Amicus Curiae Brief — Tennessee Wine and Spirits Retailers Association, Petitioner v. Russell F. Thomas, Executive Director of the Tennessee Alcoholic Beverage Commission, et al.

No. 18-96

================================================================

In The

Supreme Court of the United States

-----------------------------------------------------------------TENNESSEE WINE AND

SPIRITS RETAILERS ASSOCIATION,

Petitioner,

v.

CLAYTON BYRD, ET AL.,

Respondents.

-----------------------------------------------------------------On Writ Of Certiorari To The

United States Court Of Appeals

For The Sixth Circuit

-----------------------------------------------------------------BRIEF FOR THE MICHIGAN BEER AND

WINE WHOLESALERS ASSOCIATION AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

-----------------------------------------------------------------ANTHONY S. KOGUT

Counsel of Record

CURTIS R. HADLEY

WILLINGHAM & COTÉ, P.C.

333 Albert Ave., Suite 500

East Lansing, MI 48823

517-351-6200

akogut@willinghamcote.com

chadley@willinghamcote.com

Counsel for Amicus Curiae

================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTION PRESENTED

Whether the Twenty-first Amendment empowers

States, consistent with the dormant Commerce Clause,

to regulate liquor sales by granting retail or wholesale

licenses only to individuals or entities that have resided in-state for a specified time.

ii

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .................................

iii

INTEREST OF AMICUS CURIAE ......................

1

SUMMARY OF ARGUMENT ..............................

2

ARGUMENT ........................................................

3

Introduction and History .................................

3

Analysis ............................................................

8

I.

II.

The dormant Commerce Clause review required by Granholm applies to laws that

favor in-state products or producers .........

8

In the alternative, the Court should confirm that the Twenty-first Amendment

immunizes from review under the Commerce Clause state regulations that are

inherent in the three-tier system, and this

includes requirements that retailers and

wholesalers be physically present in the

State........................................................... 12

CONCLUSION..................................................... 21

iii

TABLE OF AUTHORITIES

Page

CASES

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

Cir. 2009) ..................................................... 10, 13, 21

Byrd v. Tennessee Wine and Spirits Retailers

Ass’n, 883 F.3d 608 (6th Cir. 2018) ................... 15, 20

California Retail Liquor Dealers Ass’n v. Midcal

Aluminum, Inc., 445 U.S. 97 (1980) ...................... 5, 9

Cooper v. Texas Alcoholic Beverage Comm’n, 820

F.3d 730 (5th Cir. 2016) ............................... 15, 16, 20

Duckworth v. Arkansas, 314 U.S. 390 (1941) ...............3

Granholm v. Heald, 544 U.S. 460 (2005) ............ passim

Heublein v. South Carolina Tax Commission,

409 U.S. 275 (1972) .................................................10

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

377 U.S. 324 (1964) .................................................21

Lebamoff Enterprises, Inc. v. Rauner, Docket No.

16 C 8607, slip op., 2017 WL 2486084 (N.D. Ill.

June 8, 2017), appeal pending, 7th Cir. Docket

No. 17-2495 ..............................................................13

Lebamoff Enterprises, Inc. v. Snyder, U.S. Dist.

Ct., E.D. Mich. Docket No. 2:17-cv-10191..... 2, 12, 17

North Dakota v. United States, 495 U.S. 423

(1990) ....................................................... 9, 11, 16, 21

Sarasota Wine Market, LLC v. Parson, U.S. Dist.

Ct., E.D. Missouri Docket No. 4:17-cv-029792 .......13

iv

TABLE OF AUTHORITIES – Continued

Page

Southern Wine and Spirits of America, Inc. v. Division of Alcohol and Tobacco Control, 731

