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
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 OF AMERICAN BEVERAGE LICENSEES
AS AMICUS CURIAE IN SUPPORT OF PETITIONER
————
SCOTT A. KELLER
Counsel of Record
BAKER BOTTS L.L.P.
1299 Pennsylvania Ave. NW
Washington, DC 20004
(202) 639-7700
scott.keller@bakerbotts.com
TRAVIS L. GRAY
BAKER BOTTS L.L.P.
910 Louisiana St.
Houston, TX 77002
Counsel for Amicus Curiae
Wilson-Epes Printing Co., Inc. – (202) 789-0096 – Washington, D.C. 20002
TABLE OF CONTENTS
Page
INTEREST OF AMICUS CURIAE................................. 1
SUMMARY OF ARGUMENT........................................... 3
ARGUMENT ........................................................................ 5
I.
Residency requirements are an essential
and beneficial part of a State’s three-tier
system for alcohol distribution................................ 5
II.
The dormant Commerce Clause applies
differently in the unique context of state
alcohol regulations under the Twenty-first
Amendment. ............................................................ 10
III.
Granholm v. Heald’s holding is limited to
protectionist laws that discriminate against
out-of-state producers and products. ................... 13
IV.
The Sixth Circuit’s expansion of Granholm
to in-state retailers would eviscerate the
three-tier system that this Court has
already held “unquestionably legitimate.” .......... 18
CONCLUSION .................................................................. 20
(i)
TABLE OF AUTHORITIES
Page(s)
CASES
44 Liquormart, Inc. v. Rhode Island,
517 U.S. 484 (1996) ....................................................... 12
Arnold’s Wines, Inc. v. Boyle,
571 F.3d 185 (2d Cir. 2009) .......................................... 19
Bacchus Imports, Ltd. v. Dias,
468 U.S. 263 (1984) ....................................................... 17
Brooks v. Vassar,
462 F.3d 341 (4th Cir. 2006) ......................................... 19
Brown-Forman Distillers Corp. v. N.Y.
State Liquor Authority,
476 U.S. 573 (1986) ....................................................... 17
Cal. Retail Liquor Dealers Ass’n v. Midcal
Aluminum, Inc.,
445 U.S. 97 (1980) ......................................................... 11
Capital Cities Cable, Inc. v. Crisp,
467 U.S. 691 (1984) ............................................ 11, 12, 13
Carter v. Virginia,
321 U.S. 131 (1944) ......................................................... 6
Craig v. Boren,
429 U.S. 190 (1976) ..................................................11, 15
Duckworth v. Arkansas,
314 U.S. 390 (1941) ....................................................... 12
Granholm v. Heald,
544 U.S. 460 (2005) ............................................... passim
Healy v. Beer Inst., Inc.,
491 U.S. 324 (1989) ....................................................... 18
(ii)
iii
Heublein, Inc. v. S.C. Tax Comm’n,
409 U.S. 275 (1972) ....................................................... 13
Hostetter v. Idlewild Bon Voyage Liquor
Corp.,
377 U.S. 324 (1964) ....................................................... 11
Norris v. Grimsley,
585 P.2d 925 (Colo. App. 1978) .................................... 10
North Dakota v. United States,
495 U.S. 423 (1990) ............................................... passim
Or. Waste Sys., Inc. v. Dep’t of Envtl.
Quality of the State of Or.,
511 U.S. 93 (1994) ......................................................... 12
Rice v. Rehner,
463 U.S. 713 (1983) ......................................................... 5
S. Wine & Spirits of Am., Inc. v. Div. of
Alcohol & Tobacco Control,
731 F.3d 799 (8th Cir. 2013) ....................................6, 8, 9
Scott v. Donald,
165 U.S. 58 (1897) ......................................................... 16
Tiernan v. Rinker,
102 U.S. 123 (1880) ....................................................... 16
Walling v. Michigan,
116 U.S. 446 (1886) ....................................................... 16
William Jameson & Co. v. Morgenthau,
307 U.S. 171 (1939) ....................................................... 20
STATUTES
27 U.S.C. § 121 .................................................................... 20
27 U.S.C. § 122 .................................................................... 20
27 U.S.C. § 122a .................................................................. 20
iv
27 U.S.C. § 201 .................................................................... 20
42 U.S.C. § 290bb-25b ...................................................11, 20
Tenn. Code § 57-3-204 .................................................6, 8, 10
Tenn. Code § 57-3-208 .......................................................... 7
Tenn. Code § 57-3-211 .......................................................... 7
Tenn. Code § 57-3-221 .......................................................... 7
IN THE
Supreme Court of the United States
————
NO. 18-96
————
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 AMERICAN BEVERAGE LICENSEES
AS AMICUS CURIAE IN SUPPORT OF PETITIONER
————
INTEREST OF AMICUS CURIAE1
Amicus curiae American Beverage Licensees (ABL)
is an association representing licensed off-premises
alcohol retailers (such as package liquor stores) and onpremises alcohol retailers (such as bars, taverns, and
restaurants) across the nation. ABL was created in 2002
after the merger of the National Association of Beverage
Retailers and the National Licensed Beverage
Pursuant to Rule 37.6, amicus affirms that no counsel for a party
authored this brief in whole or in part and that no person other than
amicus, their members, or their counsel made a monetary
contribution to its preparation or submission. All parties have
consented to the filing of this brief.
