Petition for Writ of Certiorari — Tennessee Wine and Spirits Retailers Association, Petitioner v. Russell F. Thomas, Executive Director of the Tennessee Alcoholic Beverage Commission, et al.

Supreme Court briefJul 20, 2018

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APPENDIX

APPENDIX A

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 Wines &Spirits

Plaintiffs-Appellees,

TENNESSEE WINE AND SPIRITS

RETAILERS ASSOCIATION,

Defendant-Appellant.

No. 17-5552

United States Court of Appeals,

Sixth Circuit.

Argued: November 30, 2017

Decided and Filed: February 21, 2018

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.

Before: DAUGHTREY, MOORE, and SUTTON,

Circuit Judges.

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 retaileralcoholic-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 § 57-3204(b)(2)(A), (3)(A)–(B), and (3)(D) in violation of the

dormant Commerce Clause and SEVER those

provisions from the Tennessee statute.

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 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

the

durational-residency

requirements. R. 1-1 (Compl. at 1) (Page ID #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 durationalresidency requirements are unconstitutional. See

Byrd v. Tenn. Wine & Spirits Retailers Ass’n, 259

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 durationalresidency requirements are not unconstitutional. See Appellee

Byrd Br. at 3.

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, 196 L.Ed.2d 404

(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 durationalresidency 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 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, 106 S.Ct. 1348, 89 L.Ed.2d

538 (1986).

The Twenty-first Amendment Does Not

Immunize

Tennessee’s

DurationalResidency 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.

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, 125 S.Ct. 1885, 161

L.Ed.2d 796 (2005). However, ‘‘as early as the 1960s,

the Supreme Court signaled a break with this line of

reasoning.’’ 2 Id. And in 1984, the Supreme Court

2 The dissent summarizes the history of § 2 to support the

conclusion that states have the authority to impose durationalresidency requirements on owners because these requirements

are regarding intrastate distribution of alcohol beverages, not

the interstate flow of product. See Dissent Op. at 629–33.

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, 125 S.Ct.

1885, 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 instate economic interests over out-of-state interests, [the Supreme

Court has] generally struck down the statute without further

inquiry,’’ id. at 487, 125 S.Ct. 1885 (emphasis added) (quoting

Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476

U.S. 573, 579, 106 S.Ct. 2080, 90 L.Ed.2d 552 (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,

125 S.Ct. 1885, abrogated State Bd. of Equalization v. Young’s

Mkt. Co., 299 U.S. 59, 57 S.Ct. 77, 81 L.Ed. 38 (1936), which the

dissent 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,

57 S.Ct. 77, 81 L.Ed. 38 (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, 58 S.Ct. 952, 82 L.Ed. 1424 (1938); Indianapolis

Brewing Co. v. Liquor Control Comm’n, 305 U.S. 391, 59

S.Ct. 254, 83 L.Ed. 243 (1939); Ziffrin, Inc. v. Reeves, 308

U.S. 132, 60 S.Ct. 163, 84 L.Ed. 128 (1939); Joseph S. Finch

& Co. v. McKittrick, 305 U.S. 395, 59 S.Ct. 256, 83 L.Ed. 246

(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, 57 S.Ct. 77. The Court also declined, contrary

to the approach we take today, to consider the history

reiterated in Bacchus Imports, Ltd. v. Dias, 468 U.S.

263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (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, 104 S.Ct. 3049. ‘‘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, 84 S.Ct. 1293, 12

L.Ed.2d 350 (1964) ). The Supreme Court stated 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, 84 S.Ct. 1293). Additionally, the Supreme

underlying the Twenty-first Amendment. Id., at 63–64,

57 S.Ct. 77. 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 outof-state liquors. . . .

Granholm, 544 U.S. at 484–86, 125 S.Ct. 1885 (alterations in

original). The Supreme Court also implied that Young’s

Market is inconsistent with the Wilson Act and the WebbKenyon Act. See id. at 484–85, 125 S.Ct. 1885. Therefore,

cases such as Young’s Market are not reliable for this

analysis.

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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, 104 S.Ct. 3049. 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, 104 S.Ct. 3049 (quoting

Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714,

104 S.Ct. 2694, 81 L.Ed.2d 580 (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, 104 S.Ct. 3049. 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, 104 S.Ct. 3049. 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, 104 S.Ct. 3049. 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

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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 instate 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,

125 S.Ct. 1885. 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, 125 S.Ct. 1885.

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 saved by the Twenty-first

Amendment.’’

Id.

The Supreme Court also

reasserted its previous recognition that ‘‘the threetier system itself is ‘unquestionably legitimate.’ ” Id.

at 489, 125 S.Ct. 1885 (quoting North Dakota v.

United States, 495 U.S. 423, 432, 110 S.Ct. 1986, 109

L.Ed.2d 420 (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

12a

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

shareholders—to be residents of Missouri for three

13a

years prior to obtaining a wholesaler-alcoholicbeverages license. 731 F.3d at 802–03. When

reviewing ‘‘the current state of the relationship

between the dormant Commerce Clause 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, 125 S.Ct. 1885). ‘‘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 supermajority 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 alcoholicbeverages 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

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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 regulations concern the

retailer or wholesaler tier as distinguished from the

producer tier, of the three-tier distribution system.’’ 3

Id.

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 634–35. 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, 125

S.Ct. 1885).

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

15a

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

liquor distribution system.’’ Granholm, 544 U.S. at 488, 125

S.Ct. 1885 (emphasis added) (quoting Cal. Retail Liquor Dealers

Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 110, 100 S.Ct. 937,

63 L.Ed.2d 233 (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, 125 S.Ct. 1885. 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, 125

S.Ct. 1885. 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, 125 S.Ct. 1885 (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.

16a

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 alcoholicbeverages laws regarding producers. 4 Thus, Bacchus

and Granholm are reconcilable.

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

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.’’).

17a

discriminatory character of the Connecticut

price affirmation statute. 491 U.S., at 340–41

[109 S.Ct. 2491]. 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, 125 S.Ct. 1885. 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 outof-state economic interests that benefits the former

and burdens the latter.’ ” Id. at 472, 125 S.Ct. 1885

(emphasis added) (quoting Or. Waste Sys., Inc. v.

Dep’t of Envtl. Quality, 511 U.S. 93, 99, 114 S.Ct.

1345, 128 L.Ed.2d 13 (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, 125

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-ofstate producers or shippers simply to give a competitive

advantage to in-state businesses,’’ seems to suggest otherwise.

18a

S.Ct. 1885 (emphasis added) (quoting

Forman, 476 U.S. at 579, 106 S.Ct. 2080).

Brown-

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, 125

S.Ct. 1885. The Supreme Court stated that ‘‘[t]he

rule prohibiting state discrimination against

Granholm, 544 U.S. at 472, 125 S.Ct. 1885. 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, 125 S.Ct. 1885

(emphasis added) (quoting Brown-Forman, 476 U.S. at 579, 106

S.Ct. 2080). 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 BrownForman, 476 U.S. at 585, 106 S.Ct. 2080. Here, because

Tennessee is favoring in-state economic interests over out-ofstate 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 634 (quoting Granholm, 544 U.S. at 489, 125

S.Ct. 1885). 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, 125 S.Ct. 1885.

