding of Jelovsek.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 20

Id. § 57-3-204(b)(4). This language asserts two legitimate purposes for the residency restrictions

on retailers: (1) protecting “the health, safety and welfare” of Tennessee’s citizens and (2) using

a higher level of oversight and control over liquor retailers. See North Dakota, 495 U.S. at 432

(identifying “the interest of promoting temperance, ensuring orderly market conditions, and

raising revenue”).

However, neither Byrd nor the Association argues that a reasonable, nondiscriminatory

alternative cannot achieve Tennessee’s goals. And at oral argument, Fine Wines described

several alternative means: requiring (1) a retailer’s general manager to be a resident of the state,

(2) both in-state and out-of-state retailers to post a substantial bond to receive a license, and

(3) public meetings regarding the issuance of a license. Arguably, Tennessee can achieve its

goals through nondiscriminatory means. For instance, it could implement technological

improvements, such as creating an electronic database to monitor liquor retailers. But neither

Byrd nor the Association argues that a reasonable, nondiscriminatory alternative cannot achieve

Tennessee’s goals. Therefore, Byrd and the Association have not met their burden.

In summary, the durational-residency requirements in § 57-3-204(b)(2)(A), (3)(A)–(B),

and (3)(D) are unconstitutional because (1) they are facially discriminatory and (2) neither Byrd

nor the Association has shown that a nondiscriminatory alternative cannot achieve Tennessee’s

goals.

C. We Sever § 57-3-204(b)(2)(A), (3)(A)–(B), and (3)(D) from the Rest of the Statute

“[W]hen confronting a constitutional flaw in a statute, we try to limit the solution to the

problem” by (1) “enjoin[ing] only the unconstitutional applications of a statute while leaving

other applications in force” or (2) “sever[ing] its problematic portions while leaving the

remainder intact.” Ayotte v. Planned Parenthood of N. New England, 546 U.S. 320, 328–29

(2006). “Accordingly, the ‘normal rule’ is that ‘partial, rather than facial, invalidation is the

required course,’ such that a ‘statute may be declared invalid to the extent that it reaches too far,

but otherwise left intact.’” Id. at 329 (quoting Brockett v. Spokane Arcades, Inc., 472 U.S. 491,

504 (1985)). However, we must be “mindful that our constitutional mandate and institutional

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 21

competence are limited,” and we must “restrain ourselves from ‘rewriting state law to conform it

to constitutional requirements’ even as we strive to salvage it.” Id. at 329 (quoting Virginia v.

Am. Booksellers Assn., Inc., 484 U.S. 383, 397 (1998)). We also must remember that “the

touchstone for any decision about remedy is legislative intent, for a court cannot ‘use its remedial

powers to circumvent the intent of the legislature.’” Id. at 330 (quoting Califano v. Westcott,

443 U. S. 76, 94 (1979)).

“Whether a portion of a state’s statute is severable is determined by the law of that state.”

Cincinnati Women’s Servs., Inc. v. Taft, 468 F.3d 361, 371 (6th Cir. 2006). In Tennessee, “[t]he

doctrine of elision allows a court, under appropriate circumstances when consistent with the

expressed legislative intent, to elide an unconstitutional portion of a statute and find the

remaining provisions to be constitutional and effective.” State v. Tester, 879 S.W.2d 823, 830

(Tenn. 1994). The Tennessee Supreme Court has stated the following regarding the doctrine:

The doctrine of elision is not favored. The rule of elision applies if it is made to

appear from the face of the statute that the legislature would have enacted it with

the objectionable features omitted, and those portions of the statute which are not

objectionable will be held valid and enforceable provided, of course, there is left

enough of the act for a complete law capable of enforcement and fairly answering

the object of its passage. However, a conclusion by the court that the legislature

would have enacted the act in question with the objectionable features omitted

ought not to be reached unless such conclusion is made fairly clear of doubt from

the face of the statute. Otherwise, its decree may be judicial legislation. The

inclusion of a severability clause in the statute has been held by this Court to

evidence an intent on the part of the legislature to have the valid parts of the

statute enforced if some other portion of the statute has been declared

unconstitutional.

Id. at 830 (quoting Gibson Cty. Special Sch. Dist. v. Palmer, 691 S.W.2d 544, 551 (Tenn. 1985)).