F.3d 799 (8th Cir. 2013) ..................................... 11, 20

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

809 (5th Cir. 2010) ............................................. 14, 15

CONSTITUTIONAL PROVISIONS

U.S. Const. amend. XXI ...................................... passim

U.S. Const. art. I, § 8, cl. 3.............................................1

STATUTES AND COURT RULES

Act of Mar. 1, 1913, ch. 90, 37 Stat. 699 (codified

at 27 U.S.C. § 122) .....................................................5

Act of Aug. 27, 1935, ch. 740 § 202(b), 49 Stat. 877 ......... 5

Federal Alcohol Administration Act of 1935, 27

U.S.C. § 201 et seq....................................................16

Mich. Comp. L. § 436.1201 .........................................19

Mich. Comp. L. § 436.1217 .........................................18

Mich. Comp. L. § 436.1301 .........................................19

Mich. Comp. L. § 436.1409 .........................................19

Mich. Comp. L. § 436.1603 .........................................18

Mich. Comp. L. § 436.1605 .........................................18

Mich. Comp. L. § 436.1901 .........................................18

Mich. Comp. L. § 436.1903 .........................................18

Mich. Comp. L. § 436.1905 .........................................18

v

TABLE OF AUTHORITIES – Continued

Page

Mich. Comp. L. § 436.1906 .........................................18

Mich. Comp. L. § 436.2013 .........................................19

Mich. Comp. L. § 600.3801 .........................................18

Sober Truth on Preventing Underage Drinking

Act, 42 U.S.C. § 290bb-25b ........................................6

Twenty-first Amendment Enforcement Act, 27

U.S.C. § 122a(b) .........................................................6

OTHER

Brief of Ohio and 35 Other States as Amici Curiae in Support of Petitioner, 2004 WL 530965

(2004) .........................................................................9

Bureau of Alcohol, Tobacco and Firearms (ATF),

ATF Ruling 2000-1 ..................................................16

Mich. Admin. Code, R. 436.1007........................... 18, 19

Mich. Admin. Code, R. 436.1011.................................18

Mich. Admin. Code, R. 436.1025.................................18

Mich. Admin. Code, R. 436.1533.................................18

Mich. Admin. Code, R. 436.1631.................................19

Mich. Admin. Code, R. 436.1641.................................19

Mich. Admin. Code, R. 436.1645.................................18

Mich. Admin. Code, R. 436.1720.................................19

Mich. Admin. Code, R. 436.1725.................................19

Mich. Admin. Code, R. 436.1727.................................19

Mich. Admin. Code, R. 436.1865.................................19

vi

TABLE OF AUTHORITIES – Continued

Page

Toward Liquor Control, Fosdick and Scott, 1933

by Harper & Brothers, 1960 by Raymond B.

Fosdick, 2011 by The Center for Alcohol Policy .................................................................... 6, 7, 17

1

INTEREST OF AMICUS CURIAE1

The Michigan Beer and Wine Wholesalers Association (“MB&WWA”) is a Michigan non-profit association of licensed Michigan beer and wine wholesalers.

Its members distribute over 90% of all wine and beer

sold to retailers under Michigan’s three-tier distribution system.

MB&WWA is committed to working with regulators and others for responsible and effective regulation

of the sale of alcoholic beverage products. MB&WWA

believes state laws concerning the structure of a state’s

alcoholic beverage distribution system are entitled to

judicial deference and that the power delegated to the

States under the Twenty-first Amendment of the U.S.

Constitution should be upheld.

MB&WWA has been involved, as either an intervenor or amicus curiae, in numerous federal and state

lawsuits where state alcoholic beverage laws were

challenged. MB&WWA, as an intervenor, participated

in Granholm v. Heald, 544 U.S. 460 (2005), this Court’s

most recent decision on the interplay between the dormant Commerce Clause, U.S. Const. art. I, § 8, cl. 3 and

U.S. Const. amend. XXI. MB&WWA is participating as

1

Pursuant to Sup. Ct. R. 37.6 amicus curiae and its counsel

state that no counsel for any party authored this brief in whole or

in part. No party or party’s counsel contributed money for the

preparation or submission of this brief. No person other than amicus curiae (or its members) contributed money that was intended

to fund the preparation or submission of this brief. Amicus curiae

files this brief pursuant to the blanket consents given by the parties, copies of which are on file in the Clerk’s office.

2

an intervenor in Lebamoff Enterprises, Inc. v. Snyder,

U.S. Dist. Ct., E.D. Mich., Docket No. 2:17-cv-10191,

which is currently pending in the Sixth Circuit Court

of Appeals, Docket Nos. 18-2199/2200. The decision in

the instant case will shape the result in Lebamoff and

in other pending challenges to state-based alcoholic

beverage regulation.2

MB&WWA supports the Petitioner for reversal of

the Sixth Circuit.