19a

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, 125 S.Ct. 1885. Laws

cannot ‘‘deprive citizens of their right to have access

to the markets of other States on equal terms.’’ Id. at

473, 125 S.Ct. 1885. 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, 125

S.Ct. 1885. 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, 125 S.Ct. 1885 (first

quoting Halliburton Oil Well Cementing Co. v. Reily,

373 U.S. 64, 72, 83 S.Ct. 1201, 10 L.Ed.2d 202 (1963);

and then citing Ward v. Maryland, 12 Wall. 418, 20

L.Ed. 449 (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, 125 S.Ct. 1885

(quoting Bacchus, 468 U.S. at 276, 104 S.Ct. 3049).

Regardless of the Twenty-first Amendment, ‘‘state

regulation

alcohol

limited

the

nondiscrimination principle of the Commerce

20a

Clause.’’ Id. (first citing Bacchus, 468 U.S. at 276,

104 S.Ct. 3049; then citing Brown-Forman, 476 U.S.

at 573, 106 S.Ct. 2080; and then citing Healy v. Beer

Inst., 491 U.S. 324, 109 S.Ct. 2491, 105 L.Ed.2d 275

(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 directshipment laws would call into question the

constitutionality of the three-tier system.’’ Id. at 488,

125 S.Ct. 1885. 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, 125 S.Ct. 1885. Based on this language, a

state’s alcoholic−beverages law is not automatically

valid simply because it addresses a portion of a threetier system. 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 636. 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,

104 S.Ct. 2694).

But the Supreme Court has said so. In fact, it categorized its

modern precedent into three distinct categories: (1) the Twentyfirst Amendment does not protect state laws that violate other

21a

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, 125 S.Ct. 1885. 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 Twentyfirst Amendment. The Court has applied this rule in the

context of the First Amendment, 44 Liquormart, Inc. v.

Rhode Island, 517 U.S. 484 [116 S.Ct. 1495, 134 L.Ed.2d 711]

(1996); the Establishment Clause, Larkin v. Grendel’s Den,

Inc., 459 U.S. 116 [103 S.Ct. 505, 74 L.Ed.2d 297] (1982); the

Equal Protection Clause, [Craig v. Boren, 429 U.S. 190, 204–

09, 97 S.Ct. 451, 50 L.Ed.2d 397 (1976) ]; the Due Process

Clause, Wisconsin v. Constantineau, 400 U.S. 433 [91 S.Ct.

507, 27 L.Ed.2d 515] (1971); and the Import–Export Clause,

Department of Revenue v. James B. Beam Distilling Co., 377

U.S. 341 [84 S.Ct. 1247, 12 L.Ed.2d 362] (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 [104 S.Ct.

2694, 81 L.Ed.2d 580] (1984); California Retail Liquor

Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 [100

S.Ct. 937, 63 L.Ed.2d 233] (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 [84 S.Ct. 1293].

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 [104 S.Ct. 3049]; Brown-Forman

Distillers Corp. v. New York State Liquor Authority, 476 U.S.

22a

And lastly, the Supreme Court did not state that

the Commerce Clause applies only to alcoholicbeverages laws regarding producers. The statement

that ‘‘[s]tate policies are protected under the Twentyfirst Amendment when they treat liquor produced out

of state the same as its domestic equivalent’’ must be

read in its context. Id. at 489, 125 S.Ct. 1885. 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 [100 S.Ct. 937].

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

573 [106 S.Ct. 2080, 90 L.Ed.2d 552] (1986); Healy v. Beer

Institute, 491 U.S. 324 [109 S.Ct. 2491, 105 L.Ed.2d 275]

(1989).

‘‘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, we have generally struck down the statute without

further inquiry.’’ Brown-Forman, supra, at 579 [106 S.Ct.

2080].

Id. (emphasis added). Therefore, the Supreme Court has stated

that the Commerce Clause applies to the production of alcoholic

beverages and their distribution.

23a

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 [110

S.Ct. 1986]. See also id., at 447 [110 S.Ct. 1986]

(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, 125 S.Ct. 1885 (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.

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.

24a

Tennessee’s

Interests

the

Durational-Residency

Requirements

Are Not So Closely Related to the

Powers Reserved by the Twenty-first

Amendment

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 Twentyfirst Amendment that the regulation may prevail,

notwithstanding that its requirements directly

conflict with express federal policies.’’ Bacchus, 468

U.S. at 275–76, 104 S.Ct. 3049 (quoting Capital

Cities, 467 U.S. at 714, 104 S.Ct. 2694).

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, 110

S.Ct. 1986). The Fifth Circuit emphasized that ‘‘[t]he

25a

statutory barrier Texas has erected against

nonresidents 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 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 outof-state businesses. Wine Country, 612 F.3d at

26a

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 durationalresidency requirements is not, particularly when

those durational-residency requirements govern

owners. 8

Here,

Tennessee’s

durational-residency

requirements

are

nearly

identical

the

requirements in Cooper I. In Tennessee, to obtain a

retail-alcoholic-beverages

permit,

individuals,

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 634. 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 633–35, which is

contrary to Jelovsek’s statement that the two-year durationalresidency requirement ‘‘impermissibly favor[s] Tennessee

interests at the expense of interstate commerce.’’ Jelovsek, 545

F.3d at 438.

27a

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.

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,

125 S.Ct. 1885. ‘‘The central purpose of the [Twentyfirst Amendment] was not to empower States to favor

local liquor industries by erecting barriers to

competition.’’ Bacchus, 468 U.S. at 276, 104 S.Ct.

3049. Therefore, the Twenty-first Amendment does

not immunize Tennessee’s durational-residency

requirements from scrutiny under the dormant

Commerce Clause.

Tennessee’s

Durational-Residency

Requirements

Violate

the

Dormant

Commerce Clause

Under the Commerce Clause, Congress can

‘‘regulate Commerce . . . among the several States.’’

28a

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, 114 S.Ct. 1345. 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, 128 S.Ct. 1801, 170 L.Ed.2d 685 (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, 116 S.Ct. 848, 133 L.Ed.2d 796

(1996) (quoting Okla. Tax Comm’n v. Jefferson Lines,

Inc., 514 U.S. 175, 180, 115 S.Ct. 1331, 131 L.Ed.2d

261 (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

discriminatory

purpose,

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 invalid,

unless the state can demonstrate that it ‘advances a

legitimate local purpose that cannot be adequately

served by reasonable nondiscriminatory alternatives.’

29a

” Id. at 432 (quoting Granholm, 544 U.S. at 489, 125

S.Ct. 1885). 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, 90 S.Ct. 844, 25

L.Ed.2d 174 (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 § 573-204(b)(2)(A),

(3)(A)–(B),

and

(3)(D)

are

unconstitutional.