Tennessee’s general assembly has also provided a general severability statute, which states the

following:

It is hereby declared that the sections, clauses, sentences and parts of the

Tennessee Code are severable, are not matters of mutual essential inducement,

and any of them shall be exscinded if the code would otherwise be

unconstitutional or ineffective. If any one (1) or more sections, clauses, sentences

or parts shall for any reason be questioned in any court, and shall be adjudged

unconstitutional or invalid, such judgment shall not affect, impair or invalidate the

remaining provisions thereof, but shall be confined in its operation to the specific

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 22

provision or provisions so held unconstitutional or invalid, and the inapplicability

or invalidity of any section, clause, sentence or part in any one (1) or more

instances shall not be taken to affect or prejudice in any way its applicability or

validity in any other instance.

Tenn. Code Ann. § 1-3-110. Although this statute “does not automatically make [the doctrine of

elision] applicable to every situation[,] . . . when a conclusion can be reached that the legislature

would have enacted the act in question with the unconstitutional portion omitted, then elision of

the unconstitutional portion is appropriate.” State v. Crank, 468 S.W.3d 15, 29 (Tenn. 2015)

(quoting In re Swanson, 2 S.W.3d 180, 189 (Tenn. 1999)).

Applying Tennessee’s doctrine of elision, we hold that we can sever § 57-3-204(b)(2)(A),

(3)(A)–(B), and (3)(D) from the rest of the statute. In the statute, in addition to protecting

Tennessee citizens by imposing residency requirements, the legislature also stated that Tennessee

wanted “to maintain a higher degree of oversight, control and accountability for individuals

involved in the ownership, management and control of licensed retail premises.”10 Tenn. Code

Ann. § 57-3-204(b)(4). Review of § 57-3-204 reveals that the statute contains extensive

restrictions relating to this purpose. For instance, an individual cannot receive a retail license if

he or she “is not twenty-one (21) years of age or older” or “has been convicted of a felony.”

Tenn. Code Ann. § 57-3-204(b)(2)(B), (D). Additionally, portions of the statute relate to

application fees. See Tenn. Code Ann. § 57-3-204(b)(1). Because the statute contains various

provisions that are unrelated to the durational-residency requirements and that relate to the

10

By arguing that drunk driving, domestic abuse, and underage drinking are important interests, the dissent

concludes that the durational-residency requirements would promote health, safety, and welfare. Dissent Op. at 30.

However, in Granholm, the Supreme Court did not credit such blanket assertions. See Granholm, 544 U.S. at 489–

93 (stating that “Commerce Clause cases demand more than mere speculation to support discrimination against out-

of-state goods” and that “the States provide[d] little concrete evidence for the sweeping assertion that they cannot

police direct shipments by out-of-state wineries” to prevent underage drinking and tax evasion). In fact, even in the

Supreme Court cases that the dissent cites for support, the Supreme Court required some type of evidentiary

showing. See North Dakota, 495 U.S. at 433 & n.5 (relying on an affidavit to conclude that “[t]he risk of diversion

into the retail market and disruption of the liquor distribution system is thus both substantial and real.”);

44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 505 (1996) (stating “that demand, and hence consumption

throughout the market, is somewhat lower whenever a higher, noncompetitive price level prevails. However,

without any findings of fact, or indeed any evidentiary support whatsoever, we cannot agree with the assertion that

the price advertising ban will significantly advance the State’s interest in promoting temperance.”). Therefore, these

blanket assertions in the statute are not enough, and Tennessee has not provided any evidence that the durational-

residency requirements will promote its alleged interests.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 23

legislature’s purpose, we sever the unconstitutional durational-residency provisions, i.e., § 57-3-

204(b)(2)(A), (3)(A)–(B), and (3)(D), from the rest of the statute.11

III. CONCLUSION

For the reasons discussed above, we AFFIRM the district court’s judgment declaring

§ 57-3-204(b)(2)(A), (3)(A)–(B), and (3)(D) in violation of the dormant Commerce Clause and

SEVER those provisions from the Tennessee statute.

11

According to the dissent, requiring 51% of stockholders to satisfy the durational-residency requirements

is valid, see Dissent Op. at 33, but the dissent fails to acknowledge that a 51% requirement impermissibly stifles

interstate commerce. For instance, the Supreme Court has “struck down a New York law that imposed a higher tax

on transfers of stock occurring outside the State than on transfers involving a sale within the State” because “the

Commerce Clause limits the manner in which States may legitimately compete for interstate trade, for ‘in the

process of competition no State may discriminatorily tax the products manufactured or the business operations

performed in any other State.’” Bacchus, 468 U.S. at 272 (quoting Bos. Stock Exch. v. State Tax Comm’n, 429 U.S.

