Amicus Curiae Brief — Tennessee Wine and Spirits Retailers Association, Petitioner v. Russell F. Thomas, Executive Director of the Tennessee Alcoholic Beverage Commission, et al.
Supreme Court briefNov 20, 2018
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No. 18-96
IN THE
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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 OF WINE AND SPIRITS WHOLESALERS OF
AMERICA, INC. AS AMICUS CURIAE IN SUPPORT
OF PETITIONER
JO MOAK
General Counsel
JACOB HEGEMAN
WINE & SPIRITS WHOLESALERS
OF AMERICA, INC.
805 15th Street, NW, Ste. 1120
Washington, DC 20005
MIGUEL A. ESTRADA
Counsel of Record
LUCAS C. TOWNSEND
NATHAN H. JACK
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, NW
Washington, DC 20036
(202) 955-8500
mestrada@gibsondunn.com
ROBERT E. DUNN
GIBSON, DUNN & CRUTCHER LLP
1881 Page Mill Road
Palo Alto, CA 94304
Counsel for Amicus Curiae
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ................................ ii
INTEREST OF AMICUS CURIAE AND
SUMMARY OF ARGUMENT .............................. 1
ARGUMENT ......................................................... 8
I. Section 2 Was Intended To
Immunize State Regulation Of InState Liquor Distribution And Sale
Against Dormant Commerce Clause
Challenges ................................................. 9
II. This Court’s Precedents Confirm
That States Retain Broad Authority
To Structure Their Three-Tier
Systems .................................................... 15
III. Durational-Residency
Requirements Are Within The
Power Reserved To The States By
Section 2 .................................................. 24
CONCLUSION .................................................... 34
ii
TABLE OF AUTHORITIES
Page(s)
Cases
324 Liquor Corp. v. Duffy,
479 U.S. 335 (1987) .............................................. 18
44 Liquormart, Inc. v. Rhode Island,
517 U.S. 484 (1996) .............................................. 17
Arnold’s Wines, Inc. v. Boyle,
571 F.3d 185 (2d Cir. 2009) ................... 2, 7, 25, 29
Bacchus Imports, Ltd. v. Dias,
468 U.S. 263 (1984) .................................... 6, 20, 21
BMW of North America, Inc. v. Gore,
517 U.S. 559 (1996) .............................................. 19
Bowman v. Chi. & Nw. Ry. Co.,
125 U.S. 465 (1888) ................................................ 9
Brooks v. Vassar,
462 F.3d 341 (4th Cir. 2006) ................................ 29
Brown-Forman Distillers Corp. v. New
York State Liquor Authority,
476 U.S. 573 (1986) ........................................ 19, 20
Cal. Retail Liquor Dealers Ass’n v.
Midcal Aluminum, Inc.,
445 U.S. 97 (1980) ................................ 9, 17, 18, 24
iii
Capital Cities Cable, Inc. v. Crisp,
467 U.S. 691 (1984) ...................................... 4, 5, 16
Carter v. Virginia,
321 U.S. 131 (1944) .............................................. 15
Collins v. Yosemite Park & Curry Co.,
304 U.S. 518 (1938) .............................................. 17
Cooper v. Tex. Alcoholic Beverage
Comm’n,
820 F.3d 730 (5th Cir. 2016) ................................ 32
Costco Wholesale Corp. v. Maleng,
522 F.3d 874 (9th Cir. 2008) ................................ 25
Craig v. Boren,
429 U.S. 190 (1976) ................................ 4, 9, 13, 16
Dep’t of Rev. v. James Beam Co.,
377 U.S. 341 (1964) .............................................. 16
Dickerson v. Bailey,
336 F.3d 388 (5th Cir. 2003) ................................ 25
Granholm v. Heald,
544 U.S. 460 (2005) ..... 5, 6, 8, 9, 11, 12, 13, 15, 21,
22, 23, 24, 27, 29, 32
Healy v. The Beer Institute,
491 U.S. 324 (1989) .............................................. 19
Hostetter v. Idlewild Bon Voyage Liquor
Corp.,
377 U.S. 324 (1964) .................................. 14, 17, 18
iv
Ind. Brewing Co. v. Liquor Control
Comm’n,
305 U.S. 391 (1939) .............................................. 14
James Clark Distilling Co. v. Western
Maryland Railway Co.,
242 U.S. 311 (1917) .............................................. 11
Joseph S. Finch & Co. v. McKittrick,
305 U.S. 395 (1939) .............................................. 14
Larkin v. Grendel’s Den, Inc.,
459 U.S. 116 (1982) .............................................. 16
Lebamoff Enter. v. Snyder,
No. 17-10191, 2018 WL 4679612
(E.D. Mich. Sept. 28, 2018) .................................. 33
Leisy v. Hardin,
135 U.S. 100 (1890) ................................................ 9
License Cases,
46 U.S. (5 How.) 504 (1847) ................................... 9
Mahoney v. Joseph Triner Corp.,
304 U.S. 401 (1938) ........................................ 13, 14
McDonald v. Chicago,
561 U.S. 742 (2010) .............................................. 15
North Dakota v. United States,
495 U.S. 423 (1990) .......................... 6, 8, 17, 24, 29
Rhodes v. Iowa,
170 U.S. 412 (1898) .............................................. 10
v
Scott v. Donald,
165 U.S. 58 (1897) ................................................ 10
South Dakota v. Wayfair, Inc.,
138 S. Ct. 2080 (2018) .......................................... 31
Southern Wine & Spirits of Am. Inc. v.
Div. of Alcohol and Tobacco Control,
731 F.3d 799 (8th Cir. 2013) ................ 3, 27, 28, 30
State Bd. of Equalization of Cal. v.
Young’s Mkt. Co.,
299 U.S. 59 (1936) ...................................... 5, 13, 16
United States v. Frankfort Distilleries,
324 U.S. 293 (1945) .............................................. 12
United States v. Mississippi Tax
Comm’n,
412 U.S. 363 (1973) .............................................. 17
United States v. Mississippi Tax
Comm’n,
421 U.S. 599 (1975) .............................................. 17
Vance v. W.A. Vandercook Co.,
170 U.S. 438 (1898) .............................................. 10
Wisconsin v. Constantineau,
400 U.S. 433 (1971) .............................................. 16
Ziffrin, Inc. v. Reeves,
308 U.S. 132 (1939) .......................................... 5, 14
vi
Statutes
Act of Aug. 8, 1890, ch. 728, 26 Stat. 313
(codified at 27 U.S.C. § 121) (“Wilson Act”) ........ 10
Act of Mar. 1, 1913, ch. 90 §1, 37 Stat.