The

Durational-Residency

Requirements Are Facially Discriminatory

In Jelovsek, we examined § 57-3-207(d) of

Tennessee Code Annotated, which ‘‘require[d] a twoyear 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-

30a

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;

(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.

31a

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 § 57-3204(b)(2)(A),

(3)(A)–(B), and (3)(D) are facially discriminatory.

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

9 Because Jelovsek dealt with wine production, the dissent

argues that Jelovsek does not dictate the outcome here. See

Dissent Op. at 633–35. 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.

32a

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.

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, 110

S.Ct. 1986 (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-ofstate 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

33a

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.

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.

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, 126 S.Ct. 961, 163

L.Ed.2d 812 (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, 126 S.Ct. 961

(quoting Brockett v. Spokane Arcades, Inc., 472 U.S.

491, 504, 105 S.Ct. 2794, 86 L.Ed.2d 394 (1985) ).

However, we must be ‘‘mindful that our

constitutional mandate and institutional competence

are limited,’’ and we must ‘‘restrain ourselves from

‘rewriting state law to conform it to constitutional

34a

requirements’ even as we strive to salvage it.’’ Id. at

329, 126 S.Ct. 961 (quoting Virginia v. Am.

Booksellers Assn., Inc., 484 U.S. 383, 397, 108 S.Ct.

636, 98 L.Ed.2d 782 (1988) ).

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, 126 S.Ct. 961 (quoting

Califano v. Westcott, 443 U. S. 76, 94, 99 S.Ct. 2655,

61 L.Ed.2d 382 (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

35a

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 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]

36a

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

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 633.

However, in Granholm, the Supreme Court did not credit such

blanket assertions. See Granholm, 544 U.S. at 489–93, 125

S.Ct. 1885 (stating that ‘‘Commerce Clause cases demand more

than mere speculation to support discrimination against out-ofstate 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, 110 S.Ct. 1986 (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, 116 S.Ct. 1495, 134 L.Ed.2d 711 (1996) (stating

‘‘that demand, and hence consumption throughout the market,

37a

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. § 57-3204(b)(2)(B), (D). Additionally, portions of the statute

relate to application fees. See Tenn. Code Ann. § 573-204(b)(1). Because the statute contains various

provisions that are unrelated to the durationalresidency requirements and that relate to the

legislature’s purpose, we sever the unconstitutional

durational-residency provisions, i.e., § 57-3204(b)(2)(A), (3)(A)–(B), and (3)(D), from the rest of

the statute. 11

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.

11 According to the dissent, requiring 51% of stockholders to

satisfy the durational-residency requirements is valid, see

Dissent Op. at 635, 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, 104

38a

III.

CONCLUSION

For the reasons discussed above, we AFFIRM the

district court’s judgment declaring § 57-3204(b)(2)(A), (3)(A)–(B), and (3)(D) in violation of the

S.Ct. 3049 (quoting Bos. Stock Exch. v. State Tax Comm’n, 429

U.S. 318, 337, 97 S.Ct. 599, 50 L.Ed.2d 514 (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, 109 S.Ct. 2491

(quoting Edgar v. MITE Corp., 457 U.S. 624, 642, 102 S.Ct.

2629, 73 L.Ed.2d 269 (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 635. 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.

39a

dormant Commerce Clause and SEVER those

provisions from the Tennessee statute.

40a

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

41a

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. 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, 60 S.Ct. 163, 84 L.Ed. 128 (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

42a

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, 6 L.Ed. 23 (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, 107 S.Ct. 2810, 97 L.Ed.2d 199 (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, was increasingly a

matter of state and federal law. See, e.g., Leisy v.

Hardin, 135 U.S. 100, 121–23, 10 S.Ct. 681, 34 L.Ed.

128 (1890). That helps to explain the federal laws

43a

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, 12 L.Ed.

256 (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, 10 S.Ct. 681. 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, 18 S.Ct. 664, 42 L.Ed. 1088

(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.’’

44a

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, 59 S.Ct. 254, 83 L.Ed.

243 (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, 59 S.Ct. 804, 83

L.Ed. 1189 (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.

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, 63 S.Ct. 82, 87

L.Ed. 122 (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.

45a

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, 12 L.Ed. 702

(1849) (McLean, J.); The Federalist No. 42, at 263

(James Madison) (Clinton Rossiter ed. 2003); but see

Tyler Pipe, 483 U.S. at 261, 107 S.Ct. 2810 (Scalia, J.,

concurring in part and dissenting in part). Hence the

need

for

the

Court

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

46a

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 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, 57 S.Ct. 77, 81 L.Ed. 38 (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

47a

immediate

aftermath

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 with a heavy

hand. Ziffrin, 308 U.S. at 138, 60 S.Ct. 163. 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).

48a

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, 104 S.Ct.

2694, 81 L.Ed.2d 580 (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, 109 S.Ct. 2491, 105 L.Ed.2d

275 (1989) (invalidating price-affirmation statute

regulating liquor sales in other States); Bacchus

Imps., Ltd. v. Dias, 468 U.S. 263, 273, 276, 104 S.Ct.

3049, 82 L.Ed.2d 200 (1984) (invalidating

discriminatory tax on out-of-state liquor); Capital

Cities, 467 U.S. at 714, 104 S.Ct. 2694 (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, 100 S.Ct. 937, 63

L.Ed.2d 233 (1980) (invalidating resale price

maintenance and price posting statutes); Hostetter v.

Idlewild Bon Voyage Liquor Corp., 377 U.S. 324,

331–32, 84 S.Ct. 1293, 12 L.Ed.2d 350 (1964)

(invalidating regulation of alcohol passing through

49a

JFK Airport that would not be used until arrival at

international destination); Collins v. Yosemite Park &

Curry Co., 304 U.S. 518, 533–34, 58 S.Ct. 1009, 82

L.Ed. 1502 (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 instate 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, 125 S.Ct.

1885, 161 L.Ed.2d 796 (2005). All thus agree that the

States retain authority (1) to ban alcohol completely,

(2) to distribute liquor exclusively through state-run

monopolies, or (3) to operate distribution systems,

including through regulations that require retailers

and wholesalers to reside in-state. Id. at 489, 125

S.Ct. 1885. 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,

125 S.Ct. 1885.

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, 104 S.Ct. 3049.

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

50a

legitimate.’’ Granholm, 544 U.S. at 489, 125 S.Ct.

1885. 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, 110 S.Ct. 1986, 109 L.Ed.2d 420

(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

51a

district court judges to live within their districts, id. §

134(b).

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 threeyear residency requirement in Missouri for

wholesalers’ officers, directors, and 60% of their

stockholders. S. Wine & Spirits, 731 F.3d at 802–03.

52a

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, 125 S.Ct. 1885 (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, 125 S.Ct. 1885; id. at 517–19, 521–22, 125

S.Ct. 1885 (Thomas, J., dissenting). At the same

time, however, such regulations may serve a State’s

core 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, 116 S.Ct. 1495, 134 L.Ed.2d 711 (1996).

It thus does not matter whether an in-state

distribution regulation discriminates against out-ofstate interests.

What matters is what type of

discrimination is permissible.