1
(1)
2
Association. ABL has about 15,000 members in 35 States.
Many of ABL’s members are independent, family-owned
operations who ensure that beverage alcohol is sold and
consumed responsibly by adults in conformity with the
laws of the State in which each member does business.
ABL monitors federal legislation, judicial decisions,
and trends of concern to beverage alcohol retailers. ABL
is strongly committed to working with others under
effective regulation toward the responsible sale of
beverage alcohol products. ABL supports state laws
concerning the structure of a State’s beverage alcohol
distribution system.
3
SUMMARY OF ARGUMENT
This Court has held multiple times that “States can
mandate a three-tier distribution scheme in the exercise
of their authority under the Twenty-first Amendment.”
Granholm v. Heald, 544 U.S. 460, 466 (2005). For
decades, many States have had such three-tier systems—
requiring separate producers, wholesalers, and then
retailers for alcohol distribution. And residency
requirements for retailers and wholesalers have been
essential and beneficial parts of this three-tier system.
Requiring in-state alcohol retailers and wholesalers
furthers legitimate state interests in “promoting
temperance, ensuring orderly market conditions, and
raising revenue.” North Dakota v. United States, 495
U.S. 423, 432 (1990) (plurality op.). States can ensure
proper enforcement of their own alcohol regulations
much more easily and effectively by requiring in-state
residency for wholesalers or retailers.
With these benefits of the three-tier system in mind,
this Court has recognized that the dormant Commerce
Clause applies differently in the unique context of state
alcohol regulation under the Twenty-first Amendment.
This constitutional font of power stands as an exception
to the typical operation of the dormant Commerce
Clause. While the Court has held that the Commerce
Clause overrides certain state alcohol regulations,
precedent also clarifies that the Commerce Clause does
not displace a State’s use of core Twenty-first
Amendment powers—such as direct regulation of the
sale or use of alcohol within a State’s borders.
Accordingly, Granholm v. Heald’s holding—about
when state alcohol laws can treat in-state and out-of-state
entities differently—was expressly limited to the first
tier of alcohol producers. Granholm reaffirmed the
three-tier system is “unquestionably legitimate.” 544
4
U.S. at 489. And the Court acknowledged that “[t]he
Twenty-first Amendment * * * empowers [a State] to
require that all liquor sold for use in the State be
purchased from a licensed in-state wholesaler.” Ibid.
(quoting North Dakota, 495 U.S. at 447 (Scalia, J.,
concurring in the judgment)) (emphasis added). In
contrast, what Granholm said a State cannot do is
exempt in-state alcohol producers from the three-tier
system’s requirements (of using in-state wholesalers and
retailers), while demanding that out-of-state producers
adhere to the three-tier system (and use in-state
wholesalers and retailers). Granholm’s express holdings
referred multiple times to “producer” or “product,”
confirming that the case dealt with just that first tier of
alcohol production—and not the subsequent wholesaler
or retailer tiers. Moreover, the Court’s historical analysis
recognized this line between producers versus
subsequent tiers in alcohol distribution systems, as
Granholm held that the Twenty-first Amendment
incorporated precedents dealing with just producers.
In all events, Granholm should not be expanded to
invalidate laws requiring in-state alcohol retailers, as this
would eviscerate the three-tier system that has existed
for decades. Any expansion of Granholm to cover
retailers would call into question the Court’s repeated
admonition—even in Granholm itself—that the threetier system is constitutional. The Court should avoid
setting its precedents on that collision course by
upholding the state residency requirement here for
alcohol retailers.
5
ARGUMENT
I.