318, 337 (1977)). The Supreme Court has also “struck down the Illinois Business Takeover Act, which required that

a takeover offer for a target company having a specified connection to Illinois be registered with the Secretary of

State and mandated that such an offer was not to become effective for 20 days, during which time the offer would be

subject to administrative evaluation” because “if Illinois were free to enact such legislation, others [sic] States

similarly were so empowered, ‘and interstate commerce in securities transactions generated by tender offers would

be thoroughly stifled.’” Healy, 491 U.S. at 333 n.9 (quoting Edgar v. MITE Corp., 457 U.S. 624, 642 (1982)).

Thus, because imposing durational-residency requirements on stockholders prevents shares from freely flowing

throughout states, a 51 % requirement still allows a state to engage in economic protectionism.

Additionally, the dissent concludes that the ten-year requirement is the “epitome of arbitrariness” because

“[T]ennessee offered no reason why a person who has resided in the State for two years is deemed local enough to

begin operating a retailer in year 3, but not local enough to continue running it in year 4.” Dissent Op. at 33. But,

the dissent’s argument also applies to the two-year requirement because, as previously discussed, Tennessee has

offered no evidence to prove that the two-year requirement advances its goals. What makes two the magic number?

Why is one year not enough? What about a six-month requirement? Without answers to these questions, the two-

year requirement is also “the epitome of arbitrariness.” Furthermore, in Jelovsek, 545 F.3d at 438, this court already

determined that a two-year residency requirement is invalid.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 24

______________________________________________________

CONCURRING IN PART AND DISSENTING IN PART

______________________________________________________

SUTTON, Circuit Judge, concurring in part and dissenting in part. Tennessee requires

sellers of alcohol to have a retail license. To obtain a license, the applicant, including any

officers and directors, must be “a bona fide resident of th[e] state during the two-year period

immediately preceding” the application. Tenn. Code Ann. §§ 57-3-204(b)(2)(A), (b)(3)(A). The

licensing requirement applies to all sales of alcohol in the State, whether the alcohol was

produced in Tennessee or elsewhere. I would uphold these modest requirements, as the text of

the Twenty-first Amendment, the original understanding of that provision’s relationship to the

Commerce Clause, modern U.S. Supreme Court precedent, and a recent Eighth Circuit decision

(concerning a similar Missouri residency requirement) all support their validity. The majority

viewing it differently, I respectfully dissent from this part of its decision and agree with its other

conclusions.

Constitutional text. The language of the pertinent constitutional provisions supports

Tennessee’s right to impose this requirement. At the outset, the U.S. Constitution gave Congress

power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the

Indian Tribes,” U.S. Const. art. I, § 8, cl. 3, and impliedly prohibited States from doing the same,

see Albert Abel, The Commerce Clause in the Constitutional Convention and in Contemporary

Comment, 25 Minn. L. Rev. 432, 485 (1941); 2 The Records of the Federal Convention of 1787,

at 625 (Max Farrand ed. 1966) (James Madison grew “more & more convinced” that the

regulation of commerce among the States “was in its nature indivisible and ought to be wholly

under one authority.”). Whatever else this Tennessee requirement does, it does not purport to

displace or contradict congressional regulation of commerce among the States. It merely

announces a limited requirement for in-state sales of alcohol.

The end of Prohibition in 1933 made the States’ authority over this issue more clear. In

repealing the Eighteenth Amendment, the Twenty-first Amendment allowed the States to

regulate alcohol as a unique commercial article. Unlike any other provision in the U.S.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 25

Constitution, it sets up what is largely a regulatory regime of one: “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.” U.S. Const.

amend. XXI, § 2 (emphasis added). After 1933, then, a State could continue to prohibit sales of

alcohol within its territory. Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138 (1939). Or it could allow

sales of alcohol on its own commercial terms, say by permitting only some types of alcohol to be

sold within the State or by permitting sales only through state-run retailers or by permitting sales

only through some other distribution system. The language of the amendment—prohibiting the

“delivery or use” of alcohol “in violation of the laws” of each State—empowers States to

regulate sales of alcohol within their borders. A two-year residency requirement to obtain a

license to own a brick-and-mortar retail store, like a two-year residency requirement to operate a

state-owned retail store, fits within the core authority delegated to the States by the Twenty-first

Amendment.