This one is, and

Jelovsek says nothing about that question.

53a

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, 125 S.Ct. 1885. 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.

54a

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. § 57-3204(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).

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. § 48-18101(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-ornothing-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. § 57-3204(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

55a

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 614 n.2. My point is

that Granholm focused on the history in the run-up

Prohibition

and

concluded

that,

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, 125 S.Ct. 1885. 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, 125 S.Ct. 1885 (‘‘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 discriminated against liquor produced out

of state.’’); id. at 486, 125 S.Ct. 1885 (‘‘[T]he Twentyfirst 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,

56a

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 614–15 n.2,

619 & n.5, 620–21 n.7 (quoting 544 U.S. at 487, 125

S.Ct. 1885). 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 Twentyfirst 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, 104 S.Ct. 2694. ‘‘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.

57a

APPENDIX B

Clayton BYRD in his official capacity as

Executive Director of the Tennessee Alcoholic

Beverage Commission, et al.,

Plaintiffs,

TENNESSEE WINE AND SPIRITS

RETAILERS ASSOCIATION,

Defendant.

Case No. 3:16–cv–02738

United States District Court, Tennessee, Nashville

Division, Nashville Division.

Signed 04/14/2017

MEMORANDUM

Judge Sharp

Pending before the Court is Plaintiff 1 Tennessee

Fine Wines and Spirits, LLC’s (d/b/a Total Wine

Spirits Beer & More) (‘‘Tennessee Fine Wines’’)

1 The parties in this suit are labeled as either plaintiff or

defendant pursuant to this Court’s Order realigning the parties.

(Docket No. 53 at 1, ¶ 2).

58a

Motion for Partial Summary Judgment, (Docket No.

55), to which Plaintiff Clayton Byrd (‘‘Byrd’’) and

Defendant Tennessee Wine and Spirits Retailers

Association (‘‘Association’’) have filed Responses in

Opposition, (Docket Nos. 73, 90), and Plaintiff

Tennessee Fine Wines has replied, (Docket Nos. 76,

95). For the reasons set forth below, the Court will

grant Plaintiff Tennessee Fine Wines’ Motion.

BACKGROUND

The relevant facts are undisputed for present

purposes and are as follows:

Plaintiff Byrd is the Executive Director of the

Tennessee Alcoholic Beverage Commission (‘‘the

Commission’’), a Tennessee state agency tasked with

licensing the sale and delivery of alcoholic beverages.

Plaintiff Byrd filed this action seeking a declaratory

judgment regarding the constitutionality of the

residency requirement for issuing a retail license

outlined in Tenn. Code Ann. § 57−3−204(b)(2)(A).

(Docket No. 1−1). Plaintiff Tennessee Fine Wines is a

Tennessee limited liability company whose members

are not residents of Tennessee. It seeks to own and

operate one or more retail liquor stores, referred to as

retail package stores, in Tennessee.

On July 5, 2016, Plaintiff Tennessee Fine Wines

filed an application with the Commission for a new

retail package store to be located in Nashville,

Tennessee. Plaintiff Tennessee Fine Wines asserts

that its representatives met with the Commission’s

staff, including Plaintiff Byrd, to discuss its plan to

apply for a retail package store license prior to filing

its application.

It further asserts that those

discussions

included

whether

the

residency

59a

requirements would preclude it from obtaining a

license. Plaintiff Byrd disputes having met with

representatives of Tennessee Fine Wines prior to the

submission of its application. The Commission’s staff

advised Plaintiff Tennessee Fine Wines that, in light

of two opinions by the Tennessee Attorney General

that the residency requirements are unconstitutional,

the Commission has not enforced the residency

requirements and has licensed nonresidents in the

past. The Commission’s staff recommended that the

Commission approve Plaintiff Tennessee Fine Wines’

application, subject to certain conditions.

The

Commission twice deferred its vote on Plaintiff

Tennessee Fine Wines’ application for a retail

package store license, the last time being indefinitely

until the Court resolves Plaintiff Byrd’s declaratory

action.

STANDARD OF REVIEW

Pursuant to Federal Rule of Civil Procedure 56,

this Court is required to grant a motion for summary

judgment ‘‘if the movant shows that 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). Plaintiff Tennessee Fine Wines’

Motion for Partial Summary Judgment presents pure

issues of law, which are appropriate for resolution at

the summary judgment stage.

LEGAL ANALYSIS

The Commission issues retail package store

licenses pursuant to Tenn. Code Ann. § 57−3−204

and other statutory provisions. Tenn. Code Ann.

§ 57−3−204 contains residency requirements that

prohibit the Commission from issuing retail package

60a

store licenses to nonresidents. Specifically, when it

comes to issuing a license to an individual, the

statute provides in pertinent part that:

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 twoyear 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[.]

T.C.A. § 57-3-204(b)(2)(A). Furthermore, with respect

to corporations, the statute states, inter alia, that:

The commission may, in its discretion, issue

such a retail license to a corporation; provided,

that no such license shall be issued to any

corporation unless such corporation meets the

following requirements:

(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;

(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

61a

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;

T.C.A. § 57–3–204(b)(3)(A)–(B).

Plaintiff Tennessee Fine Wines argues that the

residency requirements are unconstitutional because

they violate the Commerce Clause as well as the

Privileges and Immunities Clause of the United

States Constitution. Because the relevant facts are

undisputed, this case presents a strictly legal

question as to whether Plaintiff Tennessee Fine

Wines is entitled to summary judgment as a matter

of law. It is.

Commerce Clause

The Commerce Clause of the U.S. Constitution

both expressly grants Congress the power to regulate

commerce among the several States, see U.S. Const.

art. I, § 8, cl. 3, and implicitly limits the States’ power

to discriminate against interstate commerce. See,

e.g., New Energy Co. of Ind. v. Limbach, 486 U.S. 269,

273, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). The

Commerce Clause’s negative implication—also

known as the dormant Commerce Clause—arises

from a concern over ‘‘economic protectionism—that is,

regulatory measures designed to benefit in-state

economic interests by burdening out-of-state

competitors.’’ Jelovsek v. Bredesen, 545 F.3d 431, 435

(6th Cir. 2008) (citing New Energy, 486 U.S. at 273–

74, 108 S.Ct. 1803). ‘‘[I]n all but the narrowest

circumstances, state laws violate the Commerce

Clause if they mandate ‘differential treatment of instate and out-of-state economic interests that benefits

62a

the former and burdens the latter.’ ” Granholm v.

Heald, 544 U.S. 460, 472, 125 S.Ct. 1885, 161

L.Ed.2d 796 (2005) (citing Oregon Waste Sys., Inc. v.