699 (codified at 27 U.S.C. § 122)
(“Webb-Kenyon Act”) ............... 5, 10, 11, 12, 13, 22
Ark. Code Ann. § 3-4-606(a)-(b) ................................ 29
Ind. Code Ann. § 7.1-1-1-1......................................... 28
Ind. Code Ann. § 7.1-3-21-3....................................... 29
Ky. Rev. Stat. Ann. § 243.100(1)(f) ........................... 29
La. Stat. Ann. § 26:80(A)(2) ...................................... 29
Md. Code Ann., Alcoholic Beverages, §3-102 ........... 29
Me. Rev. Stat. tit. 28-A, § 1401(5) ............................ 29
Mo. Rev. Stat § 311.015 ............................................ 28
Mo. Rev. Stat § 311.060.2(3)-3 .................................. 29
N.C. Gen. Stat. Ann. § 18B-900(a)(2) ....................... 29
Okla. Stat. Ann. tit. 37A, § 2-146(A)(1) .................... 29
S.C. Code Ann. § 61-6-110(2) .................................... 29
Tenn. Code Ann. § 57-3-203(b)(1) ..................... 3, 8, 29
Tenn. Code Ann. § 57-3-203(f)(1)(A) ........................... 3
Tenn. Code Ann. § 57-3-204(b).................... 3, 8, 27, 28
vii
Wis. Stat. Ann. § 125.04(5)(a)2 ................................. 29
Wis. Stat. Ann. § 125.01 ............................................ 28
Rules
Supreme Court Rule 37.2 ............................................ 1
Supreme Court Rule 37.6 ............................................ 1
Regulations
Ariz. Admin. Code § R19-1-201(A)(1)(b) ................... 29
Constitutional Provisions
U.S. CONST. amend. XXI, § 2 ................................ 4, 12
Other Authorities
76 Cong. Rec. 4,143 (Feb. 15, 1933)
(statement of Sen. Blaine) ................................... 12
76 Cong. Rec. 4,145 (Statement of Sen. Wagner) .... 12
Roni A. Elias, Three Cheers for Three
Tiers: Why the Three-Tiers System
Maintains Its Legal Validity and
Social Benefits After Granholm,
14 DePaul Bus. & Com. L.R. (2015) .............. 26, 28
Daniel Glynn, Granholm’s Ends Do Not
Justify the Means: The Twenty-First
Amendment’s Temperance Goals
Trump Free-Market Idealism,
8 J.L. Econ. & Pol’y 113 (2011) ............................ 26
viii
H.R. Rep. No. 1461, 62d Cong.,
3d Sess., 1 (1913).................................................. 11
Joseph E. Kallenbach, Interstate
Commerce in Intoxicating Liquors
Under the Twenty-First Amendment,
14 Temple L.Q. 474 (1940)....................... 14, 15, 23
National Alcohol Beverage Control
Association, Control State Directory
and Info,
https://www.nabca.org/control-statedirectory-and-info
(last visited Nov. 12, 2018) .................................. 33
Note, Constitutional Law—Power of
States to Regulate Manufacture and
Sale of Liquor Under Twenty-First
Amendment,
14 NYU L.Q. Rev. 361 (1937) .............................. 12
Note, Economic Localism in States
Alcoholic Beverage Laws--Experience
Under the Twenty-First Amendment,
72 Harv. L. Rev. 1145 (1959) ................... 26, 27, 29
Note, Legislation, Liquor Control,
38 Colum. L. Rev. 644, 645 (1938)....................... 10
Christopher G. Sparks, Out-of-State
Wine Retailers Corked,
30 N. Ill. U. L. Rev. 481 (2010) ........................ 2, 25
INTEREST OF AMICUS CURIAE
AND
SUMMARY OF ARGUMENT1
Wine & Spirits Wholesalers of America, Inc.
(“WSWA”) is a national trade organization and the
voice of the wholesale branch of the wine and spirits
industry. Founded in 1943, WSWA represents nearly
400 companies in all 50 states and the District of Columbia that hold state licenses to act as wine and/or
spirits wholesalers and/or brokers. Wholesalers directly account for more than 74,000 jobs paying more
than $6.5 billion in wages, and WSWA’s members distribute more than 80% of all wine and spirits sold at
wholesale in the United States. This case implicates
the interests of WSWA and its members because it
calls into question the validity of long-standing state
laws that regulate the alcohol industry in general, and
alcohol wholesalers in particular. WSWA and its
members have a strong interest in ensuring that
states remain able to determine how best to regulate
the distribution and sale of alcohol within their borders.
Alcohol is a unique product in American law and
for good reason. The detrimental impacts on individuals, families, and society as a whole that result from
overconsumption and underage consumption of alcohol are dramatically different from those related to
1
Pursuant to Supreme Court Rule 37.6, counsel for amicus curiae states that no counsel for a party authored this brief in whole
or in part and no one other than the amicus and its counsel made
a monetary contribution to fund the preparation or submission
of this brief. Pursuant to Supreme Court Rule 37.2, counsel for
amicus curiae states that Petitioner and Respondents have all
entered blanket consents on the docket to the filing of amicus
curiae briefs.
2
the use of other products, whether measured by scale,
severity, nature, or remediability.
Since the end of Prohibition, most states have
used a three-tier system to regulate effectively the distribution and sale of wine, beer, and spirits (collectively “liquor” or “alcohol”). The three-tier system
generally separates (and separately regulates) the
production, distribution, and retail levels. Under this
system, a producer of liquor sells its product to a licensed wholesaler, who generally pays applicable
state excise taxes and delivers it to a licensed retailer.
Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 187 (2d
Cir. 2009). The retailer then sells the liquor to consumers and, where applicable, collects state and local
sales taxes. Ibid. Vertical integration between tiers
is generally prohibited. Christopher G. Sparks, Outof-State Wine Retailers Corked, 30 N. Ill. U. L. Rev.
481, 487 (2010).
States have chosen the three-tier system because
it allows them to examine records and collect taxes
more efficiently, creates effective barriers to the sale
of alcohol to minors, and ensures orderly market conditions by preventing monopoly or over saturation of
the market. In addition, separating the tiers and directly regulating each one allows states to prevent organized crime from gaining control of alcohol distribution. See Arnold’s Wines, 571 F.3d at 187. These regulatory systems balance regulation with competition
and protect citizens from the harms of alcohol misuse.
They have created a transparent and accountable liquor market that is the best in the world for safety,
choice, and innovation.
A common feature of three-tier systems is a requirement that retailers and wholesalers be residents
3
of the state. This requirement flows from the recognition that in-state wholesalers and retailers can more
readily be held accountable and are likely to be more
socially responsible because they are exposed to the
negative consequences that sometimes result from alcohol consumption. See Southern Wine & Spirits of
Am. Inc. v. Div. of Alcohol and Tobacco Control, 731
F.3d 799, 811 (8th Cir. 2013) (Colloton, J). A substantial number of states further require that retailers
and wholesalers reside in the state for a certain period
of time before being eligible for licenses. For example,
the Tennessee statute at issue here requires retailers
and wholesalers to reside in the state for two years
before applying for a license. See Tenn. Code Ann.
§§ 57-3-203(b)(1), (f)(1)(A), 57-3-204(b)(2)(A), (3)(A)(B). These requirements are simply an expression of
the same underlying interests that support a residency requirement in the first place: A state is entitled to define residency for these purposes as a bona
fide period of time required for a would-be wholesaler
or retailer to become integrated into the community
such that it is willing and able to protect the state’s
interests related to liquor distribution. As Judge Sutton put it below, requiring licensees “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.” Pet. App. 50a.
Nevertheless, Respondents contend, and the Sixth
Circuit agreed, that Tennessee’s durational-residency
requirements violate the Commerce Clause because
they are “facially discriminatory and there is no evidence that Tennessee cannot achieve its goals through
nondiscriminatory means.” Pet. App. 29a. The Sixth
Circuit also concluded that “the Twenty-first Amendment does not immunize Tennessee’s durational-resi-
4
dency requirements from scrutiny under the Commerce Clause” because “a three-tier system can still
function without these restrictions.” Pet. App. 27a.
That gets the constitutional analysis exactly backwards. As the history of the Twenty-first Amendment
demonstrates, apart from repealing Prohibition, the
whole point of the Amendment was to “create[] an exception to the normal operation of the Commerce
Clause.” Craig v. Boren, 429 U.S. 190, 206 (1976).
Thus, it has long been understood that the Amendment “reserves to the States power to impose burdens
on interstate commerce in intoxicating liquor that, absent the Amendment, would clearly be invalid under
the Commerce Clause.” Capital Cities Cable, Inc. v.
Crisp, 467 U.S. 691, 712 (1984). In this setting, a
party who challenges a state liquor regulation as “discriminatory” in violation of the Commerce Clause is,
as a practical matter, advancing a claim the Amendment was expressly designed to extinguish.
I. The Twenty-first Amendment prohibits the
“transportation or importation into any State . . . for
delivery or use therein of intoxicating liquors, in violation of the laws thereof.” U.S. CONST. amend. XXI,
§ 2. As the Amendment’s history confirms, the broad
language of Section 2 was intended to provide states
with plenary authority to regulate liquor free from the
constraint of the Commerce Clause.