RESIDENCY REQUIREMENTS ARE AN ESSENTIAL AND
BENEFICIAL PART OF A STATE’S THREE-TIER SYSTEM
FOR ALCOHOL DISTRIBUTION.
Time and again, this Court has reaffirmed “that States
can mandate a three-tier distribution scheme in the
exercise of their authority under the Twenty-first
Amendment.” Granholm, 544 U.S. at 466 (citing North
Dakota, 495 U.S. at 432 (plurality op.); id. at 447
(Scalia, J., concurring in the judgment)). That is, States
can “regulate the sale and importation of alcoholic
beverages” by requiring “[s]eparate licenses” for
“producers, wholesalers, and retailers”—all through “a
complex set of overlapping state and federal regulations.”
Ibid. Granholm made clear “that the three-tier system
itself is ‘unquestionably legitimate.’” Id. at 489 (citing
North Dakota, 495 U.S. at 432 (plurality op.); id. at 447
(Scalia, J., concurring in the judgment)). And it
acknowledged that these valid forms of state-based
alcohol regulation empower States “to require that all
liquor sold for use in the State be purchased from a
licensed in-state wholesaler.” Ibid. (quoting North
Dakota, 495 U.S. at 447 (Scalia, J., concurring in the
judgment)) (emphasis added).
These constitutional residency requirements—
mandating in-state alcohol wholesalers and retailers—
further essential and beneficial state interests. The
three-tier system’s multi-step, comprehensive regulatory
system advances a State’s interest in “promoting
temperance, ensuring orderly market conditions, and
raising revenue.” North Dakota, 495 U.S. at 432
(plurality op.); see Rice v. Rehner, 463 U.S. 713, 724
(1983) (“The State has an unquestionable interest in the
liquor traffic that occurs within its borders”).
6
By requiring distribution to occur through entities
with sufficient connections to a State, that State can best
enforce its own alcohol regulations. For example, States
can more easily inspect in-state wholesalers and retailers
than entities outside their jurisdictions. See, e.g., Carter
v. Virginia, 321 U.S. 131, 135 (1944) (“The state of transit
may compel the carrier to furnish information necessary
for checking the shipment against unlawful diversion”).
In
upholding
Missouri’s
wholesaler
residency
requirements, the Eighth Circuit explained “that in-state
residency
facilitates
law
enforcement
against
wholesalers, because it is easier to pursue in-state
owners, directors, and officers than to enforce against
their out-of-state counterparts.” S. Wine & Spirits of
Am., Inc. v. Div. of Alcohol & Tobacco Control, 731 F.3d
799, 811 (8th Cir. 2013).
Retail, in particular, is the most inherently local tier of
the three-tier system. The Tennessee law at issue here
governs brick-and-mortar liquor and package stores that
are the final connection between the State’s alcohol
distribution system and the general public. See Pet. App.
50a (Sutton, J., concurring in part and dissenting in part)
(“Because they form the final link in the distribution
chain, retailers are closest to the local risks that come
with selling alcohol, such as ‘drunk driving, domestic
abuse, [and] underage drinking.’” (quoting S. Wine &
Spirits, 731 F.3d at 810)).
Even within the same statutory section of the law
challenged here, Tennessee specifies various other
qualifications for the owners of liquor retail stores—and
each one of these regulations is more easily enforced by
requiring retailers to have sufficient connections to the
State. See Tenn. Code § 57-3-204(b)(2)(A)-(L). For
example, among other disqualifying factors, the license
holder cannot have any felony convictions, hold any other
alcohol distribution or food retail licenses, or hold any
7
elected office. Ibid. And the Tennessee Alcoholic
Beverage Commission “is authorized and instructed to
prescribe such inspection, reporting and educational
programs as it shall deem necessary or appropriate to
ensure that the laws, rules and regulations governing
such licensees are observed.” Id. § 57-3-204(b)(4). These
various regulations control everything from a liquor
store’s physical premises to its hours of operation. See id.
§ 57-3-204. Like residency requirements, physicalpresence requirements allow States to effectively enforce
laws designed for orderly market conditions and public
safety.
Given the localized nature of many alcohol regulations,
a State would have limited avenues to enforce compliance
without residency or physical-presence requirements
ensuring a retailer has sufficient connections to the State.
For example, States may validly require training in
responsible alcohol sales and mandate that retail store
managers obtain a “Manager’s Permit” by completing
annual training. Id. § 57-3-221. Similarly, the Tennessee
Alcoholic Beverage Commission conducts routine
compliance checks of brick-and-mortar retails stores.