Dep’t of Envtl. Quality of State of Or., 511 U.S. 93, 99,

114 S.Ct. 1345, 128 L.Ed.2d 13 (1994)).

Dormant Commerce Clause challenges proceed

under a two-tiered analysis. Int’l Dairy Foods Ass’n

v. Boggs, 622 F.3d 628, 644 (6th Cir. 2010). Under

the first tier, a court determines whether ‘‘a state

statute directly regulates or discriminates against

interstate commerce, or [whether] its effect is to favor

in-state economic interests over out-of-state

interests.’’ Am. Beverage Ass’n v. Snyder, 735 F.3d

362, 369–70 (6th Cir. 2013) (internal quotation marks

and citation omitted). To prevail, a plaintiff must

satisfy its burden of showing that a state regulation

discriminates against out-of-state interests either ‘‘(a)

facially, (b) purposefully, or (c) in practical effect.’’ Id.

at 370 (internal quotation marks and citations

omitted). ‘‘If the plaintiff satisfies its burden, then ‘a

discriminatory law is virtually per se invalid and will

survive only if it advances a legitimate local purpose

that cannot be adequately served by reasonable

nondiscriminatory alternatives.’ ” Id. (citation

omitted). Under the second tier, if the challenged

state regulation is neither extraterritorial nor

discriminatory, then a court applies the Supreme

Court’s balancing test set forth in Pike v. Bruce

Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 25

L.Ed.2d 174 (1970). Id. Under Pike, a court should

uphold the challenged state regulation ‘‘unless the

burden it imposes upon interstate commerce is

‘clearly excessive in relation to the putative local

63a

benefits.’ ” Id. (internal quotation marks and citation

omitted).

A. The residency requirements are facially

discriminatory

Plaintiff Tennessee Fine Wines argues that the

residency requirements are discriminatory on their

face. For support, it relies on Jelovsek v. Bredesen,

545 F.3d 431 (6th Cir. 2008). In that case, the Sixth

Circuit vacated the district court’s finding as to

certain Tennessee laws concerning the wine industry.

Jelovsek, 545 F.3d at 433. The Sixth Circuit held

certain provisions of Tennessee’s Grape and Wine

Law to be ‘‘discriminatory on their face,’’

‘‘impermissibly favor[ing] Tennessee interests at the

expense of interstate commerce.’’ Id. Among those

provisions was Tenn. Code Ann. § 57–3–207(d), which

provided:

No winery license shall be issued except to

individuals who are residents of the state of

Tennessee and have been for at least two (2)

years next preceding residents of the state, …. A

winery license may, in the discretion of the

commission, be issued to a corporation only if all

of the capital stock of such corporation is owned

by individuals who have been residents of

Tennessee for not less than two (2) years

preceding ….

T.C.A. § 57–3–207(d) (2008) (emphasis added).

Plaintiff Tennessee Fine Wines argues that, because

the residency requirements for a retail package store

license are nearly identical to the residency

requirements for a winery license invalidated in

Jelovsek, they are facially discriminatory and per se

64a

invalid unless they advance a legitimate local

purpose not adequately served by reasonable

nondiscriminatory alternatives. Plaintiff Byrd and

Defendant Association, however, argue that the state

of Tennessee, pursuant to the Twenty-first

Amendment,

may

impose

such

residency

requirements.

Section 2 of the 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.

However, it is

axiomatic that even though the States have the right

to regulate alcoholic beverages within their borders,

that right is not plenary. See Jelovsek, 545 F.3d at

436 (citing Granholm, 544 U.S. at 484, 125 S.Ct.

1885) (‘‘ ‘[T]he 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 outof-state goods ….’’); Bacchus Imports, Ltd. v. Dias,

468 U.S. 263, 276, 104 S.Ct. 3049, 82 L.Ed.2d 200

(1984) (finding a state’s liquor tax exemption for

certain locally produced products violative of the

Commerce Clause and stating that ‘‘[t]he central

purpose of [Section 2 of the Twenty-first Amendment]

was not to empower States to favor local liquor

industries by erecting barriers to competition.’’).

Because ‘‘state regulation of alcohol is limited by the

nondiscrimination principle of the Commerce

Clause,’’ Granholm, 544 U.S. at 487, 125 S.Ct. 1885,

65a

the Court is tasked with determining whether the

residency requirements at issue run afoul of the

Commerce Clause or are saved by the Twenty-first

Amendment.

Plaintiff Byrd and Defendant Association contend

that Tennessee’s residency requirements for those

seeking a retail package store license are protected

under the Twenty-first Amendment because the

residency requirements are simply part of the retail

tier of Tennessee’s three-tier regulatory scheme

governing who may sell liquor within its borders. 2

(Docket No. 73 at 10; Docket No. 90 at 11−13). They

rely on Granholm v. Heald, 544 U.S. 460, 125 S.Ct.

1885, 161 L.Ed.2d 796 (2005) for support.

In Granholm, the Supreme Court invalidated—on

Commerce Clause grounds—laws in New York and

Michigan that permitted in-state wineries, but

restricted the ability of out-of-state wineries, to ship

alcohol directly to consumers. In rejecting those

States’ argument that striking down their directshipment laws ‘‘would call into question the

constitutionality of the three-tier system,’’ the Court

offered dicta 3 that Plaintiff Byrd and Defendant

2 Tennessee’s three-tier alcohol distribution system consists

of (1) manufacturers, who sell to (2) licensed distributors/

wholesalers, who in turn sell to (3) licensed retailers, who in

turn sell to consumers.

3 The Court recognizes Defendant Association’s argument

that this Court still needs to follow Supreme Court dicta. See

Am. Civil Liberties Union of Kentucky v. McCreary Cty., Ky., 607

F.3d 439, 447 (6th Cir. 2010) (“Lower courts are ‘obligated to

follow Supreme Court dicta, particularly where there is not

substantial reason for disregarding it, such as age or subsequent

statements undermining its rationale.’ ”) (citation omitted).

66a

Association find particularly meaningful. Granholm,

544 U.S. at 488, 125 S.Ct. 1885. It stated, ‘‘ ‘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.’ ” Id. (quoting California Retail

Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445

U.S. 97, 110, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980)).

The Court further observed that ‘‘[it has] previously

recognized that the three-tier system itself is

‘unquestionably legitimate.’ ” Id. at 489, 125 S.Ct.

1885 (citing North Dakota v. United States, 495 U.S.

423, 432, 110 S.Ct. 1986, 109 L.Ed.2d 420 (1990)).

The Supreme Court then 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. The instant cases, in

contrast, involve straightforward attempts to

discriminate in favor of local producers.’’ Id. The

Court ultimately held that ‘‘[t]he differential

treatment between in-state and out-of-state wineries

constitutes explicit discrimination against interstate

commerce.’’ Id. at 467, 125 S.Ct. 1885.

Therefore,

Plaintiff

Byrd

and

Defendant

Association argue that Granholm stands for the

proposition that ‘‘as long as a state statute does not

discriminate against nonresident liquor producers or

products with its three-tier system, the statute is

protected from Commerce Clause challenges.’’

(Docket No. 73 at 7) (emphasis added); (see Docket

No. 90 at 11–13). Under those circumstances, they

However, the Court disagrees with Plaintiff Byrd’s and

Defendant Association’s interpretation of the relevant dicta.