History. A few screen shots of history support this interpretation. The itinerant

regulation of alcohol over time captures the itinerant relationship between the power of the

National Government and the States over time. Most areas of federal and state authority,

including over commerce, initially were deemed largely exclusive, as a review of the enumerated

powers delegated to Congress in Article I, Section 8 suggests. If Congress had authority over a

form of commerce, the States usually did not. So too in the other direction. See Gibbons v.

Ogden, 22 U.S. (9 Wheat.) 1, 187–89, 197–200 (1824); id. at 226–27 (Johnson, J., concurring);

see also Tyler Pipe Indus., Inc. v. Wash. State Dep’t of Revenue, 483 U.S. 232, 260 (1987)

(Scalia, J., concurring in part and dissenting in part) (“The pre-emption of state legislation would

automatically follow, of course, if the grant of power to Congress to regulate interstate

commerce were exclusive . . . as John Marshall at one point seemed to believe it was.”). Largely

exclusive spheres of authority, not largely overlapping spheres of authority, thus were the initial

order of the day.

But the congressional sphere of authority grew over time, as more and more “commerce”

was treated as “among the several States.” Even before Prohibition in 1920, the definition of

interstate commerce had come to mean that the regulation of most products, including alcohol,

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 26

was increasingly a matter of state and federal law. See, e.g., Leisy v. Hardin, 135 U.S. 100, 121–

23 (1890). That helps to explain the federal laws concerning sales of alcohol before Prohibition.

Although the Supreme Court had held that the States could “regulat[e] and restrain[] the traffic”

in liquor, including by “prohibiting it altogether,” The License Cases, 46 U.S. (5 How.) 504, 577

(1847), it also held that they could not interfere with the liquor traffic “in the absence of

congressional permission to do so,” Leisy, 135 U.S. at 118, 124–25. Those rulings spawned a

series of congressional attempts to bolster state authority. See Wilson Act of 1890, 27 U.S.C.

§ 121; Webb-Kenyon Act of 1913, 27 U.S.C. § 122. They were largely unsuccessful. One

reason was that the Court held that the Commerce Clause prohibited a dry State from regulating

unopened packages of alcohol—even though destined for illegal consumption in the State—

because unopened packages remained articles of commerce. Rhodes v. Iowa, 170 U.S. 412, 426

(1898).

This federal-state interplay also helps to explain the language of the Eighteenth

Amendment, which first established that “the manufacture, sale, or transportation of intoxicating

liquors within, the importation thereof into, or the exportation thereof from the United States and

all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.” U.S.

Const. amend. XVIII, § 1. Section 2 of the Amendment then clarified overlapping federal and

state authority to enforce Prohibition: “The Congress and the several States shall have

concurrent power to enforce this article by appropriate legislation.”

With the passage of the Twenty-first Amendment, the States and Federal Government

both had some regulatory power over alcohol but generally were thought to regulate it

exclusively in different ways. Compare Indianapolis Brewing Co. v. Liquor Control Comm’n,

305 U.S. 391, 394 (1939) (upholding Michigan statute prohibiting the sale of out-of-state beer

against Commerce Clause challenge), with William Jameson Co., Inc. v. Morgenthau, 307 U.S.

171, 172–73 (1939) (per curiam) (upholding Federal Alcohol Administration Act’s labeling

requirements against Twenty-first Amendment challenge). From the vista of 1933, a lawyer (and

judge) would have presumed that the regulation of sales of alcohol within the State (such as a

residency requirement for ownership of a retail liquor store) would be an exclusive state power

given the existing paradigm of largely separate and exclusive spheres of regulatory power.