These inspections ensure that each retail location follows
the statutory and regulatory guidelines—such as the
requirement that each retailer post “in the most
conspicuous place on the premises” its license and keep a
“copy of the rules and regulations promulgated by the
commission” on hand. Id. § 57-3-211. And each applicant
for a retail license must “submit with the application to
the commission a certificate signed by the county mayor”
affirming that the applicant meets the license
qualifications and that the proposed location complies
with local ordinances. Id. § 57-3-208. Tennessee is far
from alone in its comprehensive approach to regulating
the retail sale of alcohol. Pet. Br. 33-36 (collecting state
statutes). And enforcement of all alcohol regulations is
8
furthered by requiring retailers to have sufficient
connections to the State.
Furthermore, residency requirements do much more
than merely facilitate effective enforcement of retailers,
as they also allow proper enforcement of the entire threetier system. Without a residency requirement for
retailers, the State would not be able to ensure that
retailers are purchasing from in-state wholesalers, who in
turn have purchased alcohol directly from producers
(whether in-state or out-of-state). Each step in this chain
is designed to “funnel” alcohol sales through the
appropriate channels and, in turn, through various levels
of state regulation. See Granholm, 544 U.S. at 489
(“States may also assume direct control of liquor
distribution through state-run outlets or funnel sales
through the three-tier system.”). Removing the retailer
residency requirement thus limits the State’s ability to
enforce regulations pertaining to the entire distribution
chain of the three-tier system.
Likewise,
residency
requirements
encourage
responsible ownership of alcohol distribution companies
and public safety. Judge Sutton’s dissent below observed
that “Tennessee reasonably concluded that requiring
retailers to reside in the communities that they serve
would further ‘health, safety and welfare.’” Pet. App. 50a
(quoting Tenn. Code Ann. § 57-3-204(b)(4)). The Eighth
Circuit credited a similar point behind Missouri’s
wholesaler residency requirements: “a wholesaler
governed predominantly by Missouri residents is more
apt to be socially responsible and to promote temperance,
because the 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.” S. Wine
& Spirits, 731 F.3d at 811. The Eighth Circuit thus
recognized that residents “are more likely to respond to
9
concerns of the community, as expressed by their friends
and neighbors whom they encounter day-to-day in
ballparks, churches, and service clubs.” Ibid. These
interests are only heightened with respect to retailers,
who “sell alcohol directly to the public.” Id. at 810.
Notably, local ownership and presence play a
particularly important role in preventing underage sales
of alcohol. As the Eighth Circuit and Judge Sutton noted,
owners who reside in the community and operate these
brick-and-mortar retail stores are in the best position to
check identification, assess credibility, and manage
employees’ day-to-day compliance with applicable
regulations. See Pet. App. 50a (Sutton, J., concurring in
part and dissenting in part); S. Wine & Spirits, 731 F.3d
at 811. Out-of-state owners and retailers do not have the
same capability to oversee the business’s direct
interactions with the public, including minors. Residency
requirements thus support a State’s public-health
interest in preventing underage sales of alcohol.
Part of the justification for the three-tier system also
is the State’s interest in preventing “unlawful diversion
of liquor into its domestic market.” North Dakota, 495
U.S. at 450 (Scalia, J., concurring in the judgment); see
id. at 433 (plurality op.) (“The risk of diversion into the
retail market and disruption of the liquor distribution
system is thus both substantial and real.”). This Court
therefore found “[i]t is necessary for the State to record
the volume of liquor shipped into the State and to identify
those products which have not been distributed through
the State’s liquor distribution system.” Id. at 433
(plurality op.). Today, citizens take for granted that illicit
or tainted alcohol is generally not sold throughout the
nation. But this is largely because of the responsible and
traceable chain of custody provided by a three-tier
system with effective in-state enforcement mechanisms.
For example, if tainted alcohol is somehow introduced
10
into the three-tier distribution chain, this system can
quickly fix the problem: Labeling and reporting
requirements create a built-in tracking system for each
shipment, and in-state residency requirements ensure a
State can adequately enforce these laws. All of this is
possible based on a well-documented chain of custody,
knowing where the product is, and easily determining
who is selling the alcohol.