67a

argue ‘‘the Commerce Clause is not implicated and no

balancing under Commerce Clause jurisprudence is

necessary’’ and ‘‘nothing in Granholm stands as a

limitation on the State’s powers under the Twentyfirst Amendment.’’ (Docket No. 73 at 11; Docket No.

90 at 13). The way in which other courts have

interpreted Granholm supports Plaintiff Byrd’s and

Defendant Association’s position.

In Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185 (2d

Cir. 2009), the Second Circuit upheld, against a

Commerce Clause challenge, a New York statutory

provision that permitted New York-licensed retailers,

but not out-of-state retailers, to deliver liquor directly

to New York residents. The Second Circuit stated,

‘‘Granholm validates evenhanded state policies

regulating the importation and distribution of

alcoholic

beverages

under

the

Twenty-first

Amendment.’’ Arnold’s Wines, 571 F.3d at 190. It

continued, ‘‘It 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. (citing Granholm, 544 U.S. at 489, 125

S.Ct. 1885 and Brooks v. Vassar, 462 F.3d 341, 351–

53 (4th Cir. 2006)).

Applying its understanding of Granholm to the

New York law, the Second Circuit stated that the

challenged provisions did not distinguish between

liquor produced out of state and liquor produced in

New York because licensed in-state retailers could

ship both kinds directly to New York consumers. Id.

Because the law ‘‘treat[ed] in-state and out-of-state

liquor evenhandedly under the state’s three-tier

68a

system[, requiring both to pass through it], … [it]

complie[d] with Granholm’s nondiscrimination

principle.’’ Id. The Second Circuit also stated that

the challenge to the provisions ‘‘requiring all

wholesalers and retailers be present in and licensed

by the state… is a frontal attack on the

constitutionality of the three-tier system itself[,]’’

which is ‘‘directly foreclosed by the Granholm Court’s

express affirmation of the legality of the three-tier

system.’’ Id. at 190–91; see Brooks, 462 F.3d at 352

(stating that ‘‘an argument that compares the status

of an in-state retailer with an out-of-state retailer—

or that compares the status of any other in-state

entity under the three-tier system with its out-ofstate counterpart—is nothing different than an

argument challenging the three-tier system itself.’’).

Having concluded that New York’s three-tier system

did not discriminate against out-of-state producers or

products, the Second Circuit declined to analyze the

challenged law further under the Commerce Clause.

Arnold’s Wines, 571 F.3d at 191.

In Southern Wine & Spirits of Am., Inc. v. Div. of

Alcohol & Tobacco Control, 731 F.3d 799 (8th Cir.

2013), the Eighth Circuit held that Missouri’s

residency requirement to obtain a wholesale liquor

license was permissible under the Twenty-first

Amendment and the dormant Commerce Clause.

There, the Eighth Circuit stated that Granholm

‘‘drew a bright line between the producer tier and the

rest of the system,’’ and endorsed the Second Circuit’s

approach in Arnold’s Wines of not analyzing further,

under Commerce Clause principles, a state

regulation that does not discriminate against liquor

69a

products or producers from out-of-state. 4 Southern

Wine, 731 F.3d at 810. It characterized Granholm’s

guidance as follows: ‘‘The three-tier system is

‘unquestionably legitimate,’ … and that system

includes the ‘licensed in-state wholesaler.’ ” Id. at 809

(citing Granholm, 544 U.S. at 489, 125S.Ct. 1885

(quoting North Dakota, 495 U.S. at 432, 447, 110

S.Ct. 1986 (Scalia, J., concurring in the 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.’’))).

Applying its view of Granholm to the wholesaler

residency

requirement,

the

Eighth

Circuit

determined that it was not discriminatory towards

out-of-state liquor producers or products. Id. at 810.

The Eighth Circuit stated that the residency

requirement merely defined ‘‘the extent of in-state

presence required to qualify as a wholesaler in the

three-tier system.’’ Id. at 809−10.

It further

reasoned:

If it is beyond question that States may require

wholesalers to be ‘‘in-state’’ without running

afoul of the Commerce Clause, Granholm, 544

U.S. at 489, 125 S.Ct. 1885 (internal quotation

omitted), then we think States have flexibility to

define the requisite degree of ‘‘in-state’’ presence

to include the in-state residence of wholesalers’

4 However, the Eighth Circuit still considered the interests of

Missouri, albeit deferentially. See Southern Wine, 731 F.3d at

810–11 (‘‘If, despite the ‘protected’ status promised by

Granholm, state policies defining the three-tier system are

subject to deferential scrutiny, Missouri’s law passes muster.’’).

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directors and officers, and a super-majority of

their shareholders.

Id. at 810.

Notwithstanding Arnold’s Wines and Southern

Wine, the Court agrees with Plaintiff Tennessee Fine

Wines that Tennessee’s residency requirements for

the issuance of a retailer license are discriminatory

on their face. In Cooper v. Texas Alcoholic Beverage

Comm’n, 820 F.3d 730 (5th Cir. 2016), cert. denied

sub nom. Texas Package Stores Ass’n, Inc. v. Fine

Wine & Spirits of N. Texas, LLC, ––– U.S. ––––, 137

S.Ct. 494, 196 L.Ed.2d 404 (2016), the Fifth Circuit

denied relief from a permanent injunction entered in

Wilson v. McBeath, No. CIV. A-90-CA-736, 1991 WL

540043, at *3 (W.D. Tex. June 13, 1991), aff’d sub

nom. Cooper v. McBeath, 11 F.3d 547 (5th Cir. 1994),

which prevented the enforcement of the Texas

Alcoholic Beverage Code’s residency requirement

necessary to receiving a mixed beverage permit. In

Cooper v. McBeath, the Fifth Circuit characterized

the residency requirement as an ‘‘impenetrable

barrier to entering the Texas liquor industry on

substantially equal terms as Texans enjoy [which]

discriminates against out-of-staters.’’ 11 F.3d at 553.

This Court finds persuasive and adopts the

reasoning of the Fifth Circuit in Cooper v. Texas

Alcoholic Beverage Comm’n. In that case, the Fifth

Circuit affirmed the reading of Granholm it adopted

in Wine Country Gift Baskets.com v. Steen, 612 F.3d

809, 821 (5th Cir. 2010); that is, Granholm

reaffirmed the Commerce Clause limits state alcohol

regulations—to a greater extent when the regulations

deal with the producer tier and to a lesser extent

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when they deal with the retailer or wholesaler tier.

See Texas Alcoholic Beverage Comm’n, 820 F.3d at

743. This Court agrees 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.

Although the Granholm 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[,]’’ 544 U.S.

at 489, 125 S.Ct. 1885, it is unnecessary to infer from

that language that the Commerce Clause does not

apply to all state regulations concerning the retailer

and wholesaler tiers. This is because Granholm

concerned a regulation that affected the producer-tier

of the three-tier distribution system, so it makes

sense that the Granholm Court discussed the

protections of the Twenty-first Amendment in

relation to liquor producers and products.