In the 1880s, the Supreme Court struck down, on
dormant Commerce Clause grounds, state laws banning or burdening the sale of imported liquor. Congress responded by enacting the Wilson Act, which
was intended to curtail dormant Commerce Clause
challenges to state liquor regulations. However, this
Court largely vitiated the Act by not allowing states
5
to discriminate against out-of-state liquor or prohibit
shipments from out-of-state sources.
Congress again responded, this time with the
Webb-Kenyon Act, which prohibits “[t]he shipment or
transportation” of liquor into a state in violation of
that state’s laws. 27 U.S.C. § 122. Following the
failed experiment with Prohibition, the Twenty-first
Amendment effectuated a political compromise that
allowed commerce in liquor to resume (Section 1)
while granting states the plenary authority over instate distribution and sale of liquor that Congress had
previously conferred in the Webb-Kenyon Act (Section
2).
Interpreting Section 2 in the years following ratification, this Court repeatedly held that “[t]he
Twenty-first Amendment sanctions the right of a
state to legislate concerning intoxicating liquors
brought from without, unfettered by the Commerce
Clause.” Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138
(1939); see also State Bd. of Equalization of Cal. v.
Young’s Mkt. Co., 299 U.S. 59 (1936). The text and
history of Section 2, as well as this Court’s early precedent, confirm that 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.”
Granholm v. Heald, 544 U.S. 460, 484 (2005).
II. The Court’s more recent decisions have clarified that Section 2 “primarily created an exception to
the normal operation of the Commerce Clause,” but
did not give states carte blanche to ignore “their obligations under other [constitutional] provisions” when
regulating liquor. Capital Cities Cable, 467 U.S. at
712. For example, the Court has held that Section 2
does not authorize states to enact liquor regulations
6
in violation of the First Amendment, the Equal Protection Clause, the Export-Import Clause, or the Due
Process Clause. Nor may a state regulate in areas
“outside of its jurisdiction,” North Dakota v. United
States, 495 U.S. 423, 431 (1990), such as by regulating
alcohol distribution on federal land or enacting laws
that have the practical effect of controlling prices in
other states. Successful challenges to state attempts
to regulate extraterritorially do not, however, suggest
the existence of a freewheeling Commerce Clause “exception” to the Twenty-first Amendment. Rather,
those are cases in which the Amendment simply does
not apply.
With respect to the originally intended scope of
the Amendment—displacement of all dormant Commerce Clause challenges to state liquor regulation—
the Court has recognized only a single, narrow exception to the broad immunity afforded states by the
Twenty-first Amendment, and then only very recently. In Bacchus Imports, Ltd. v. Dias, 468 U.S. 263
(1984), the Court held that state regulations passed
for “mere economic protectionism” of in-state liquor
products—i.e., where the state concedes that the law
is designed solely to increase consumption of in-state
products—are not shielded from scrutiny under the
Commerce Clause. Id. at 276. And in Granholm, the
Court invalidated state laws that allowed local wine
producers to ship directly to consumers—thereby
avoiding the three-tier system—while requiring outof-state wine to go through the three-tier system. 544
U.S. at 485. But this exception is extremely narrow.
It applies only to overt discrimination against out-ofstate products. Granholm emphatically reiterated
that a state has “virtually complete control” over “how
to structure the liquor distribution system.” Id. at
488-89.
7
III. Like many states, Tennessee has chosen to
include durational-residency requirements as core
components of its liquor distribution system. These
requirements, which do not discriminate against outof-state liquor products, fall squarely within the zone
of state regulatory authority protected by the Twentyfirst Amendment from scrutiny under the dormant
Commerce Clause.
Residency requirements for wholesalers and retailers have been a common feature of three-tier systems since the ratification of the Twenty-first Amendment.
These requirements advance legitimate
Twenty-first Amendment interests in temperance, tax
collection, and orderly market conditions—which can
include preventing monopoly and combatting organized crime—by ensuring that market participants
have a meaningful connection to the communities
they serve and that the infrastructure for in-state liquor distribution remains subject to state oversight
and regulation.
Duration requirements directly advance these interests by defining who counts as a bona fide resident
authorized to do business within the context of the
three-tier system. Duration requirements are thus
justified on the same grounds as residency requirements—those with established roots in the local community are more likely to be sensitive to local concerns
and held accountable by the community. Duration requirements also allow the state to better evaluate the
applicant’s qualifications and history. Because residency and duration requirements are a staple of many
states’ three-tier systems, a challenge to these requirements amounts to “a frontal attack on the constitutionality of the three-tier system itself.” Arnold’s
8
Wines, 571 F.3d at 190. That argument must fail because, as this Court has repeatedly held, the three-tier
system is “unquestionably legitimate” under the
Twenty-first Amendment. Granholm, 544 U.S. at 489
(quoting North Dakota, 495 U.S. at 432).
ARGUMENT
After Prohibition, many states began regulating
the importation, transportation, and distribution of
liquor through the “unquestionably legitimate” threetier system, Granholm, 544 U.S. at 489—under which
licensed producers sell only to licensed wholesalers,
and licensed wholesalers sell only to licensed retailers. Like many states, Tennessee’s three-tier system
includes a durational-residency requirement for licensed retailers and wholesalers to ensure effective
regulatory oversight and public accountability. Tenn.
Code Ann. §§ 57-3-204(b)(2)(A), 57-3-203(b)(1).
No party disputes that these provisions would violate the dormant Commerce Clause if the regulated
product were books or shoes. But the challenged laws
stand on different footing because they regulate alcohol. The text and history of the Twenty-first Amendment, as well as this Court’s unbroken precedent interpreting Section 2, confirm that reasonable durational-residency requirements are immunized from
invalidation under the dormant Commerce Clause.
The Sixth Circuit’s decision striking down Tennessee’s durational-residency requirements on dormant
Commerce Clause grounds should thus be reversed.
9
I.
SECTION 2 WAS INTENDED TO IMMUNIZE
STATE REGULATION OF IN-STATE LIQUOR DISTRIBUTION AND SALE AGAINST DORMANT
COMMERCE CLAUSE CHALLENGES
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.” Granholm, 544 U.S. at
488 (quoting Cal. Retail Liquor Dealers Ass’n v.
Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980)). To
understand why that is so, it is essential to understand the circumstances that led to the Eighteenth
Amendment’s prohibition of intoxicating liquors and
the political compromise that resulted in the Twentyfirst Amendment’s ratification.
A. “The history of state regulation of alcoholic
beverages dates from long before adoption of the
Eighteenth Amendment.” Craig, 429 U.S. at 205. As
far back as the mid-nineteenth century, this Court
“recognized a broad authority in state governments to
regulate the trade of alcoholic beverages within their
borders” under the police powers “free from implied
restrictions under the Commerce Clause.” Ibid. (citing License Cases, 46 U.S. (5 How.) 504, 579 (1847)).
However, in a series of cases in the 1880s, this Court
invoked the dormant Commerce Clause to invalidate
state laws banning or burdening the sale of imported
liquor. See Bowman v. Chi. & Nw. Ry. Co., 125 U.S.
465 (1888); Leisy v. Hardin, 135 U.S. 100 (1890).
These cases found the state laws to be “repugnant” to
the Commerce Clause because liquor sold in its “original package” was part of interstate commerce, which
states had no power to interfere with in the “absence
of congressional permission.” Leisy, 135 U.S. at 12425.
10
Congress responded by enacting the Wilson Act,
which subjected imported liquors to the states’ police
power “upon arrival in [the] State, . . . to the same extent and in the same manner” as liquor produced instate, whether or not the liquor was in its “original
packages.” Act of Aug. 8, 1890, ch. 728, 26 Stat. 313
(codified at 27 U.S.C. § 121). Although the Act attempted to protect state liquor regulations from
dormant Commerce Clause challenges, a trio of cases
in the 1890s rendered the Act ineffectual. See Scott v.