In sum, a three-tier system allows regulators to
effectively and flexibly adapt to the local norms and laws
of their communities. Tennessee required in-state alcohol
retailers not for economic discrimination in favor of local
interests, but for the State’s unquestioned interest in
“the health, safety and welfare of this state.” Tenn. Code
§ 57-3-204(b)(4); see id. (“[I]t is in the interest of this
state to maintain a higher degree of oversight, control
and accountability for individuals involved in the
ownership, management and control of licensed retail
premises.”). As Judge Sutton’s dissent correctly
summarized, “[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; accord, e.g.,
Norris v. Grimsley, 585 P.2d 925, 927 (Colo. App. 1978)
(“[R]esidents of the affected neighborhood, by virtue of
that fact alone, have a strong interest in insuring that the
liquor licensing procedure is fairly and property
administered.”).
II. THE
DORMANT COMMERCE CLAUSE APPLIES
DIFFERENTLY IN THE UNIQUE CONTEXT OF STATE
ALCOHOL REGULATIONS UNDER THE TWENTY-FIRST
AMENDMENT.
Whatever the dormant Commerce Clause may require
in other contexts, this Court has recognized repeatedly
that state alcohol regulation presents unique concerns.
11
See, e.g., Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691,
712 (1984) (“[t]his Court’s decisions * * * have confirmed
that the Amendment primarily created an exception to
the normal operation of the Commerce Clause” (quoting
Craig v. Boren, 429 U.S. 190, 206 (1976)); see also 42
U.S.C. § 290bb-25b (“It is the sense of Congress that
. . . [a]lcohol is a unique product and should be regulated
differently than other products by the States and Federal
Government.”).
This is primarily because the Twenty-first
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, 467 U.S. at
712 (citing Hostetter v. Idlewild Bon Voyage Liquor
Corp., 377 U.S. 324, 330 (1964)). Consequently, “‘[t]he
Twenty-first Amendment grants the States virtually
complete control over whether to permit importation or
sale of liquor and how to structure the liquor distribution
system.’” Granholm, 544 U.S. at 488 (quoting Cal. Retail
Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445
U.S. 97, 110 (1980)).
State-specific
regulations
concerning
alcohol
distribution necessarily involve treating alcohol within
the State’s wholesale and retail tiers differently from
alcohol outside that system. As Judge Sutton’s dissent
below rightly explained, “in-state distribution regulations
in one sense always discriminate against out-of-state
interests.” Pet. App. 52a. But the Court has recognized
that States can permissibly require such distribution
through in-state wholesale and retail as part of their valid
three-tier systems for alcohol regulation. See Granholm,
544 U.S. at 489 (“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
12
wholesaler” (quoting North Dakota, 495 U.S. at 447
(Scalia, J., concurring in the judgment)).
So, while the Court has held that the dormant
Commerce Clause applies in some fashion to alcohol laws,
ibid., “the Twenty-first Amendment limits the effect of
the dormant Commerce Clause on a State’s regulatory
power over the delivery or use of intoxicating beverages
within its borders.” 44 Liquormart, Inc. v. Rhode Island,
517 U.S. 484, 516 (1996). In particular, when a State has
“attempted directly to regulate the sale or use of liquor
within its borders—the core [Twenty-first Amendment,]
§ 2 power”—that law does not violate the dormant
Commerce Clause. Capital Cities, 467 U.S. at 713.
More general pronouncements about the dormant
Commerce Clause in other contexts do not control
challenges to state alcohol regulation. For example, the
Court has explained that the dormant Commerce Clause
generally forbids a State from providing “differential
treatment of in-state and out-of-state economic interests
that benefits the former and burdens the latter.” Or.
Waste Sys., Inc. v. Dep’t of Envtl. Quality of the State of
Or., 511 U.S. 93, 99 (1994). But the “unquestionably
legitimate” three-tier system requires in-state alcohol
wholesalers and retailers, even if out-of-state entities
would have wanted to distribute and sell alcohol in that
State. Granholm, 544 U.S. at 489.
State alcohol regulation is therefore a unique context
under this Court’s precedents interpreting the Twentyfirst Amendment in conjunction with the dormant
Commerce Clause. See, e.g., Duckworth v. Arkansas, 314
U.S. 390, 398-399 (1941) (Jackson, J., concurring in the
judgment) (recognizing that the “people of the United
States,” by enacting the Twenty-first Amendment,
determined that alcohol regulation “should be governed
by a specific and particular Constitutional provision”).
13
The Court can therefore uphold the residency
requirement here, as within the State’s “core” Twentyfirst Amendment power, without otherwise implicating
the dormant Commerce Clause’s operation outside the
context of alcohol regulation. Capital Cities, 467 U.S. at
713. In fact, this Court has previously upheld state
alcohol residency requirements. See Heublein, Inc. v.