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 27

But over the next ten years, the Court’s understanding of the Commerce Clause power

changed. By the early 1940s, it was no longer true that regulations of commerce in the main

were exclusively federal or exclusively state. The growth of the national commerce power,

through the development of the “substantial effects” test, Wickard v. Filburn, 317 U.S. 111, 128–

29 (1942), eliminated many (but not all) distinctions between intrastate and interstate commerce,

making most businesses potentially subject to state and national regulation. The question was no

longer “whether the right government was acting within the right sphere.” Am. Beverage Ass’n

v. Snyder, 735 F.3d 362, 377 (6th Cir. 2013) (Sutton, J., concurring) (quoting Ernest A. Young,

“The Ordinary Diet of the Law”: The Presumption Against Preemption in the Roberts Court,

2011 Sup. Ct. Rev. 253, 257).

That development altered the nature of the implied restrictions on state authority

established by the Commerce Clause. An exclusive delegation of power to one sovereign

implies a ban on assertions of power by another sovereign over the same matter. Just as

Congress’s exclusive power to “coin Money” implied a lack of state authority to do the same,

U.S. Const. art. I, § 8, cl. 5, Congress’s exclusive power to regulate interstate commerce among

the States implied a lack of state power in the area. See Smith v. Turner, 48 U.S. (7 How.) 283,

393–96 (1849) (McLean, J.); The Federalist No. 42, at 263 (James Madison) (Clinton Rossiter

ed. 2003); but see Tyler Pipe, 483 U.S. at 261 (Scalia, J., concurring in part and dissenting in

part). Hence the need for the Court to create implied/negative/dormant Commerce Clause

limitations on state authority, which was the only way to preserve the Federal Government’s

largely exclusive regulatory power over interstate commerce.

At their creation, the Court’s dormant Commerce Clause cases were not just appropriate

but necessary, as they provided the only way to keep the States on the one hand and Congress on

the other in their separate and exclusive spheres of regulatory authority. But in a post-1930s

world, in which the National Government and States largely have overlapping power over most

sectors of commerce, the implementation of an implied restriction on state authority is much

more difficult to articulate and police.

Which is what makes this case interesting—and complicated. From the vantage point of

the understanding of the Commerce Clause circa 1933, the case looks easy. That’s why Justice

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 28

Brandeis in 1936 would describe the States’ authority to regulate sales of alcohol in such

sweeping terms:

The words used [in § 2] are apt to confer upon the State the power to forbid all

importations which do not comply with the conditions which it prescribes. The

plaintiffs ask us to limit this broad command. They 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.

State Bd. of Equalization v. Young’s Mkt. Co., 299 U.S. 59, 62 (1936). In the Court’s view at

that point, the Twenty-first Amendment gave the States what looked like largely plenary

commercial authority (save for violations of individual rights guarantees, such as the Fourteenth

Amendment) to regulate sales of alcohol within their borders, including in ways that the

Commerce Clause would not otherwise allow. Id.

The congressional stance on regulation of alcohol at the time suggests a similar

understanding. In the immediate aftermath of the Twenty-first Amendment’s ratification,

Congress overhauled Title 27 of the U.S. Code—“Intoxicating Liquors”—by repealing Chapters

1, 2, 4, 5, and 9 (dealing with production, transportation, and sale of liquor). 27 U.S.C. §§ 1–

108, 221–28. Chapter 6, which includes the Wilson Act of 1890 (§ 121), Webb-Kenyon Act of

1913 (§ 122), and, many years later, the Twenty-first Amendment Enforcement Act of 2000

(§ 122a), all bolster state authority over alcohol. See, e.g., id. § 122a(b)–(c) (authorizing state

Attorneys General to bring civil actions in federal court to enjoin “any act that would constitute a

violation of a State law regulating the importation or transportation of any intoxicating liquor”).

Chapter 8, the last enclave of federal oversight, concerns things like labeling. Federal Alcohol

Administration Act, 27 U.S.C. §§ 201 et seq. But it leaves “transportation [and]

importation . . . for delivery or use” (i.e., distribution) to the States, U.S. Const. amend. XXI, § 2,

and even incorporates state-law requirements, like Tennessee’s two-year residency rule for

officers and directors, see 27 U.S.C. §§ 204(a)(2)(C), 204(d), 208(b)(2).

At the time the Twenty-first Amendment was ratified, a State’s greater authority to ban

all alcohol sales in the State included a lesser authority to regulate sales of alcohol in the State

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 29

with a heavy hand. Ziffrin, 308 U.S. at 138. Another way of putting it is this: The existence of

the Commerce Clause and the Twenty-first Amendment makes it more difficult to imply a

restriction on state authority (to regulate commerce) expressly created in another constitutional

provision (to regulate retail sales of alcohol).