------------------------------------------------------------------

SUMMARY OF ARGUMENT

Courts have disagreed on how to interpret

Granholm with respect to state laws that do not discriminate against out-of-state products or producers,

but regulate the retailer and wholesaler tiers of a

State’s three-tier distribution system.

The Twenty-first Amendment and this Court’s

precedent require that rational laws regulating instate retailers and wholesalers are free from the normal operation of the dormant Commerce Clause when

those laws do not discriminate against out-of-state

products or producers. The Sixth Circuit’s decision

2

The District Court in Lebamoff entered an order staying its

decision pending the appeal and staying enforcement of the injunctive portion of its decision pending this Court’s decision in the

present case. Document No. 47, order entered October 11, 2018.

The Sixth Circuit in Lebamoff entered a stipulated order holding

the appeals in abeyance pending this Court’s decision. Document

No. 15-2, order entered November 6, 2018.

3

should be reversed and the owner residency law should

be deemed constitutional.

However, if this Court affirms the Sixth Circuit, it

should preserve three-tier distribution systems that

funnel alcoholic beverages through licensed in-state

wholesalers and retailers, which Granholm recognized

were “unquestionably legitimate.” In particular, this

Court should explicitly affirm the Sixth Circuit’s recognition that requiring physical presence of licensed

retailers and wholesalers is an inherent part of threetier systems and is consistent with the powers given

to States by the Twenty-first Amendment, free of

dormant Commerce Clause restraints that might otherwise apply were another product at issue.

------------------------------------------------------------------

ARGUMENT

Introduction and History

A.

It has long been recognized that “liquor” is “a

lawlessness unto itself ”3 and that the Twenty-first

3

Duckworth v. Arkansas, 314 U.S. 390, 398-399 (1941) (Jackson, J., concurring in result):

“The people of the United States knew that liquor is

lawlessness unto itself. They determined that it should

be governed by a specific and particular constitutional

provision. They did not leave it to the courts to devise

special distortions of the general rules as to interstate

commerce to curb liquor’s ‘tendency to get out of

bounds.’ ”

4

Amendment gives states the primary responsibility for

regulating distribution of wine, beer and spirits for use

within their borders.

The last eight decades have demonstrated the

utility and effectiveness of state-based regulation of alcoholic beverages. Before and during National Prohibition, abuse of alcoholic beverages was an acute problem

generating constant public outcry. Because of generally effective state regulation since the repeal of National Prohibition, it has been no more than a chronic

problem.

Public concern with both intemperate and underage consumption is obvious and justified. This leads to

efforts to control over-selling as the best way to control

over-consumption. The alcoholic seller’s appetite for

profit was to be restricted along with the buyer’s appetite for alcohol. Restriction was extended beyond

drinkers and retailers up the supply chain to create a

culture of control. All sellers were to be regulated. No

one group was supposed to feel unfairly and disproportionately regulated unlike the experience of some during National Prohibition. No one engaged in selling of

alcoholic beverages was to be burdened so onerously

that they were pressed to disobey the law.

State enforcement powers are needed to ensure

accountability, curb overstimulation of sales, avoid disorderly market conditions and ensure compliance with

state regulations. State laws defining who is allowed

to traffic in alcoholic beverages should not be lightly

set aside. Otherwise, there is great danger that the

5

balance struck by a State’s legislature – furthering

temperance by restricting selling while not endangering temperance by over-restricting and thereby inciting illicit and unregulated sales – will be severely

compromised.

B.

In 1913, Congress exercised its power under the

Commerce Clause to enact the Webb-Kenyon Act

which forbids the “shipment or transportation . . . of

any . . . intoxicating liquor of any kind from one State

. . . into any other State . . . which said . . . liquor is intended . . . to be received, possessed, sold, or in any

manner used . . . in violation of any law of such State.”