Donald, 165 U.S. 58, 100 (1897) (concluding that the
Wilson Act was “not intended to confer upon any State
the power to discriminate injuriously against [out-ofstate] products” that are “subjects of legitimate commerce”); Rhodes v. Iowa, 170 U.S. 412, 426 (1898)
(holding that “arrival in [the] State” meant that liquor
could not be regulated until it had reached its “point
of destination”); Vance v. W.A. Vandercook Co., 170
U.S. 438, 451-52 (1898) (holding that the “right to ship
merchandise from one State into another” was “wholly
unaffected by” the Wilson Act). “In consequence,
agents of out-of-state dealers were able to solicit orders from individuals, and have the liquor shipped directly to them.” Note, Legislation, Liquor Control, 38
Colum. L. Rev. 644, 645 (1938).
To stop this burgeoning mail-order business, Congress enacted (over President Taft’s veto) “[a]n act
[d]ivesting intoxicating liquors of their interstate
character in certain cases,” known as the Webb-Kenyon Act. Act of Mar. 1, 1913, ch. 90, § 1, 37 Stat. 699
(codified at 27 U.S.C. § 122). The Webb-Kenyon Act
“prohibit[s]” any “shipment or transportation” of “intoxicating liquor” “from one State” “into any State” “in
violation of any law of such State.” Id. As the House
Report explained, the bill was “intended to withdraw
11
the protecting hand of interstate commerce from intoxicating liquors transported into a State or Territory and intended to be used therein in violation of the
law of such State or Territory.” H.R. Rep. No. 1461,
62d Cong., 3d Sess., 1 (1913).
This Court upheld the Webb-Kenyon Act in James
Clark Distilling Co. v. Western Maryland Railway Co.,
242 U.S. 311 (1917), which recognized that the Act’s
“purpose was to prevent the immunity characteristic
of interstate commerce from being used to permit the
receipt of liquor through such commerce in states contrary to their laws.” Id. at 324. The Court explained
that, in light of the Webb-Kenyon Act, there is “no possible ground for claiming” that a state law is invalid
merely “because the liquor was shipped in interstate
commerce.” Ibid. The Court thus interpreted the
Webb-Kenyon Act as “t[aking] the protection of interstate commerce away from all receipt and possession
of liquor prohibited by state law.” Id. at 325.
In short, the Webb-Kenyon Act “was an attempt
to eliminate the regulatory advantage, i.e., its immunity characteristic, afforded imported liquor,” so that
states could regulate the internal distribution and
sale of liquor unfettered by the dormant Commerce
Clause. Granholm, 544 U.S. at 482 (citing Clark Distilling, 242 U.S. at 324).
B. The national experiment with Prohibition was
widely recognized as a failure, and in 1933 the Eighteenth Amendment was repealed by the Twenty-first.
But the states would not have ratified the Amendment had it meant returning to the pre-Webb-Kenyon
regime where states were powerless to regulate the
distribution and sale of liquor that happened to cross
state lines. Indeed, the Amendment was “the result
of a consistent demand from the states to be permitted
12
an unrestricted power to regulate the transportation,
sale, and use of intoxicating liquor within their respective borders.” Note, Constitutional Law—Power
of States to Regulate Manufacture and Sale of Liquor
Under Twenty-First Amendment, 14 NYU L. Q. Rev.
361, 361 (1937). The Twenty-first Amendment thus
“made a fundamental change, as to control of the liquor traffic, in the constitutional relations between the
States and national authority” by “subordinating
rights under the Commerce Clause to the power of a
State to control . . . the traffic in liquor within its borders.” United States v. Frankfort Distilleries, 324 U.S.
293, 300 (1945) (Frankfurter, J., concurring).
Section 2 of the Twenty-first Amendment prohibits “[t]he transportation or importation into any State
. . . for delivery or use therein of intoxicating liquors,
in violation of the laws thereof.” U.S. CONST. amend.
XXI, § 2. As one of the Amendment’s authors explained, the purpose of Section 2 was “to restore to the
States . . . absolute control in effect over interstate
commerce affecting intoxicating liquors.” 76 Cong.
Rec. 4,143 (Feb. 15, 1933) (statement of Sen. Blaine);
see also id. at 4,145 (Statement of Sen. Wagner) (expressing concern that a proposed—but ultimately rejected—section that would have given Congress concurrent power to regulate liquor was contrary to the
amendment’s purpose “to restore to the States control
of their liquor problem”). Section 2 thus embodied a
compromise that allowed commerce in liquor to resume while ensuring that states could regulate the
distribution and sale of liquor free from the constraints of the Commerce Clause.
This compromise was accomplished by effectively
constitutionalizing the gist of the Webb-Kenyon Act
into Section 2. See Granholm, 544 U.S. at 484 (noting
13
that Section 2 “closely follows” the language of the
Webb-Kenyon Act) (quoting Craig, 429 U.S. at 20506); see also id. at 514 (Thomas, J., dissenting). As the
Granholm majority explained, Section 2 “restored to
the States the powers they had under the Wilson and
Webb-Kenyon Acts,” id. at 484—including comprehensive regulation of in-state retailers and wholesalers free of any restraints otherwise imposed by the
Commerce Clause.
Consistent with that history, this Court’s early
post-ratification cases held that Section 2 gave states
plenary authority to regulate their domestic liquor
markets, even when such regulation involved overt
discrimination against out-of-state liquor products.
For example, in Young’s Market, the Court upheld a
California law imposing a license fee on wholesalers
to import beer. Although the law imposed a “direct
burden on interstate commerce,” the Court held that
the fee was authorized by the Twenty-first Amendment. 299 U.S. at 62. The Court rejected the argument that states must “let imported liquors compete
with the domestic on equal terms,” finding that this
“would involve not a construction of the Amendment,
but a rewriting of it.” Ibid. The Court reasoned that
the states’ authority to prohibit the manufacture and
sale of beer included the “lesser” power to impose “a
state monopoly of the manufacture and sale of beer”
or to “channelize desired importations by confining
them to a single consignee.” Id. at 63.
For several decades the Court adhered to the original view that the Twenty-first Amendment completely immunized states from all dormant Commerce
Clause challenges. For example, in Mahoney v. Joseph Triner Corp., 304 U.S. 401 (1938), the Court
stated that it was “settled” that “discrimination
14
against imported liquor is permissible” under the
Twenty-first Amendment. Id. at 403 (upholding state
law that “clearly discriminate[d] in favor of liquor processed within the State”). Similarly, in Ziffrin, the
Court declared that “[t]he Twenty-first Amendment
sanctions the right of a state to legislate concerning
intoxicating liquors brought from without, unfettered
by the Commerce Clause.” 308 U.S. at 138. In the
same year the Court upheld a Michigan law prohibiting beer dealers from selling any beer manufactured
in a state which discriminated against Michigan because even if the law could “properly be described as
a protective measure, . . . the law [wa]s valid.” Ind.
Brewing Co. v. Liquor Control Comm’n, 305 U.S. 391,
394 (1939); see also Joseph S. Finch & Co. v.