Modern U.S. Supreme Court precedent. The Court’s more recent decisions in this area

should be read against this backdrop, and are easier to follow (to my mind) in that context. Even

if the meaning of the relevant constitutional provisions has migrated over the years, perhaps to

account for the continued integration of domestic and international commerce, today’s

precedents still give the States authority to impose residency requirements on the owners of retail

establishments that sell beer, wine, or liquor.

A consensus remains that the Twenty-first Amendment “created an exception to the

normal operation of the Commerce Clause.” Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691,

712 (1984). While the size of that exception may be fickle, a few constant rules remain. On one

side of the ledger, the Commerce Clause still limits state efforts to regulate activity outside of a

State’s territorial domain. See, e.g., Healy v. Beer Inst., 491 U.S. 324, 343 (1989) (invalidating

price-affirmation statute regulating liquor sales in other States); Bacchus Imps., Ltd. v. Dias,

468 U.S. 263, 273, 276 (1984) (invalidating discriminatory tax on out-of-state liquor); Capital

Cities, 467 U.S. at 714 (invalidating ban on TV wine ads emanating from other States); Cal.

Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 114 (1980) (invalidating

resale price maintenance and price posting statutes); Hostetter v. Idlewild Bon Voyage Liquor

Corp., 377 U.S. 324, 331–32 (1964) (invalidating regulation of alcohol passing through JFK

Airport that would not be used until arrival at international destination); Collins v. Yosemite Park

& Curry Co., 304 U.S. 518, 533–34 (1938) (invalidating state restriction on shipments to a

federal enclave in its borders).

On the other side of the ledger, exceptions to the normal operation of the Commerce

Clause remain alive and well in some areas—in particular the in-state nature of alcohol

distribution. The States retain “virtually complete control” over “how to structure the[ir] liquor

distribution system[s].” Granholm v. Heald, 544 U.S. 460, 488 (2005). All thus agree that the

States retain authority (1) to ban alcohol completely, (2) to distribute liquor exclusively through

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 30

state-run monopolies, or (3) to operate distribution systems, including through regulations that

require retailers and wholesalers to reside in-state. Id. at 489. Because liquor distribution

implicates the States’ core interests after the repeal of Prohibition, such regulations are generally

“protected under [§ 2] when they treat liquor produced out of state the same as its domestic

equivalent.” Id. State authority in this area is “virtually” limitless, at least when it comes to the

Commerce Clause. Id. at 488. State regulations of in-state distribution, even if facially

discriminatory, are constitutional unless a challenger can show that they serve no purpose

besides “economic protectionism.” Bacchus, 468 U.S. at 276.

Measured by these standards and cases, Tennessee’s two-year residency requirement

should survive. We must start with the assumption that tiered distribution systems are

“unquestionably legitimate.” Granholm, 544 U.S. at 489. As part of these systems, the States

may require retailers and wholesalers to reside within their borders. See id. And if the States

may do that, they must “have flexibility to define the requisite degree of ‘in-state’ presence”

necessary for participating as a retailer or wholesaler. S. Wine & Spirits v. Div. of Alcohol &

Tobacco Control, 731 F.3d 799, 810 (8th Cir. 2013). Tennessee’s two-year residency rule and

its application of that rule to a retailer’s officers and directors lawfully exercise that authority.

Promoting responsible consumption and orderly liquor markets “fall within the core of

[Tennessee’s] power” under § 2. North Dakota v. United States, 495 U.S. 423, 432 (1990).

Retailers are critical to serving those interests. Because they form the final link in the

distribution chain, retailers are closest to the local risks that come with selling alcohol, such as

“drunk driving, domestic abuse, [and] underage drinking.” S. Wine & Spirits, 731 F.3d at 811.

Tennessee reasonably concluded that requiring retailers to reside in the communities that they

serve would further “health, safety and welfare.” Tenn. Code Ann. § 57-3-204(b)(4).

Tennessee’s method for establishing in-state residency also makes sense. Requiring individual

retailers to reside in one place for a sustained, two-year period ensures that they will be

knowledgeable about the community’s needs and committed to its welfare. The only way to

know a community is to live there, which may explain why Congress requires federal court of

appeals judges to live within their circuits, 28 U.S.C. § 44(c), and district court judges to live

within their districts, id. § 134(b).