Act of Mar. 1, 1913, ch. 90, 37 Stat. 699 (codified at 27

U.S.C. § 122). In 1933, at the end of National Prohibition, Section 2 of the Twenty-first Amendment made

this federal protection of State power permanent by

placing it into the Constitution. Section 2 prohibits

“[t]he transportation or importation into any State . . .

for delivery or use therein of intoxicating liquors, in

violation of the laws thereof.” In 1935, to show it recognized the States’ power, Congress re-enacted WebbKenyon. Act of Aug. 27, 1935, ch. 740 § 202(b), 49 Stat.

877.

From the repeal of National Prohibition through

Granholm, this Court’s decisions have confirmed the

power granted by the Twenty-first Amendment to the

States over how to structure their alcoholic beverages

distribution systems. See, e.g., California Retail Liquor

6

Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97,

110 (1980) (“The Twenty-first Amendment grants the

States virtually complete control over . . . how to structure the liquor distribution system.”).

The primacy of state regulation continues to be

recognized and confirmed by Acts of Congress. In 2000,

Congress enacted the “Twenty-first Amendment Enforcement Act,” 27 U.S.C. § 122a(b), giving state Attorneys General the ability to avail themselves of federal

court jurisdiction and injunctive relief to enforce state

laws dealing with alcohol. In 2006, Congress passed

the “Sober Truth on Preventing Underage Drinking

Act,” 42 U.S.C. § 290bb-25b. In that Act, Congress recognized that “alcohol is a unique product and should

be regulated differently than other products” and that

“states have primary authority to regulate alcohol distribution and sale, and the Federal Government should

support and supplement these State efforts.” 42 U.S.C.

at § 290bb-25b(b)(7).

C.

With the repeal of National Prohibition, states

were faced with the daunting task of establishing alcoholic beverage distribution systems. Of great influence

in that effort was the study reported in Toward Liquor

7

Control4, which explored and made recommendations

about different forms of regulation.

For states deciding to use a licensing system to

regulate the distribution of alcoholic beverages, Toward Liquor Control recommended5 adoption of various practices including: a single state licensing board,

tenured administrators, prohibitions against “tied

house” arrangements which have “all the vices of absentee ownership” where the “manufacturers knew

nothing and cared nothing about the community,”6

restrictions on the number of retail outlets, a classification system for licenses which recognizes “the inherent differences between beer, wine and spirits,”7

restrictions on hours of sale, licensing of both persons

and premises, prohibitions on sales practices that

would encourage consumption, limitations on advertising, and efforts to control profits and prices.8

Many states adopted their own versions of these

recommendations to form the various parts of their

three-tier distribution systems requiring alcoholic

4

Toward Liquor Control, Fosdick and Scott, 1933 by Harper

& Brothers, 1960 by Raymond B. Fosdick, 2011 by The Center for

Alcohol Policy.

5

Id. at 28.

6

Id. at 29. A residency requirement simply reflects a Legislature’s determination that out-of-state owners, whether or not

they be alcoholic beverage manufacturers, have all the vices of

out-of-state absentee owners.

7

Id. at 30.

8

Id. at 28 to 34.

8

beverages to pass through licensed in-state wholesalers and in-state retailers who can be effectively regulated.

What is inherent in a three-tier distribution

system is not limited only to those elements that exist

in every three-tier system (i.e., the lowest possible

common denominator). Nor are inherent aspects of

three-tier systems limited to only those things that existed when a three-tier system was first devised, because the purpose of state-based regulation of alcoholic

beverages is to allow each State the ability to find the

right regulatory “fit” for its population and circumstances and to learn from its regulatory experiences.

Analysis

I.

The dormant Commerce Clause review required by Granholm applies to laws that

favor in-state products or producers.

A.

Granholm struck down exceptions to three-tier

systems in New York and Michigan that, in effect, allowed in-state wineries to by-pass the three-tier distribution systems while requiring out-of-state wineries to

comply with them. In the briefing, Michigan and New

York expressed concern that striking down the statutory exceptions would undercut the States’ Twentyfirst Amendment authority to regulate in-state distribution of alcohol, a concern echoed by 36 other states

in their amici curiae brief in support of Michigan’s petition: “The possibility that federal courts may eviscerate

9

the States’ ability to maintain their liquor control systems, as some Circuit Courts have already done, is of

paramount concern to all States.”9

This Court responded to the States’ concerns:

“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. * * * States may also assume direct

control of liquor distribution through staterun outlets or funnel sales through the threetier 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.”