McKittrick, 305 U.S. 395, 397-98 (1939) (“[T]he right
of a State to prohibit or regulate the importation of
intoxicating liquor is not limited by the commerce
clause.”). In short, the Court “made clear in the early
years following adoption of the Twenty-first Amendment” that under Section 2, “a State is totally unconfined by traditional Commerce Clause limitations
when it restricts the importation of intoxicants destined for use, distribution, or consumption within its
borders.” Hostetter v. Idlewild Bon Voyage Liquor
Corp., 377 U.S. 324, 330 (1964).2
2
One virtue of the absolutist view expressed in Young’s Market and its progeny was that the Court “relieved itself of the
thankless task of trying to define the hazy line between proper
and improper state police and revenue measures where interstate business is concerned.” Joseph E. Kallenbach, Interstate
Commerce in Intoxicating Liquors Under the Twenty-First
Amendment, 14 Temple L. Q. 474, 482 (1940). It is difficult to
differentiate “measures appropriate to a policy of strict regulation for ordinary police or revenue purposes, and measures going
15
Although more recently the Court has held that
state laws enacted solely to protect local liquor products from competition by out-of-state products are not
immunized from dormant Commerce Clause scrutiny,
see Part II.C-D, infra, it has steadfastly maintained
that 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.” Granholm, 544 U.S. at
484.
II.
THIS COURT’S PRECEDENTS CONFIRM THAT
STATES RETAIN BROAD AUTHORITY TO STRUCTURE THEIR THREE-TIER SYSTEMS
The Court’s recent decisions have clarified that
the Twenty-first Amendment does not authorize the
states to enact alcohol regulations that violate other
constitutional provisions, such as the Equal Protection Clause and Due Process Clause. Nor may states
beyond them for economic needs.” Ibid.; see also Carter v. Virginia, 321 U.S. 131, 142 (1944) (Frankfurter, J., concurring) (arguing that allowing courts to determine whether a given liquor
regulation is “reasonably necessary” would “open wide the door
of conflict and confusion which have in the past characterized the
liquor controversies in this Court and in no small measure
formed part of the unedifying history which led first to the Eighteenth and then to the Twenty-First Amendment”). As the circuit
split addressed in this case illustrates, Granholm and Bacchus
have created confusion as to the interplay between the Twentyfirst Amendment and the Commerce Clause. Should the Court
be inclined to reconsider those decisions, Justice Brandeis’s
unanimous opinion in Young’s Market provides not only a more
administrable rule for lower courts to apply, but also the best
evidence of the original meaning of Section 2. Cf. McDonald v.
Chicago, 561 U.S. 742, 776-78 (2010) (relying on sources contemporaneous to the ratification of the Fourteenth Amendment to
ascertain its original public meaning).
16
regulate outside their jurisdiction by controlling liquor sales on federal enclaves or setting prices in other
states. However, with respect to regulation of in-state
liquor transportation, distribution and sale, the Court
has recognized only a single, narrow exception to the
general immunity states enjoy against dormant Commerce Clause challenges: overt attempts by a state to
protect its local alcohol products from competition by
out-of-state products. Aside from that narrow carveout, this Court has consistently affirmed that states
have plenary authority over the in-state alcohol-distribution system, which for many states includes durational-residency requirements for retailers and
wholesalers.
A. Recognizing that Section 2 “primarily created
an exception to the normal operation of the Commerce
Clause,” this Court has held that the Twenty-first
Amendment “does not license the States to ignore
their obligations under other provisions of the Constitution.” Capital Cities Cable, 467 U.S. at 712 (emphasis added); see also Young’s Mkt., 299 U.S. at 64 (rejecting an argument that authorizing the challenged
“licensed-fee would involve a declaration that the
Amendment has, in respect to liquor, freed the states
from all restrictions upon the police power to be found
in other provisions of the Constitution”). For example,
the Court has held that the Amendment does not give
states authority to: tax imported liquor in violation of
the Export-Import Clause, Dep’t of Rev. v. James
Beam Co., 377 U.S. 341 (1964); insulate the liquor industry from equal-protection requirements, Craig,
429 U.S. at 204-09; violate due process, Wisconsin v.
Constantineau, 400 U.S. 433, 436 (1971); delegate
zoning authority related to alcohol sales to churches,
Larkin v. Grendel’s Den, Inc., 459 U.S. 116, 122 n.5
17
(1982); or impose advertising bans on liquor that contravene the First Amendment, 44 Liquormart, Inc. v.
Rhode Island, 517 U.S. 484 (1996).
The Court also has held that the Twenty-first
Amendment does not authorize states “to regulate in
an area or over a transaction that f[alls] outside of its
jurisdiction.” North Dakota, 495 U.S. at 431. For example, a state may not: regulate alcohol use within a
national park, see Collins v. Yosemite Park & Curry
Co., 304 U.S. 518 (1938); regulate a transaction between an out-of-state liquor supplier and a federal
military base, see United States v. Mississippi Tax
Comm’n, 412 U.S. 363 (1973); or tax directly a federal
instrumentality on an enclave over which the United
States exercises concurrent jurisdiction, see United
States v. Mississippi Tax Comm’n, 421 U.S. 599
(1975). The Court has reiterated, however, that
“within the area of its jurisdiction, the State has ‘virtually complete control’ over the importation and sale
of liquor and the structure of the liquor distribution
system.” North Dakota, 495 U.S. at 431 (plurality
opinion) (quoting Midcal Aluminum, 445 U.S. at 110).
B. The Court first suggested that at least some
Commerce Clause challenges to state liquor regulations remained possible in Hostetter, where it asserted
that the Twenty-first Amendment had not “somehow
operated to ‘repeal’ the Commerce Clause wherever
regulation of intoxicating liquors is concerned.” 377
U.S. at 331-32. The Court reasoned that “[i]f the Commerce Clause had been pro tanto ‘repealed,’ then Congress would be left with no regulatory power over interstate or foreign commerce in intoxicating liquor.
Such a conclusion would be patently bizarre and is demonstrably incorrect.” Id. at 332. “Both the Twentyfirst Amendment and the Commerce Clause are parts
18
of the same Constitution,” the Court reasoned, 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. at 332.
Hostetter was not, however, a dormant Commerce
Clause case; it involved the federally regulated sale of
alcohol to passengers departing Idlewild (now JFK)
airport, which the passengers did not even receive until they arrived at their “foreign destination.” 377 U.S.
at 325. In that context, the Court held that New
York’s regulations were an impermissible effort “to
prevent transactions carried on under the aegis of a
law passed by Congress in the exercise of its explicit
power under the Constitution to regulate commerce
with foreign nations.” Id. at 334.
Applying the same reasoning, the Court has invalidated state statutes that authorized or required liquor pricing schemes that violated federal statutes.
See, e.g., Midcal Aluminum, 445 U.S. at 114; 324 Liquor Corp. v. Duffy, 479 U.S. 335, 350 (1987). But these
cases, like Hostetter, did not implicate the dormant
Commerce Clause. Accordingly, neither Hostetter, nor
Midcal Aluminum, nor 324 Liquor called into question the principle that states have plenary authority
to structure their in-state distribution systems as they
see fit in the absence of a conflicting exercise of federal
authority. On the contrary, as the Court observed in
Hostetter, the “view of the scope of the Twenty-first
Amendment” expressed in Young’s Market “with respect to a State’s power to restrict, regulate, or prevent the traffic and distribution of intoxicants within
its border has remained unquestioned.” Id. at 330.
The Court also has recognized that the Twentyfirst Amendment does not authorize states to enact
liquor laws that have the effect of regulating extra-
19
territorially. In Brown-Forman Distillers Corp. v.
New York State Liquor Authority, 476 U.S. 573 (1986),
the Court struck down New York’s price-affirmation
statute, which required liquor distillers and producers
selling to wholesalers within the state to sell at a price
that is no higher than the lowest price the distiller
charges wholesalers in any other state. The effect of
the statute was to give New York control over prices
in other states. The Court recognized that the
Twenty-first Amendment “gives New York only the
authority to control sales of liquor in New York, and
confers no authority to control sales in other States.”
Id. at 585. And in Healy v. The Beer Institute, 491 U.S.
324 (1989), the Court reaffirmed that “to the extent
that an affirmation statute has the practical effect of
regulating out-of-state liquor prices, it cannot stand
under the Commerce Clause irrespective of the
Twenty-first Amendment.” Id. at 342.