Furthermore, Granholm affirmed Commerce Clause

principles that apply to the treatment of people and

things beyond liquor producers and products. See

Granholm, 544 U.S. at 472, 125 S.Ct. 1885 (quoting

Oregon Waste, 511 U.S. at 99, 114 S.Ct. 1345) (‘‘Time

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.’ ”) (emphasis added). That Granholm affirmed

the legitimacy of the three-tier system does not imply

that a regulation, such as the retailer residency

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requirements at issue, is immune from Commerce

Clause challenge. 5

This Court disagrees with Defendant Association’s

argument that Plaintiff Tennessee Fine Wines ‘‘pay[s] no heed

to the Court’s established distinction between laws that

discriminate against out-of-state producers and their products

versus laws that regulate the liquor distribution system within

the State after those products have arrived.’’ (Docket No. 90 at

9). Defendant Association summarizes the Supreme Court’s

dormant Commerce Clause and Twenty-first Amendment

jurisprudence, but none of it requires a different outcome than

the one this Court reaches, especially when the Granholm

majority discussed many of the cases Defendant Association

points out and still concludes that the Commerce Clause’s

nondiscrimination principle limits state regulation of alcohol.

Defendant Association casts doubt, by highlighting portions

from the Granholm dissent, on what it calls ‘‘the [Granholm]

majority’s exception of producers from the effect of the Twentyfirst amendment,’’ which ‘‘exception,’’ it argues, does not help

Plaintiff Tennessee Fine Wines for reasons already discussed.

(Docket No. 90 at 13). The Granholm dissent asserted that the

Granholm majority conceded that schemes, such as private

licensing schemes requiring in-state residency or physical

presence, are ‘‘within the ambit of the Twenty-first

Amendment.’’ Granholm, 544 U.S. at 518, 125 S.Ct. 1885

(Thomas, J., dissenting). The dissent further stated that

‘‘allowing a State to require all wholesalers and retailers to be

in-state companies is a core concern of the Twenty-first

Amendment.’’ Id. at 524, 125 S.Ct. 1885 (Thomas, J.,

dissenting). However, the Granholm dissent seems to have

overstated what the majority conceded. Affirming that a state

can require liquor to pass through an in-state wholesaler, as the

Granholm majority did in dicta, is different from explicitly

holding that the Twenty-first Amendment protects in-state

durational residency requirements. Furthermore, as will be

discussed, this Court finds there is a difference between an instate physical presence requirement and a durational residency

requirement, such as the residency requirements at issue here.

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Granholm thus understood, this Court finds the

residency requirements discriminatory on their face.

The Court agrees that ‘‘[t]he Twenty-first

Amendment does not … authorize states to impose a

durational-residency requirement on the owners of

alcoholic beverage retailers and wholesalers.’’ Texas

Alcoholic Beverage Comm’n, 820 F.3d at 743

(emphasis in original) (citing Wine Country, 612 F.3d

at 821) (noting the difference between a permissible

physical-residency requirement on retailers and

wholesalers and an impermissible durationalresidency requirement on the owners of retailers and

wholesalers). 6 ‘‘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.’’ Id. (citing Wine Country, 612 F.3d at 818).

Although requiring liquor stores to be physically

present in Tennessee may serve its interest in

regulating alcohol, the Court fails to see how

imposing a durational residency requirement serves

the same. Therefore, the Court finds that durationalresidency requirements, such as those at issue here,

are not inherent to a legitimate three-tier system.

The two-year (for an initial retailer license) and

ten-year (for a renewal retailer license) residency

requirements applicable to both individuals and

corporations are discriminatory because they

discriminate against out-of-staters by creating a

barrier to entering the Tennessee retail liquor

This Court disagrees with Defendant Association’s

contention that these Fifth Circuit decisions ‘‘actually reveal

inconsistency by the Fifth Circuit in attempting to follow

Granholm.’’ (Docket No. 90 at 16).

74a

market. It is unavailing for Plaintiff Byrd to argue

that the residency requirements apply even-handedly

to every retailer seeking a license, whether in state or

out, and that ‘‘applicants who are already Tennessee

residents may not meet the two-year requirement

along with their out-of-state counterparts.’’ (Docket

No. 73 at 10). Even though the latter may be

factually true, that argument is unconvincing

because it is still the case that a barrier is created for

out-of-staters;

pursuant

the

residency

requirements, nonresidents of Tennessee will always

be unable to obtain a retail liquor license, but

Tennessee residents of a certain duration may obtain

one.

Thus,

the

residency

requirements

‘‘impermissibly favor Tennessee interests at the

expense of interstate commerce.’’ Jelovsek, 545 F.3d

at 433; see also Granholm, 544 U.S. at 473, 125 S.Ct.

1885 (stating that laws violate Commerce Clause

principles when ‘‘[t]hey deprive citizens of their right

to have access to the markets of other States on equal

terms’’).

Furthermore, Plaintiff Byrd’s and Defendant

Association’s attempt to distinguish the Sixth

Circuit’s decision in Jelovsek from the facts of this

case is not helpful to their position. Plaintiff Byrd

and Defendant Association argue that the residency

requirement found discriminatory in Jelovsek applied

to wine producers, and, therefore, ‘‘discriminated

against out-of-state wine producers in ways that gave

Tennessee wineries a competitive advantage’’ and

‘‘implicated interstate commerce.’’ (Docket No. 73 at

11; Docket No. 90 at 16). Plaintiff Byrd contends

that, unlike the residency requirements in Jelovsek,

the retailer residency requirements at issue do not

75a

give in-state producers or products a competitive

advantage. (Docket No. 73 at 11). Plaintiff Byrd

argues that the residency requirements are protected

by the three-tier system and ‘‘are firmly rooted in the

regulation of who may be a retailer to sell products

within Tennessee, regardless of whether the source of

the liquor is in-state or out-of-state.’’ (Id. at 12). He

further contends that ‘‘[t]he residency requirement

does nothing to inhibit the free flow of out-of-state

liquor to those who meet the requirements of licensed

wholesalers and retailers, who are free to sell both instate and out-of-state liquor products directly to the

general public.’’ (Id. at 10–11).

It is clear that Plaintiff Byrd and Defendant

Association base their arguments on a reading of

Granholm that, per the discussion above, this Court

rejects. Additionally, nothing in Jelovsek suggests

that the Sixth Circuit interprets Granholm to mean

that a statutory provision dealing with the retailertier is automatically protected from Commerce

Clause challenge as long as it does not discriminate

against out-of-state liquor producers or products.