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 31

The same is true with respect to a residency requirement for officers and directors of the

retailer. It ensures that they are familiar with the community and in a position to alter or

influence the retailer’s behavior based on that understanding. See Tenn. Code Ann. §§ 48-18-

101(b), 301(b)(1), 402, 403(b)(1). The Federal Alcohol Administration Act, notably, also

regulates officers and directors of liquor companies. See, e.g., 27 U.S.C. § 208.

Court of appeals precedents. The post-Granholm circuit precedents likewise support this

conclusion. Several courts agree that Granholm drew a line between regulation of (out-of-state)

producers and regulation of (in-state) wholesalers and retailers, requiring rigorous review of the

former and deferential review of the latter. See Freeman v. Corzine, 629 F.3d 146, 158 (3d Cir.

2010); Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 189 (2d Cir. 2009); Brooks v. Vassar,

462 F.3d 341, 352 (4th Cir. 2006); cf. Cooper v. Tex. Alcoholic Beverage Comm’n (Cooper II),

820 F.3d 730, 743 (5th Cir. 2016) (dormant Commerce Clause applies “to a lesser extent when

the regulations concern the retailer or wholesaler tier as distinguished from the producer tier”).

One circuit has approved requirements nearly identical to Tennessee’s. In a thoughtful

opinion by Judge Colloton, the Eighth Circuit upheld a three-year residency requirement in

Missouri for wholesalers’ officers, directors, and 60% of their stockholders. S. Wine & Spirits,

731 F.3d at 802–03. We should do the same for Tennessee’s two-year requirement.

Jelovsek v. Bredesen, 545 F.3d 431 (6th Cir. 2008), does not change things. That case,

it is true, invalidated a law that “requir[ed] a two-year Tennessee residency.” Id. at 438. But

the requirement applied only to wine production. See Grape and Wine Law, Tenn. Code Ann.

§ 57-3-207 (regulating “winer[ies]” and “farm wine producer[s]”). It thus did not “treat liquor

produced out of state the same as its domestic equivalent.” Granholm, 544 U.S. at 489

(emphasis added). State laws that do treat out-of-state products the same, like Tennessee’s retail

residency rules, are generally “protected under the Twenty-first Amendment.” Id.

Isn’t it still true that the requirements here are “discriminatory on their face,” just like the

ones in Jelovsek? But in-state distribution regulations in one sense always discriminate against

out-of-state interests, as Granholm illustrates. See 544 U.S. at 466, 489; id. at 517–19, 521–22

(Thomas, J., dissenting). At the same time, however, such regulations may serve a State’s core

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 32

concerns under the Twenty-first Amendment—for instance, by reducing in-state supply,

increasing the price of liquor, or even regulating it in a way that increases (or limits decreases in)

the price of liquor. Cf. 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 504–05 (1996).

It thus does not matter whether an in-state distribution regulation discriminates against out-of-

state interests. What matters is what type of discrimination is permissible. This one is, and

Jelovsek says nothing about that question.

The Fifth Circuit, I acknowledge, refused to enforce a residency requirement for holders

of a “mixed beverage permit” and 51% of their stockholders. Cooper II, 820 F.3d at 734–35; see

Tex. Alcoholic Bev. Code Ann. § 28.01. In Cooper II, the Texas Package Stores Association

asked the court to grant relief from a twenty-five-year-old injunction that allowed a Texas strip

club to retain its permit after it was acquired by owners living in Florida and Tennessee. See

Fed. R. Civ. P. 60(b)(5). The Fifth Circuit denied relief because Granholm did not effect

“a significant change in decisional law.” Cooper II, 820 F.3d at 740–41.

Putting this unusual posture to the side, the Fifth Circuit appears to have misread

Granholm when it concluded that “[d]istinctions between in-state and out-of-state retailers and

wholesalers are permissible only if they are an inherent aspect of” a State’s distribution system.

Id. at 743. Because “[t]here is no archetypal three-tier system from which [to glean] the

‘integral’ or ‘inherent’ elements,” the Fifth Circuit’s test creates the risk that a court will

unnecessarily substitute its own judgment for that of a state legislature about the best policies for

regulating liquor. S. Wine & Spirits, 731 F.3d at 810. Granholm did more than authorize States

to maintain some sort of liquor distribution system; it gave them “virtually complete control”

over “how to structure th[at] . . . system.” Granholm, 544 U.S. at 488. It matters not that one

can imagine other ways a distribution system could function because “[t]here is no narrow

tailoring requirement under the Twenty-first Amendment.” S. Wine & Spirits, 731 F.3d at 812.