In short, the text of the Twenty-first Amendment
makes clear that the “Commerce Clause operates with
full force whenever one State attempts to regulate the
transportation and sale of alcoholic beverages destined for distribution and consumption in a foreign
country, or another State.” Brown-Forman, 476 U.S.
at 585. But this is less a “limitation” on (or a Commerce Clause “exception” to) the Twenty-first Amendment than a feature of our federal system of government. State power to impose burdens on interstate
commerce is “not only subordinate to the federal
power over interstate commerce, but is also constrained by the need to respect the interests of other
States,” which have “‘autonomy . . . within their respective spheres.’” BMW of North America, Inc. v.
Gore, 517 U.S. 559, 571 (1996) (quoting Healy, 491
U.S. at 335-36). The Court’s cases dealing with extra-
20
territorial regulation reflect the fact that the Amendment was never intended to authorize one state to invade the police powers of sister states or defy the authority of the federal government. The Amendment
simply does not apply in those situations. Those cases
thus have little to say about regulations of in-state
wholesalers and retailers, and in no way undermine
the validity of regulations structuring states’ liquor
distribution systems. Indeed, the Court in BrownForman reiterated that states have authority “to regulate the importation and distribution of liquor within
their territories.” 476 U.S. at 584.
C. The Court made a more dramatic turn from
the Young’s Market understanding of Section 2 in Bacchus, which involved a dormant Commerce Clause
challenge to a Hawaii law that exempted two locally
produced liquors from the 20 percent excise tax imposed on sales of liquor at wholesale. Throughout the
litigation, Hawaii offered no Twenty-first Amendment
justification (such as temperance, etc.) for the law, but
rather defended it solely as an “aid [to] Hawaiian industry.” Id. at 271. Indeed, “the State expressly disclaimed any reliance upon the Twenty-first Amendment in the court below and did not cite it in its motion to dismiss or affirm.” Id. at 274 n.12. Although
the state belatedly attempted to rely on the Amendment in its merits briefing, ibid., it continued to
acknowledge that the “purpose” of the tax “was ‘to promote a local industry.’” Id. at 276. In this context, the
Court held that the relevant “question” 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 (emphasis added).
21
Although the Court did not enumerate those principles, it stated that “one thing is certain: The central
purpose of the provision was not to empower States to
favor local liquor industries by erecting barriers to
competition.” Bacchus, 468 U.S. at 276. Accordingly,
the Court held that “State 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.” Ibid.
Because Hawaii conceded that the law was designed
merely “to foster the local industries by encouraging
increased consumption of their product,” id. at 269,
the Court held that the tax “violate[d] a central tenet
of the Commerce Clause but [was] not supported by
any clear concern of the Twenty-first Amendment.”
Id. at 276.
Bacchus thus carved out a very narrow subset of
state laws from the broad immunity otherwise afforded by the Twenty-first Amendment—namely,
laws enacted purely to protect local liquor manufacturers from competition, thereby discriminating
against out-of-state products.
D. The Court’s most recent Twenty-first Amendment decision—Granholm—is consistent with the
view that Section 2 provides states with plenary authority to regulate the structure of their in-state distribution systems unfettered by the Commerce Clause
so long as their regulations are not aimed at protecting in-state liquor products from competition by outof-state products.
In Granholm, the Court addressed two state licensing regimes (Michigan and New York) that placed
out-of-state wineries at a competitive disadvantage
vis-à-vis in-state wineries. Michigan authorized instate wineries to obtain a license allowing them to
22
ship directly to consumers, but required out-of-state
wineries to distribute their products “through [Michigan’s] three-tier system.” 544 U.S. at 468-69. “These
two extra layers of overhead increase[d] the cost of
out-of-state wines to Michigan consumers.” Id. at 474.
Similarly, New York “channel[led] most wine
sales through the three-tier system,” but “allow[ed] local wineries to make direct sales to consumers in New
York on terms not available to out-of-state wineries.”
544 U.S. at 470. This was just “an indirect way of subjecting out-of-state wineries, but not local ones, to the
three-tier system,” increasing costs for out-of-state
wineries. Id. at 474.
The states argued that the Twenty-first Amendment authorized their discriminatory licensing regimes, but a narrow majority of the Court rejected
that argument. First, the Court held that the Wilson
Act and 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.” 544 U.S. at 483. Second, the Court held
that “[t]he 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.” 544 U.S. at 484-85 (emphasis added). Because Michigan and New York’s threetier system applied “only for sales from out-of-state
wineries,” id. at 467, the Court held that the challenged laws “involve[d] straightforward attempts to
discriminate in favor of local producers” and thus
were “not saved by the Twenty-first Amendment,” id.
at 489. In this regard, Granholm involved the same
type of overt discrimination against out-of-state products at issue in Bacchus. Id. at 488-89.
23
Justice Thomas, joined by the Chief Justice and
Justices Stevens and O’Connor, dissented. Although
he agreed that the Twenty-first Amendment unquestionably allows states to control their liquor distribution systems, Justice Thomas would have held that
the Webb-Kenyon Act and Twenty-first Amendment
both displace any negative Commerce Clause barrier
to state regulation of liquor sales to in-state consumers, even if those regulations discriminate against
out-of-state liquor.
544 U.S. at 497-98, 517-18
(Thomas, J., dissenting). Justice Thomas noted that
following ratification of the Twenty-first Amendment,
“[m]any States had laws that discriminated against
out-of-state products in addition to out-of-state wholesalers and retailers.” 544 U.S. at 518-19 (Thomas, J.,
dissenting) (discussing state statutes); see also Interstate Commerce, 14 Temple L.Q. at 483 (noting that
34 states had laws that “discriminate[d] against outof-state alcoholic beverages) (citation omitted). He argued that this “contemporaneous state practice refute[d] the Court’s assertion that the Twenty-first
Amendment allowed States to discriminate against
out-of-state wholesalers and retailers, but not against
out-of-state products.” Granholm, 544 U.S. at 520.
Although the Court was closely divided as to
whether the Twenty-first Amendment allows states to
engage in protectionism designed to disadvantage outof-state products—largely because they disagreed
about the history and scope of the Wilson Act and
Webb-Kenyon Act—all nine Justices agreed that the
Twenty-first Amendment authorizes states to “mandate a three-tier distribution scheme in the exercise of
their authority under the Twenty-first Amendment.”
Id. at 466; see also id. at 520 (Thomas, J., dissenting).
As the majority opinion therefore took pains to em-
24
phasize, Granholm did not “call into question the constitutionality of the three-tier system.” Id. at 488. Rather, it held that “State policies are protected under
the Twenty-first Amendment” so long as “they treat
liquor produced out of state the same as its domestic
equivalent.” 544 U.S. at 489. Indeed, Granholm specifically observed that states have “virtually complete
control over whether to permit importation or sale of
liquor and how to structure the liquor distribution system.” Id. at 488 (emphasis added) (quoting Midcal
Aluminum, 445 U.S. at 110).
Of particular note, in emphasizing the “unquestionabl[e] legitima[cy]” of the three-tier system, the
Granholm majority quoted approvingly Justice
Scalia’s concurring opinion in North Dakota, which
had expressly recognized that 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.” Granholm, 544 U.S.
at 489 (quoting North Dakota, 495 U.S. at 447 (Scalia,
J., concurring)). Thus, even under Granholm and
Bacchus, state regulation of in-state liquor distribution and sale—including through a three-tier system
that incorporates residency and duration requirements—is shielded from dormant Commerce Clause
scrutiny.
III.
DURATIONAL-RESIDENCY REQUIREMENTS
ARE WITHIN THE POWER RESERVED TO THE
STATES BY SECTION 2
As part of its three-tier system of liquor regulation, Tennessee imposes reasonable durational-residency requirements on retailers and wholesalers.