9

Brief of Ohio and 35 Other States as Amici Curiae in Support of Petitioner, 2004 WL 530965 (2004), p. 4.

10

B.

Despite the above-quoted passage, lower courts

continue to express uncertainty as to the tension between the dormant Commerce Clause and the Twentyfirst Amendment even where a challenged law does not

discriminate against out-of-state products or producers.10 Some Circuit Courts (and also District Courts)

are still reaching decisions that threaten effective

state alcoholic beverage regulation, including the need

for physical presence11 or the use of residency as an element of physical presence, so long as the residency requirement is reasonable.

The nondiscrimination review adopted in Granholm applies only to statutes that favor in-state products or producers and not to state laws governing

the in-state distribution of alcohol through licensed

10

As noted in Judge Calabresi’s concurring opinion in Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 192 (2d Cir. 2009):

“[T]he jurisprudence the Supreme Court has created

through this updating [of the meaning of the Twentyfirst Amendment] presents other problems. Regrettably, it often leaves lower courts at a loss in seeking to

figure out what the Twenty-First Amendment means

and what if any governing principles may be derived

from the High Court’s Twenty-First Amendment decisions.”

11

The insistence on physical presence for effective enforcement has been upheld even at the supplier level. See Heublein v.

South Carolina Tax Commission, 409 U.S. 275 (1972), which upheld a physical presence requirement on manufacturers in circumstances in which, unlike those in Granholm, there was no

discriminatory exemption from three-tier requirements for any

in-state suppliers.

11

wholesalers and retailers. This view of Granholm was

articulated in, for example, Southern Wine and Spirits

of America, Inc. v. Division of Alcohol and Tobacco Control, 731 F.3d 799 (8th Cir. 2013), upholding a Missouri

residency requirement for wholesalers:

“Given Granholm’s recency and specificity, we

think the Court’s discussion there provides

the best guidance. The three-tier system is

‘unquestionably legitimate,’ Granholm, 544

U.S. at 489, 125 S.Ct. 1885 (internal quotation omitted), and that system includes the

‘licensed in-state wholesaler.’ Id. (quoting

North Dakota, 495 U.S. at 447, 110 S.Ct. 1986

(Scalia, J., concurring in the judgment)). More

broadly, state policies that define the structure of the liquor distribution system while

giving equal treatment to in-state and out-ofstate liquor products and producers are ‘protected under the Twenty-first Amendment.’

Id. Viewed in context, the Court’s statement

must mean that such policies are ‘protected’

against constitutional challenges based on the

Commerce Clause.

*

*

*

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 instate residence of wholesalers’ directors and

12

officers, and a super-majority of their shareholders.”

MB&WWA submits, initially, the Court should

rule the Twenty-first Amendment insulates from review under the dormant Commerce Clause laws that

are rationally related to the State’s core powers under

the Twenty-first Amendment and do not favor in-state

products or producers.

II.

In the alternative, the Court should confirm that the Twenty-first Amendment immunizes from review under the Commerce

Clause state regulations that are inherent

in the three-tier system, and this includes

requirements that retailers and wholesalers be physically present in the State.

A.

Subsequent to Granholm there has been an effort

to negate judicially common state requirements that

retailers and wholesalers be physically present in the

state by claiming such laws violate the dormant Commerce Clause.

One of the most recent instances of that effort is

Lebamoff, supra, in which the District Court effectively

struck down Michigan’s three-tier distribution system

by enjoining the State from enforcing laws that would

prohibit unlicensed out-of-state retailers from directly

shipping wine to Michigan consumers because Michigan allows in-state retailers (operating within Michigan’s three-tier system) to deliver by common carrier

13

to consumers in the State. Other pending cases challenging physical presence requirements for retailers

include Lebamoff Enterprises, Inc. v. Rauner, Docket

No. 16 C 8607, slip op., 2017 WL 2486084 (N.D. Ill. June

8, 2017), appeal pending, 7th Cir. Docket No. 17-2495,

and Sarasota Wine Market, LLC v. Parson, U.S. Dist.