S.C. Tax Comm’n, 409 U.S. 275, 283 (1972) (state
“resident representative” requirement did not violate the
Commerce Clause because “[t]he requirement that,
before engaging in the liquor business in South Carolina,
a manufacturer do more than merely solicit sales there, is
an appropriate element in the State’s system of
regulating the sale of liquor”).
III. GRANHOLM V. HEALD’S HOLDING IS LIMITED TO
PROTECTIONIST LAWS THAT DISCRIMINATE AGAINST
OUT-OF-STATE PRODUCERS AND PRODUCTS.
A. Granholm clarified numerous times that its holding
was limited to state laws discriminating against out-ofstate alcohol producers and products (the first tier in a
three-tier system). But the Court distinguished, as valid,
laws requiring in-state alcohol wholesalers and retailers
(the second and third tiers). Granholm thus held that
both in-state and out-of-state alcohol producers must be
required to use in-state wholesalers or retailers—or
neither in-state nor out-of-state producers can be
compelled to use a State’s three-tier system.
Granholm invalidated state laws that allowed certain
in-state wine producers to sell directly to consumers
without allowing out-of-state producers to do the same.
The Court concluded that these direct-shipment laws
were discriminatory exceptions to the otherwise valid
operation of a three-tier system requiring in-state alcohol
wholesalers and retailers. In other words, the laws
invalidated in Granholm allowed certain in-state
14
producers to bypass the traditional three-tier system of
alcohol regulation (in-state wholesale and retail tiers),
while out-of-state producers had to adhere to the threetier system. See 544 U.S. at 466 (“the three-tier system is
* * * mandated by Michigan and New York only for sales
from out-of-state wineries”). As noted above, the Court
expressly reasoned “that States could mandate a threetier distribution scheme.” Ibid. But Granholm held that a
State could not subject only out-of-state produced alcohol
to the three-tier system if in-state produced alcohol could
evade this system. See ibid. (invalidating the “differential
treatment between in-state and out-of-state wineries”).
Commensurate with the fact that those state directshipment laws applied to producers, Granholm tailored
its holding exclusively to producers. The majority opinion
referred to “producer” or “product” almost 30 times (and
to “winery” dozens more). Many of these references
establish that the Court’s holding was limited to the
differential treatment of producers and products:
• “Section 2 does not allow States to regulate the
direct shipment of wine on terms that discriminate
in favor of in-state producers.” Id. at 476 (emphasis
added).
• “The Court held that States were not free to pass
laws burdening only out-of-state products.” Id. at
477 (emphasis added).
• “Our more recent cases, furthermore, confirm that
the Twenty-first Amendment does not supersede
other provisions of the Constitution and, in
particular, does not displace the rule that States
may not give a discriminatory preference to their
own producers.” Id. at 487 (emphasis added).
• “The instant cases, in contrast, involve
straightforward attempts to discriminate in favor of
local producers.” Id. at 489 (emphasis added).
15
• “State policies are protected under the Twenty-first
Amendment when they treat liquor produced out of
state the same as its domestic equivalent.” Ibid.
(emphasis added).
• “This [Twenty-first Amendment] power, however,
does not allow States to ban, or severely limit, the
direct shipment of out-of-state wine while
simultaneously authorizing direct shipment by instate producers.” Id. at 493 (emphasis added).
Not only did Granholm’s language emphasize
“producer” and “product,” its reasoning relied on the
distinction between this first production tier versus the
latter two tiers (wholesale and retail). Recognizing that
States can “funnel sales through the three-tier system,”
the Court clarified that a State may “require that all
liquor sold for use in the State be purchased from a
licensed in-state wholesaler.” Id. at 489 (quoting North
Dakota, 495 U.S. at 447 (Scalia, J., concurring in the
judgment)) (emphasis added). So States can require instate alcohol wholesalers and retailers under Granholm,
but they must “treat liquor produced out of state the
same as its domestic equivalent” if States are going to
implement a three-tier system. Ibid. (emphasis added).
Granholm’s historical analysis also shows that its
holding was limited to the differential treatment of
producers—not wholesalers or retailers. The Court
explained that ratification of the Twenty-first
Amendment “constitutionaliz[ed] the Commerce Clause
framework established under [the Wilson and WebbKenyon Acts].” Id. at 484 (quoting Craig, 429 U.S. at 205206). Granholm then reasoned that these Acts had
reaffirmed “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 (emphasis added).