Residency requirements are designed to promote the
very interests the Twenty-first Amendment authorizes states to protect—including temperance, crime
25
prevention, and tax collection. And a duration requirement merely establishes the minimum time a
particular state decides is reasonably necessary for a
retailer or wholesaler to become sufficiently rooted in
the community; it thus demarcates bona fide residents from those deemed insufficiently established in
the community to help protect those interests. Here,
Tennessee’s durational-residency requirements fulfill
that Twenty-first Amendment role, and do not exceed
reasonable limits on the state’s legislative choices.
They are thus immunized from scrutiny under the
dormant Commerce Clause.
A. The compromise memorialized in the Twentyfirst Amendment granted each state authority to regulate liquor within its jurisdiction in the manner that
best fits its particular circumstances. Most states
have used this authority to regulate liquor distribution through the three-tier system. Sparks, 30 N. Ill.
U. L. Rev. at 486-87. Historically, “[t]he main purpose
of the three-tier system was to preclude the existence
of a ‘tied’ system between producers and retailers, a
system generally believed to enable organized crime
to dominate the industry.” Arnold’s Wines, 571 F.3d
at 187; see also Sparks, 30 N. Ill. U. L. Rev. at 488.
“Some courts have also recognized the prevention of
monopolies” as a valid state interest furthered by the
three-tier system, Dickerson v. Bailey, 336 F.3d 388,
404 (5th Cir. 2003), while others have noted states’ interests in “promotion of orderly markets,” Costco
Wholesale Corp. v. Maleng, 522 F.3d 874, 902 n.23
(9th Cir. 2008). States have also long “assert[ed] that
the three-tier regulatory system allows the state to
collect taxes more efficiently and prevent the sale of
alcohol to minors.” Arnold’s Wines, 571 F.3d at 188;
see also Sparks, 30 N. Ill. U. L. Rev. at 488. Some
states have also adopted a three-tier system as a way
26
of promoting temperance. Daniel Glynn, Granholm’s
Ends Do Not Justify the Means: The Twenty-First
Amendment’s Temperance Goals Trump Free-Market
Idealism, 8 J.L. Econ. & Pol’y 113, 133 (2011). Today,
the three-tier system serves many of these same purposes while protecting citizens from the negative consequences of adulterated or counterfeit products, evasion of state excise taxes, sales to underage and intoxicated consumers, and drunk driving, among other
harms.
Wholesalers are the vital middle tier in this wellestablished system, linking producers and retailers.
Since products must generally pass through a wholesaler, wholesalers play an indispensable role in states’
regulation of the alcohol marketplace. For many
states, wholesalers are the single point of excise tax
collection. Wholesalers help ensure that liquor distributed to retailers is genuine and unadulterated.
They also promote competition by providing distribution logistics to small brands and retailers, enabling
them to compete effectively with large national
brands and chains, fostering consumer choice. And
wholesalers act as a central authority for developing
and implementing comprehensive policies on the prevention of underage access and drunk driving. See
generally Roni A. Elias, Three Cheers for Three Tiers:
Why the Three-Tiers System Maintains Its Legal Validity and Social Benefits After Granholm, 14 DePaul
Bus. & Com. L.J. 209 (2015).
As part of their three-tier systems, many states
“limit the issuance of retail, wholesale, and manufacturing licenses to residents of the state or to domestic
corporations.” Note, Economic Localism in States Alcoholic Beverage Laws—Experience Under the
Twenty-First Amendment, 72 Harv. L. Rev. 1145, 1148
27
(1959); see also Granholm, 544 U.S. at 518 n.6
(Thomas, J., dissenting) (listing state statutes with
residency and physical presence requirements).
States reasonably view such residency requirements
as a legitimate exercise of their Twenty-first Amendment authority.
Most importantly, residency requirements ensure
that someone within the state’s jurisdiction can be
held accountable. For example, Tennessee justifies its
residency requirements for retailers on the ground
that “it is in the interest of th[e] state to maintain a
higher degree of oversight, control and accountability
for individuals involved in” liquor retailing. Tenn.
Code Ann. § 57-3-204(b)(4). Similarly, because residency “facilitates law enforcement against wholesalers,” states use residency requirements “for close control over the licensees and for amenability to prosecution.” Economic Localism, 72 Harv. L. Rev. at 1149.
States may reasonably believe that local wholesalers
are more likely than their out-of-state counterparts to
fear prosecution by the state and thus to conform their
conduct to state policy.
Residency requirements also reflect the reasonable belief that in-state wholesalers and retailers may
be “more apt to be socially responsible” and thus better suited than out-of-state counterparts to promote
temperance. After all, in-state “officers, directors, and
owners are residents of the community and thus subject to negative externalities—drunk driving, domestic abuse, underage drinking—that liquor distribution
may produce.” Southern Wine & Spirits, 731 F.3d at
811. A legislature could “sensibly . . . suppose” that
state residents “are more likely [than non-residents]
to respond to concerns of the community, as expressed
by their friends and neighbors whom they encounter
28
day-to-day in ballparks, churches, and service clubs.”
Ibid.
Similarly, states reasonably view residency requirements as an effective tool for ensuring that the
infrastructure for in-state liquor distribution remains
subject to state oversight. Many states, for example,
require wholesalers to maintain their warehouses instate to facilitate inspections and promote oversight.
Three Cheers for Three Tiers, 14 DePaul Bus. & Com.
L.J. at 219. Given their susceptibility to prosecution
and their exposure to the negative consequences
sometimes caused by liquor, in-state wholesalers and
retailers are also likely to be more vigilant about preventing “unlawful diversion of liquor” from regulated
to unregulated channels. North Dakota, 495 U.S. at
431. States may also believe that they can better rely
on in-state wholesalers to collect any applicable excise
taxes and on in-state retailers to collect sales taxes,
see, e.g., Wis. Stat. § 125.01—an especially weighty
concern for states confronting budget deficits. Indeed,
these interests are why states reasonably can require
that “all liquor sold for use in the State be purchased
from a licensed in-state wholesaler.” North Dakota,
495 U.S. at 447 (Scalia, J., concurring in the judgment).
Many states expressly identify these Twenty-first
Amendment interests as the reasons for their chosen
distribution systems generally—and for residency requirements specifically. See, e.g., Tenn. Code Ann.
§ 57-3-204(b)(4); Ind. Code Ann. § 7.1-1-1-1; Mo. Rev.
Stat § 311.015; Wis. Stat. Ann. § 125.01. For these
states, and others like them that require in-state residency for wholesalers and retailers, “an argument
that compares the status of an in-state retailer with
an out-of-state retailer” is “nothing different than an
29
argument challenging the three-tier system itself.”
Brooks v. Vassar, 462 F.3d 341, 352 (4th Cir. 2006)
(op. of Niemeyer, J.); Arnold’s Wines, 571 F.3d at 190.
Yet this Court has repeatedly held that the three-tier
system is “unquestionably legitimate.” Granholm,
544 U.S. at 489 (quoting North Dakota, 495 U.S. at
432).
B. States implementing liquor distribution systems after Prohibition “[o]ften” required “a fixed period of prior residence” to obtain a retailer or wholesaler license. Economic Localism, 72 Harv. L. Rev. at
1148. Today, 15 states impose some form of durational-residency requirement for wholesalers, with
some states requiring as little as 30 days of residence
and others requiring as long as five years.3 Even more
states impose durational residency requirements for
retailers. See Petn. 24 n.3.
These requirements are supported by the same interests that justify a residency rule in the first place—
a state surely has a significant interest in determining
the minimum residency it deems necessary for purposes of alcohol regulation. As Judge Sutton recognized, if states may “require retailers and wholesalers
to reside within their borders”—which Granholm has
said they may—they “must ‘have flexibility to define
the requisite degree of in-state presence’ necessary for
3
Ariz. Admin. Code § R19-1-201(A)(1)(b) (residency); Ark.
Code Ann. § 3-4-606(a)-(b) (five years); Ind. Code Ann. § 7.1-3-213 (five years); Ky. Rev. Stat. Ann. § 243.100(1)(f) (one year); La.