Ct., E.D. Missouri Docket No. 4:17-cv-029792.

Those seeking to circumvent effective state regulation have cited language in Granholm regarding the

ordinary nondiscrimination principles of the dormant

Commerce Clause, in efforts to persuade lower courts

to ignore the Twenty-first Amendment and allow them

to operate outside of the three-tier system within

which in-state retailers must operate.

B.

The Second, Fifth and Sixth Circuits have rejected

that strained interpretation of Granholm, concluding the holding that three-tier systems are “unquestionably legitimate” necessarily forecloses Commerce

Clause challenges to state laws that are an inherent

part of three-tier systems, including laws requiring retailers to be physically present in the state.

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

Cir. 2009), the plaintiffs challenged parts of New York’s

Alcoholic Beverage Control Law (“ABC Law”), claiming the laws violated the dormant Commerce Clause to

the extent they prohibited out-of-state retailers from

selling and delivering wine directly to New York consumers but allowed licensed in-state retailers to do so.

14

The Court found that was a challenge to the State’s

power to require retailers to be physically present in

the State, an “integral” part of the three-tier system:

“In reaching its holding, the Granholm Court

noted that the challenged regulations were

discriminatory exceptions to, rather than integral parts of, the underlying three-tier systems.

*

*

*

Because New York’s three-tier system treats

in-state and out-of-state liquor the same, and

does not discriminate against out-of-state

products or producers, we need not analyze

the regulation further under Commerce

clause principles. The [pertinent sections of ]

New York’s ABC Law are an integral part of

New York’s three-tier system. Because New

York’s laws evenhandedly regulate the importation and distribution of liquor within the

state, we hold that they do not run afoul of

the Commerce Clause. 571 F.3d 185, 191-192.”

(Footnote omitted.)

Similarly, in Wine Country Gift Baskets.com v.

Steen, 612 F.3d 809, 818 (5th Cir. 2010), the Court held

disparate treatment inherent in the three-tier system

is permissible under Granholm: “The discrimination

that would be questionable, then, is that which is not

inherent in the three-tier system itself. If Granholm’s

legitimizing of the tiers is to have meaning, it must

at least mean that.” The Court also recognized the

15

“beginning premise” that “wholesalers and retailers

may be required to be in the state.”12

In the present case13 the Sixth Circuit followed the

reasoning of the Fifth Circuit in Cooper v. Texas Alcoholic Beverage Commission, 820 F.3d 730 (5th Cir.

(2016) (“Cooper II”), that while durational residency is

not an inherent aspect of the three-tier system immune from Commerce Clause review, physical presence is. After quoting from Cooper II, 820 F.3d at 743,

the Court stated, 883 F.3d at 623:

“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. n8

n8 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.’ [883 F.3d at 634.] However,

the Fifth Circuit acknowledged this dilemma, and it rectified the issue—requiring wholesalers and retailers to be in the

state is permissible, but requiring owners

12

612 F.3d 809, 821.

Byrd v. Tennessee Wine and Spirits Retailers Ass’n, 883

F.3d 608 (6th Cir. 2018).

13

16

to reside within the state for a certain period is not. Cooper II, 820 F.3d at 743.

***”

It is especially important that States have the

ability to require the physical presence of retailers, because alcoholic beverage retailers (unlike producers,

importers and wholesalers) are not required to hold

any federal permit in order to operate. Rather, retailers

are regulated by the States.14

The holdings in these Court of Appeals cases are

consistent with Granholm. They are also consistent

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

(Plurality opinion of Justice Stevens):