This line of cases, which Granholm held were
16
incorporated into the Twenty-first Amendment,
implicated only producers—and not the remaining
wholesaler and retailer tiers of the three-tier system:
• Scott v. Donald, 165 U.S. 58, 101 (1897) (“[W]hen a
state recognizes the manufacture, sale, and use of
intoxicating liquors as lawful, it cannot discriminate
against the bringing of such articles in, and
importing them from other states; that such
legislation is void as a hindrance to interstate
commerce, and an unjust preference of the products
of the enacting state as against similar products of
the other states.”) (emphases added).
• Walling v. Michigan, 116 U.S. 446, 455 (1886)
(invalidating a “discriminating tax * * * operating to
the disadvantage of the products of other states”)
(emphasis added).
• Tiernan v. Rinker, 102 U.S. 123, 127 (1880) (“A tax
cannot be exacted for the sale of beer and wines
when a foreign manufacture, if not exacted from
their sale when of home manufacture.”) (emphasis
added).
This explains why Granholm invalidated state laws
treating in-state and out-of-state alcohol producers
differently, while reaffirming the unquestionable
legitimacy of a three-tier system requiring in-state
wholesalers and retailers.
B. While reaffirming the validity of three-tier systems,
Granholm further limited the scope of its holding to state
laws designed to discriminate in favor of local economic
protectionism. See, e.g., 544 U.S. at 472 (“The mere fact
of nonresidence should not foreclose a producer in one
State from access to markets in other States.”).
Granholm relied on cases dealing with state laws that
discriminated against out-of-of state producers, thereby
protecting local producers from competition. See id. at
17
487-488. For example, Bacchus Imports, Ltd. v. Dias, 468
U.S. 263, 270 (1984), invalidated a state law that was
admittedly
designed
with
“simple
economic
protectionism” in mind. The law in Bacchus created an
exception to the State’s otherwise broadly applicable
alcohol regulations by excepting certain local alcohol
producers from excise taxes. See ibid. The holding in
Bacchus turned on that law’s economic protectionism in
favor of local alcohol producers, as Granholm noted. See
Granholm, 544 U.S. at 487 (“‘The central purpose of the
[Amendment] was not to empower States to favor local
liquor industries by erecting barriers to competition.’”)
(quoting Bacchus, 468 U.S. at 276).
Similarly, Granholm relied on two additional cases
involving economic protectionism where the practical
effect of state laws would have been to regulate alcohol
outside a State’s boundaries. See id. at 488. BrownForman Distillers Corp. v. N.Y. State Liquor Authority
invalidated a state law requiring out-of-state producers
to affirm that their posted prices for alcohol sold to instate wholesalers were no greater than prices charged to
wholesalers in neighboring States. 476 U.S. 573, 575-576
(1986). Once the producer posted its monthly price in
New York, it was required to seek approval from New
York regulators before offering discounts in other States.
Ibid. The Court held that this law violated the Commerce
Clause because “the ‘practical effect’ of the law is to
control liquor prices in other States.” Id. at 583. And the
Court rejected the State’s reliance on the Twenty-first
Amendment because “[t]he 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.” Id. at 585 (citation omitted).
Soon thereafter, the Court also “rejected an identical
argument” that Connecticut’s analogous price-
18
affirmation statute was protected by the Twenty-first
Amendment. Healy v. Beer Inst., Inc., 491 U.S. 324, 327
(1989). Healy relied on Brown-Forman’s holding that
“the Twenty-first Amendment does not immunize state
laws from invalidation under the Commerce Clause when
those laws have the practical effect of regulating liquor
sales in other States.” Id. at 342. Notably, however,
Healy did not question Connecticut’s three-tier system
and the geographic restrictions requiring in-state
wholesalers without questioning their legitimacy. See id.
at 326 n.2.
In relying on these precedents, Granholm limited its
scope to state laws designed for local economic
protectionism—as opposed to laws implementing the
well-established
three-tier
system
for
alcohol
distribution. And none of these authorities implicate or
tarnish the evenhanded three-tier system that Granholm
emphatically reaffirmed.
IV. THE SIXTH CIRCUIT’S EXPANSION OF GRANHOLM TO
IN-STATE RETAILERS WOULD EVISCERATE THE
THREE-TIER SYSTEM THAT THIS COURT HAS
ALREADY HELD “UNQUESTIONABLY LEGITIMATE.”