Stat. Ann. § 26:80(A)(2) (two years); Me. Rev. Stat. tit. 28-A,
§ 1401(5) (six months); Md. Code Ann., Alcoholic Beverages, § 3102 (two years); Mo. Rev. Stat § 311.060.2(3)-3 (three years);
N.C. Gen. Stat. Ann. § 18B-900(a)(2) (residency); Okla. Stat.
Ann. tit. 37A, § 2-146(A)(1) (five years); S.C. Code Ann. § 61-6110(2) (30 days); Tenn. Code Ann. § 57-3-203(b)(1) (two years);
Wis. Stat. Ann. § 125.04(5)(a)2 (90 days).
30
participating as a retailer or wholesaler.” Pet. App.
50a (quoting S. Wine, 731 F.3d at 810). In other
words, each state must be free to choose a period of
time that, in its reasonable judgment, shows that the
residency is not only bona fide but also is likely to lead
to the types of community ties that would make the
resident sufficiently attuned to the concerns of the
resident’s new community. And it is certainly reasonable for a state legislature to believe that “[r]equiring
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.” Pet. App. 50a. It is also reasonable for states to conclude that a period of sustained in-state presence helps to ensure accountability to government authorities, facilitate the task of
regulators in vetting applications, increase their familiarity with regulated parties, ease inspections of
storage facilities and required records, and mete out
any required discipline—all interests at the core of the
states’ Twenty-first Amendment powers. A person
who lacks sufficient ties to the community is less
likely to feel a sense of accountability and therefore is
a greater risk of being a “fly by night” who ignores
public safety concerns.
This is not to say, of course, that states may impose any sort of durational-residency requirement.
Under even the most deferential standard of review, a
durational-residency requirement that is wholly irrational could be struck down under the Equal Protection Clause or other constitutional provision. For example, a state could be prohibited from requiring that
every living relative of a prospective wholesaler reside
in the state—not because such restrictions violate the
dormant Commerce Clause, but because they are not
31
a reasonable exercise of the state’s authority to regulate alcohol distribution within its borders. In fact,
Judge Sutton concluded that Tennessee’s rule requiring 10-year residency for a license renewal was “the
epitome of arbitrariness” in light of the two-year requirement for the initial license. Pet. App. 55a. Here,
however, it was not unreasonable for Tennessee to determine that two years of residence are necessary for
a would-be retailer or wholesaler to become sufficiently integrated in the community and committed to
its welfare. Courts must accord due deference to
states’ choices in determining how best to meet the
needs of their respective circumstances.
This deference is not diminished by recent
changes in technology. Although this Court has revisited its dormant Commerce Clause jurisprudence in
other contexts in light of “the Internet revolution” and
the changing dynamics of “[m]odern e-commerce,” the
Court has been careful not to infringe “on States’ authority to collect taxes and perform critical public
functions.” South Dakota v. Wayfair, Inc., 138 S. Ct.
2080, 2095, 2097 (2018). Where alcohol is concerned,
those critical public functions include imposing durational residency requirements on both retailers and
wholesalers to ensure that the three-tier system fulfills its purposes. In any event, states are not obligated to embrace every aspect of the Internet economy—especially when the product concerned has the
capacity to inflict societal harms if abused. The
Twenty-first Amendment permits states to choose
from a spectrum of options in regulating the use and
distribution of liquor within their borders, and courts
are not empowered to assess the wisdom of these
choices or to determine whether they need “updating”
in light of new commercial realities.
32
C. The Sixth Circuit majority struck down Tennessee’s durational residency requirements because,
in its view, “a three-tier system can still function without these restrictions.” Pet. App. 27a. In so holding,
however, the panel countermanded the Tennessee legislature’s reasonable judgment that durational-residency requirements best serve the policy interests underlying Tennessee’s three-tier system. It is no answer to say that that durational-residency requirements are not “inherent” in the three-tier system, Pet.
App. 27a. No state is required by the Amendment to
adopt a particular form of the three-tier system, and
thus the Sixth Circuit’s distinction between those attributes of the system that are “inherent” or somehow
essential has no footing in the Constitution. Indeed,
the three-tier system itself is not essential, but this
Court has never held that the system is invalid merely
because a state could do without it. See Granholm,
544 U.S. at 488.
Nor is there any constitutional basis for upholding
in-state residence requirements but not durationalresidency requirements. See Cooper v. Tex. Alcoholic
Beverage Comm’n, 820 F.3d 730, 743 (5th Cir. 2016).
Nothing in the Twenty-first Amendment’s text or history supports a distinction between according states
the power to require “residency” but denying them the
authority to define what residency means by stipulating a particular period of time. Nor are there any obvious judicially manageable standards that would
permit courts throughout the country to know when
the legislative choice between x and y years exceeds
constitutional bounds—at least absent statutory periods bordering on irrationality or demonstrably offensive to other constitutional provisions. Indeed, a
dormant Commerce Clause challenge provides an es-
33
pecially incongruous context to make such distinctions, since the Twenty-first Amendment was expressly meant to preclude such challenges.
The point of Section 2 was to give each state the
power to chart its own course in liquor regulation. But
applying the Sixth Circuit’s test would lead to the
elimination of all Twenty-first Amendment immunity.
For example, at least one court applying Byrd’s “inherent” aspect test has struck down portions of Michigan’s three-tier system that distinguish between instate and out-of-state retailers, not merely products.
See Lebamoff Enter. v. Snyder, No. 17-10191, 2018 WL
4679612, at *5 (E.D. Mich. Sept. 28, 2018). That ruling, like the Sixth Circuit’s decision, strikes at the
heart of states’ authority to structure their three-tier
systems as they think best. Moreover, as both decisions fail to appreciate, the fact that some states have
adopted specific regulations—such as durational-residency requirements—while others have not is a feature of the Twenty-first Amendment’s grand compromise, not a judicially-correctable “defect.”
Indeed, a state is free to dispense with the threetier system entirely and instead implement a state
monopoly over distribution—and some states have
chosen to do. See National Alcohol Beverage Control
Association, Control State Directory and Info,
https://www.nabca.org/control-state-directory-andinfo (last visited Nov. 12, 2018). If states are prohibited from defining requirements for distribution channels to address local concerns, more states may elect
to implement a state monopoly. Thus, a decision holding that states lack authority to set durational-residency requirements may lead to a dampening of private market forces, not a free-market panacea, as
states choose to exercise even greater control through
34
state-run distribution systems. Policy arguments
against “protectionism” may carry the day in other
contexts, but they should not prevail here because the
Twenty-first Amendment gives states “nearly unfettered” authority to structure their liquor distribution
systems to mitigate the negative consequences that
sometimes result from alcohol consumption and foster
public accountability.
*
*
*
Durational-residency requirements are a legitimate exercise of state regulatory authority under the
Twenty-first Amendment. A decision categorically invalidating those requirements under the dormant
Commerce Clause would call into question the validity of the three-tier system itself and start the Court
down the path of effectively reading Section 2 out of
the Twenty-first Amendment. This Court should decline Respondents’ invitation to rewrite the Constitution.
CONCLUSION
The Court should reverse the Sixth Circuit’s decision.
Respectfully submitted.
JO MOAK
General Counsel
JACOB HEGEMAN
WINE & SPIRITS WHOLESALERS
OF AMERICA, INC.
805 15th Street, NW, Ste. 1120
Washington, DC 20005
MIGUEL A. ESTRADA
Counsel of Record
LUCAS C. TOWNSEND
NATHAN H. JACK
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036
(202) 955-8500
mestrada@gibsondunn.com
35
ROBERT E. DUNN
GIBSON, DUNN & CRUTCHER LLP
1881 Page Mill Road
PALO ALTO, CA 94304
Counsel for Amicus Curiae
November 20, 2018
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.