Even though the Sixth Circuit in Jelovsek states that

‘‘Tennessee’s decision to adhere to a three-tier

distribution system is immune from direct challenge

on Commerce Clause grounds[,]’’ 545 F.3d at 436

(citing Granholm, 544 U.S. at 489, 125 S.Ct. 1885), it

is not obvious that the Sixth Circuit would uphold a

residency requirement affecting retailers on that

basis. 7

7 Furthermore, the Sixth Circuit mentions Tennessee’s three-

tier distribution system in the context of affirming the district

court’s determination that Tennessee may ban entirely direct

76a

Furthermore, the Court disagrees with Plaintiff

Byrd that the residency requirement for a winery

license found to be discriminatory in Jelovsek ‘‘made

exceptions to Tennessee’s three-tier system, much

like the Michigan and New York statutes invalidated

in Granholm[.]’’ (Docket No. 73 at 11). A court could

appropriately characterize the statutory provisions

invalidated in Granholm as exceptions to the threetier distribution system because in-state wineries

were allowed to ship directly to consumers, avoiding

going through the wholesaler and retailer tiers, while

out-of-state wineries could not do the same. The

discriminatory winery residency requirement at issue

in Jelovsek was not such an exception. Therefore, it

is unavailing for Plaintiff Byrd to try to distinguish

the retailer residency requirements at issue here

from

the

discriminatory

winery

residency

requirement at issue in Jelovsek on the basis that the

former is not an impermissible exception from the

three-tier system while the latter was.

B. The residency requirements do not

advance a legitimate local purpose that

cannot

adequately

served

reasonable

nondiscriminatory

alternatives

Having found the retailer residency requirements

discriminatory, the Court now considers whether

they survive Plaintiff Tennessee Fine Wines’ dormant

Commerce Clause challenge because they ‘‘advance[ ]

a legitimate local purpose that cannot be adequately

shipment of alcoholic beverages to consumers because the ban

‘‘applied equally to in-state and out-of-state wineries.’’ Jelovsek,

545 F.3d at 436.

77a

served

reasonable

nondiscriminatory

alternatives.’’ Granholm, 544 U.S. at 489, 125 S.Ct.

1885 (citation omitted). ‘‘The burden is on the State

to show that the discrimination is demonstrably

justified.’’ Id. at 492, 125 S.Ct. 1885 (internal

quotation marks and citation omitted) (emphasis in

original). This standard is exacting. See id. at 492–

93, 125 S.Ct. 1885 (‘‘The Court has upheld state

regulations that discriminate against interstate

commerce only after finding, based on concrete record

evidence,

that

State’s

nondiscriminatory

alternatives will prove unworkable.’’).

The General Assembly stated its purposes for

enacting the residency requirements as follows:

It is the intent of the general assembly to

distinguish

between

licenses

authorized

generally under this title and those specifically

authorized under this section. 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, as defined

in § 57–5–101(b), 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

78a

the laws, rules and regulations governing such

licensees are observed.

T.C.A. § 57–3–204(b)(4). Because Plaintiff Byrd

argues that Tennessee’s residency requirements are

not subject to Commerce Clause challenge, he does

not offer the Court any concrete evidence to show

that the discrimination against out-of-state residents

is demonstrably justified. Plaintiff Tennessee Fine

Wines contends that the General Assembly’s stated

purposes do not suffice to save the residency

requirements. This Court agrees.

Stating that ‘‘it is in the best interest of the health,

safety, and welfare of [the] state’’ to impose retailer

residency requirements does not prevent the

residency requirements from violating the Commerce

Clause. Tennessee’s concern for its health, safety,

and welfare is an appropriate reason for it to regulate

alcohol in general and maintain a three-tiered

distribution system. See North Dakota v. United

States, 495 U.S. at 432, 110 S.Ct. 1986 (‘‘The two

North Dakota regulations fall within the core of the

State’s power under the Twenty-first Amendment. In

the interest of promoting temperance, ensuring

orderly market conditions, and raising revenue, the

State has established a comprehensive system for the

distribution of liquor within its borders.’’); Bacchus

Imports, Ltd. v. Dias, 468 U.S. at 276, 104 S.Ct. 3049

(stating that a clear concern of the Twenty-first

Amendment is to ‘‘combat the perceived evils of an

unrestricted traffic in liquor’’).

However, that

concern does not explain Tennessee’s restriction on

out-of-staters seeking a retail liquor license.

Moreover, even if the retailer residency requirements

advance the health, safety, and welfare of Tennessee,

79a

there has been no attempt to show that

nondiscriminatory means would fail to accomplish

Tennessee’s purposes. See Anheuser–Busch, Inc. v.

Schnorf, 738 F.Supp.2d 793, 810–11 (N.D. Ill. 2010)

(‘‘Although Defendants have come forward with

acceptable reasons why alcohol regulations in general

and the three-tier system are valid . . . , none of those

reasons justifies the discrimination . . . ’).

Likewise, aiming ‘‘to maintain a higher degree of

oversight, control, and accountability’’ of liquor

retailers because products sold through them contain

a high alcohol content does not stop the retailer

residency requirements from running afoul of the

Commerce Clause. The Supreme Court in Granholm

rejected greater regulatory control as a sufficient

justification when reasonable nondiscriminatory

alternatives could serve that purpose.

There,

because the states provided little supporting

evidence, the Supreme Court rejected the argument

that the discriminatory statutes at issue aided them

‘‘to police underage drinking.’’ Granholm, 544 U.S. at

490, 125 S.Ct. 1885 (‘‘Without concrete evidence that

direct shipping of wine is likely to increase alcohol

consumption by minors, we are left with the States’

unsupported assertions.’’).

Furthermore, the

Granholm Court rejected the argument that allowing

in-state producers, but forbidding out-of-state

producers, to ship wine directly to consumers was

justified because the states ‘‘ha[d] greater regulatory

control over in-state producers than over out-of-state

wineries.’’ Id. The Court noted that alternative

means existed. See id. at 490–91, 125 S.Ct. 1885

(‘‘[T]he States can take less restrictive steps to

80a

minimize the risk that minors will order wine by

mail.’’).

Here, this Court fails to see how the retailer

residency requirements even assist Tennessee to

achieve a higher degree of oversight, control, and

accountability over those involved in the ownership,

management, and control of licensed retail premises.

The Court has no evidence before it to allow it to

infer that a prospective applicant for a retail package

store license is subject to alcohol regulations during

the two-year in-state residency period currently

required for retailer license eligibility. Therefore, the

Court cannot find that the retailer residency

requirements help Tennessee to achieve greater

oversight, control, and accountability.

And as

Granholm noted, ‘‘improvements in technology have

eased the burden of monitoring out-of-state wineries.

Background checks can be done electronically.

Financial records and sales data can be mailed,

faxed, or submitted via e-mail.’’ Id. at 492, 125 S.Ct.

1885. This applies equally to out-of-staters seeking a

retail liquor license in Tennessee.

Because there has been no showing that the

residency requirements advance a legitimate local

purpose that cannot be adequately served by

reasonable nondiscriminatory alternatives, the Court

finds that the residency requirements do not survive

a Commerce Clause challenge.

II. Privileges and Immunities

Given that the Court disposes of this case on

Commerce Clause grounds, the Court declines to rule

on whether the residency requirements also violate

81a

the Privileges and Immunities Clause of Art. IV, § 2

of the U.S. Constitution.

CONCLUSION

For the foregoing reasons, Plaintiff Tennessee Fine

Wines’ Motion for Partial Summary Judgment,

(Docket No. 55), will be granted. The Court declares

the residency requirements unconstitutional under

the dormant Commerce Clause and enjoins their

enforcement.

An appropriate order shall be entered.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.