I agree with my colleagues, however, that two aspects of Tennessee’s scheme must fall:

its application of the residency requirement to 100% of a retailer’s stockholders, Tenn. Code

Ann. § 57-3-204(b)(3)(A), (B), (D), and its imposition of a ten-year residency requirement for

renewal of a license, id. § 57-3-204(b)(2)(A).

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 33

A requirement that every stockholder reside in Tennessee does not further the State’s

interest in responsible retailers. Tennessee’s Business Corporations Act states that company

management—directors and officers—shall exercise “[a]ll corporate powers.” Id. §§ 48-18-

101(b), 402; see also id. § 48-18-101(c). While stockholders still may exert influence over their

agents, 51% of the stockholders—not 100%—is usually all it takes to do so. Unlike Missouri,

Tennessee did not focus on closely held corporations or require a simple- or super-majority of

stockholders to be residents. See S. Wine & Spirits, 731 F.3d at 802–03 (citing Mo. Rev. Stat.

§ 311.060.3). I see no way to explain this all-or-nothing-at-all stockholder requirement as doing

anything other than promoting economic protectionism.

The same goes for Tennessee’s residency rule for renewal of a license. Although

Tennessee grants an initial retail license after two years of in-state residence, it grants renewal of

that very license only after ten years of residence. Tenn. Code Ann. § 57-3-204(b)(2)(A).

Tennessee offered no reason why a person who has resided in the State for two years is deemed

local enough to begin operating a retailer in year 3, but not local enough to continue running it in

year 4. Even that might not have been a problem if initial licenses lasted for ten years. But the

retail license “expire[s] twelve (12) months following the date of its issuance.” Id. § 57-3-

213(a). That is the epitome of arbitrariness.

The court offers two key responses to my conclusion that Tennessee’s two-year residency

requirement for alcohol retailers does not violate the Constitution. One involves history.

The court is right that Granholm “conducted an extensive historical analysis.” Supra at 5 n.2.

My point is that Granholm focused on the history in the run-up to Prohibition and concluded

that, by constitutionalizing the Wilson and Webb-Kenyon Acts, the Twenty-first Amendment

incorporated a pre-existing anti-discrimination principle. See 544 U.S. at 476–86. That’s why

the Court distanced itself from the sweeping language in Young’s Market. But that principle

concerned discrimination against out-of-state products. See Wilson Act, 27 U.S.C. § 121

(making all imported liquors “subject to the operation and effect of the laws of such State . . . to

the same extent and in the same manner as though such . . . liquors had been produced in such

State”); Granholm, 544 U.S. at 483–84 (“The Wilson Act reaffirmed, and the Webb-Kenyon Act

did not displace, the Court’s line of Commerce Clause cases striking down state laws that

No. 17-5552 Byrd, et al. v. Tenn. Wine & Spirits Retailers Ass’n Page 34

discriminated against liquor produced out of state.”); id. at 486 (“[T]he Twenty-first

Amendment . . . does not displace the rule that States may not give a discriminatory preference to

their own producers.”) (emphases added). It is that history that was at issue in Granholm. Even

if we can no longer read Young’s Market for all it is worth, the Court never purported to overrule

its other decisions and holdings approving state authority over alcohol distribution as opposed to

production.

The court’s second response is of a piece—to focus on language from Granholm (in truth

one sentence from Granholm) to suggest that traditional dormant Commerce Clause principles

apply in full to liquor production and distribution, notwithstanding the Twenty-first Amendment.

See supra at 5 n.2, 11 & n.5, 14 n.7 (quoting 544 U.S. at 487). That cuts to the heart of the

debate: Did Granholm mean to treat alcohol, including distribution of alcohol, like any other

commodity when it comes to the Commerce Clause? If so, the court is right. But as I see it, the

text of the Twenty-first Amendment, the history of alcohol regulation in this country, Supreme

Court and circuit court precedent, and Granholm itself all point in the other direction. Until the

Supreme Court says so, we may not assume that the Twenty-first Amendment no longer

“create[s] an exception to the normal operation of the Commerce Clause.” Capital Cities, 467

U.S. at 712. “An extension of this sort is not for us to make.” Arnold’s Wines, 571 F.3d at 201

(Calabresi, J., concurring).

For these reasons, I respectfully concur in part and dissent in part.