14

There is no federal permit available to, or required of, alcoholic beverage retailers. Rather, retailers are licensed and regulated by the individual states, under each state’s own laws which

reflect local needs, local history, and local views on how beer, wine

or spirits should be distributed and sold. There is no federal retailer permit which can be revoked or suspended if a retailer fails

to comply with state law. In contrast, wineries and wine wholesalers (who form the other tiers of the three-tier wine distribution

system) are required to have a federal permit and to comply with

federal and state laws. See Federal Alcohol Administration Act of

1935, 27 U.S.C. § 201 et seq. (“FAA Act”). See also Bureau of Alcohol, Tobacco and Firearms, ATF Ruling 2000-1 (which can be

found at https://www.ttb.gov/rulings/2000-1.htm) which explains

that “[r]etailers are not required to obtain basic permits under the

FAA Act,” and “while the ATF is vested with authority to regulate

interstate commerce in alcoholic beverages pursuant to the FAA

Act, the extent of this authority does not extend to situations

where an out-of-State retailer is making the shipment into the

State of the consumer.”). The Alcohol and Tobacco Tax and Trade

Bureau (“TTB”), the successor agency to ATF, confirms that ATF

Ruling 2000-1 “remains in effect and reflects the policy of TTB

today.” See http://www.ttb.gov/publications/direct_shipping.shtml.

17

“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.

That system is unquestionably legitimate.

(Citations omitted.)

*

*

*

Given the special protection afforded to state

liquor control policies by the Twenty-first

Amendment, they are supported by a strong

presumption of validity and should not be set

aside lightly.”

Requiring physical presence of licensed retailers

and wholesalers assures meaningful enforcement of

regulations designed to protect the public, promote

temperance and foster orderly markets. Physical

presence allows state officials to inspect premises of

wholesalers and retailers to ensure compliance, to

cross-check records of wholesaler and retailer licensees, to ensure that only products registered with the

State are being sold to consumers, and to otherwise aid

enforcement, including through sting operations.

Michigan’s three-tier system has been the focus of

federal litigation, including in Granholm and Lebamoff, and Michigan’s laws are typical of those found in

other states.15 Therefore, some of the pertinent laws

15

See discussion of the study reported in Toward Liquor

Control, supra, pp. 5-6.

18

and regulations demonstrating that physical presence

of licensed wholesalers and retailers is a required

and an inherent part of the three-tier system are

set out in the accompanying footnote.16 Many of these

16

The three-tier system has strong “anti-tied house” provisions to prevent integration among the three tiers and to ensure

that manufacturers and wholesalers do not dominate or hold any

impermissible financial interests in a retailer. Mich. Comp. L.

§§ 436.1603 and 436.1605.

Retail licensees are prohibited from selling or furnishing

wine or other alcohol beverages to persons under 21 years of age,

and are required to obtain evidence of age and identity prior to

sale. Mich. Comp. L. §§ 436.1905 and 436.1906(6); Mich. Admin.

Code, R. 436.1533(5).

A license applicant is subject to rules and restrictions related

to the actions of its officers, directors, managers, agents, and employees, which are regularly checked by the state. Mich. Admin.

Code, R. 436.1011. Violations of these laws and regulations can

subject an applicant or a licensee to denial of an application or of

renewal of a license, suspension and revocation of the liquor license. Mich. Comp. L. § 436.1903.

Retail licensees must maintain books and records and make

them available for inspection by the State. Mich. Admin. Code,

R. 436.1007 and R. 436.1645. This allows the State to track the

distribution of alcoholic beverages to ensure compliance with laws

and assure that alcoholic beverages are not “bootlegged” and being

illegally diverted from the three-tier system. The State has the

right to inspect the premises of licensees to make sure retailers

and wholesalers are complying with the various laws and administrative rules. Mich. Comp. L. § 436.1217; Mich. Admin.

Code, R. 436.1007 and R. 436.1645. Retailers are prohibited from

warehousing alcohol on unlicensed premises. Mich. Comp. L.

§ 436.1901(1); Mich. Admin. Code, R. 436.1025. The premises of a

retailer upon which an unlawful sale occurs are deemed a public

nuisance and subject to abatement, which is a strong deterrent.

Mich. Comp. L. § 600.3801(d). These enforcement mechanisms

would not exist, as a practical matter, without physical presence.

19

regulations (as well as others) would be impossible

to effectively enforce without physical presence of

the licensee giving the State the ability to visit and

inspect the premises and records, and to penalize noncompliance with meaningful sanctions including putting a transgressor completely out of business by

license revocation or closing.

C.

Residency is different than physical presence.17

One is, or is not, physically located within the borders

Licensed wholesalers and retailers have responsibility for

collecting and remitting state and local taxes and must keep extensive records, which allows the State to cross check records

among the various tiers to ensure compliance. Mich. Comp. L.

§§ 436.1301 and 436.1409; Mich. Admin. Code, R. 436.1007, R.

436.1641, R. 436.1725, R. 436.1727 and R. 436.1865. Licensees are

required to file monthly statements indicating the total amount

paid for alcoholic liquor purchased during the preceding month.

Mich. Admin. Code, R. 436.1631 and R. 436.1720.

A “cash law” prohibits wholesalers from selling and retailers

from buying wine on credit. Mich. Comp. L. § 436.2013. This ensures retailers are operating a viable business (and thus less

likely to skirt the law). It also prevents wholesaler favoritism (“aid

and assistance”) through the grant of credit, which could be used

to induce a retailer to only sell the products carried by the wholesaler offering credit terms (thus reducing consumer choice) and

leaving the disfavored retailers less viable and possibly more

likely to skirt the law.

Under the three-tier system, the enforcement activities of

Michigan’s Liquor Control Commission are assisted by Michigan

law enforcement officers. Mich. Comp. L. § 436.1201(4).

17

Michigan, for example, does not require its retailers, or the

owners of retailer entities, to reside in the State. But Michigan

does require that retailers and wholesalers of alcoholic beverages

20

of the state. There is no such thing as an arguably excessive physical presence requirement.

A residency requirement, including a durational

one, has been judged correctly to be legitimate as an

element of a state’s definition of physical presence,

with plausible regulatory benefits. See Southern Wine

and Spirits of America, Inc., supra. Other durational

residency requirements have been rejected as excessive instances of purely protectionist intent. See

Cooper II, supra, and Byrd, supra. It is hardly surprising that the Fifth Circuit in Cooper II did not reinstate

a residency requirement that had not existed in Texas

for twenty years and which the State was not requesting.

The protection of physical presence requirements

for the two lower tiers by the Twenty-first Amendment

is absolute, often referred to as “inherent,” “integral”

or “critical” to a three-tier regulatory scheme. The protection of residency requirements may be more limited

and fact dependent. See Byrd, supra, opinion of Sutton,

J., concurring in part and dissenting in part, 883 F.3d

at 628-636.

Even assuming arguendo that the Courts in

Cooper II and Byrd were correct that the residency

laws at issue there were not immune from challenge,

those Courts were wrong in stating that no type of

residency law is immune. Such a broad statement

was merely dictum and contrary to the injunction of

have a physical presence in the State which allows effective enforcement of comprehensive regulations.

21

Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S.

324, 332 (1964), that: “Both the Twenty-first Amendment and the Commerce Clause are parts of the same

Constitution. Like other provisions of the Constitution,

each must be considered in the light of the other, and

in the context of the issues and interests at stake in

any concrete case.”

------------------------------------------------------------------

CONCLUSION

State laws requiring retailers and wholesalers

to be present in the state are an inherent part of

the three-tier system and are valid under the Twentyfirst Amendment, regardless of whether the regulations may discriminate against out-of-state retailers or

wholesalers who do not participate in the three-tier

system.

The Court’s decision in the present case will likely

have great significance with respect to the ongoing attempts to dismantle three-tier systems and, effectively,

the Twenty-first Amendment.

If the Court chooses to narrow18 Twenty-first

Amendment powers to regulate owner residency of retailers, MB&WWA requests the Court to reaffirm Granholm’s and North Dakota’s recognition that States may

require alcoholic beverages to pass through licensed

wholesalers and retailers, and to confirm that states

18

See Judge Calabresi’s concurring opinion in Arnold’s

Wines, 571 F.3d 185, 191.

22

may require licensed retailers and wholesalers to be

physically present in the state, free of any dormant

Commerce Clause concerns.

Respectfully submitted,

Dated: November 16, 2018

ANTHONY S. KOGUT

Counsel of Record

CURTIS R. HADLEY

WILLINGHAM & COTÉ, P.C.

333 Albert Ave., Suite 500

East Lansing, MI 48823

517-351-6200

akogut@willinghamcote.com

chadley@willinghamcote.com

Counsel for Amicus Curiae