As explained above, Granholm provided comfort that
the three-tier system was still “unquestionably
legitimate” by holding that “State policies are protected
under the Twenty-first Amendment when they treat
liquor produced out of state the same as its domestic
equivalent.” 544 U.S. at 489. Under that express holding,
a State’s residency requirement for alcohol retailers
should also be unquestionably legitimate, as that treats
alcohol produced both in-state and out-of-state the same
by requiring both to be sold by in-state retailers.
But if States cannot require alcohol wholesalers or
retailers to have a sufficient connection to the State, then
it is unclear how any meaningful version of state-based
19
alcohol regulation under a three-tier system can survive.
See, e.g., Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 190
(2d Cir. 2009) (“[B]ecause in-state retailers make up the
third tier in New York’s three-tier regulatory system,
Appellants’ challenge to the ABC Law’s provisions
requiring all wholesalers and retailers be present in and
licensed by the state is a frontal attack on the
constitutionality of the three-tier system itself.” (citation
omitted)); Brooks v. Vassar, 462 F.3d 341, 352 (4th Cir.
2006) (“an argument that compares the status of an instate retailer with an out-of-state retailer—or that
compares the status of any other in-state entity under
the three-tier system with its out-of-state counterpart—
is nothing different than an argument challenging the
three-tier system itself”).
If the Court were to expand Granholm’s holding
beyond producers—by ruling that States cannot treat instate and out-of-state wholesalers or retailers
differently—this would call into question whether North
Dakota’s reaffirmation of the three-tier system would
have to be overruled. North Dakota upheld a State’s
labeling and reporting regulations for “liquor destined
for federal enclaves” within the State. 495 U.S. at 430
(plurality op.). The Court concluded that “[t]he two
North Dakota regulations fall within the core of the
State’s power under the Twenty-first Amendment”
because the laws served a “valid state interest” as part of
North Dakota’s “comprehensive system for the
distribution of liquor within its borders.” Id. at 432. This
“comprehensive system” for controlling alcohol
distribution included in-state wholesalers and retailers.
Id. at 447-448 (Scalia, J., concurring in the judgment).
There is thus no need to reconsider the three-tier
system, particularly given that such systems for alcohol
distribution have existed for decades. See Pet. Br. 33-34
(collecting state statutes); North Dakota, 495 U.S. at 432
20
(plurality op.). In surveying precedents, North Dakota
noted that “[t]he Court has made clear that the States
have the power to control shipments of liquor during
their passage through their territory and to take
appropriate steps to prevent the unlawful diversion of
liquor into their regulated intrastate markets.” Id. at 431.
And against the backdrop of this long history of State
control over alcohol distribution, Congress has enacted
various alcohol statutes throughout the years without
enacting any comprehensive scheme for regulating local
retailers. See, e.g., 42 U.S.C. § 290bb-25b (the Sober
Truth on Preventing Underage Drinking Act of 2006); 27
U.S.C.
§ 122a
(the
Twenty-first
Amendment
Enforcement Act of 2000); 27 U.S.C. § 201-212 (Federal
Alcohol Administration Act of 1935); 27 U.S.C. § 122
(Webb-Kenyon Act of 1913, Pub. L. 62-398, 37 Stat. 699
(1913); re-enacted, 49 Stat. 877 (1935)); 27 U.S.C. § 121
(Wilson Act of 1890). Cf. William Jameson & Co. v.
Morgenthau, 307 U.S. 171, 173 (1939) (affirming
Congress’s ability to regulate liquor in certain
circumstances,
notwithstanding
the
Twenty-first
Amendment).
Granholm did not mean to question a three-tier
system requiring in-state alcohol retailers, as it expressly
said this system was “unquestionably legitimate.” 544
U.S. at 489. And this Court now should not expand
Granholm’s holding beyond producers, as doing so would
set this Court’s precedents on a collision course by
threatening the continued viability of Granholm’s and
North Dakota’s unequivocal reaffirmation of the threetier system.
CONCLUSION
The Court should reverse the judgment of the Sixth
Circuit.
21
Respectfully submitted.
SCOTT A. KELLER*
Counsel of Record
BAKER BOTTS L.L.P.
1299 Pennsylvania Ave. NW
Washington, DC 20004
(202) 639-7700
scott.keller@bakerbotts.com
TRAVIS L. GRAY
BAKER BOTTS L.L.P.
910 Louisiana St.
Houston, TX 77002
(713) 229-1234
Counsel for Amicus Curiae
*Admitted only in Texas.
Not admitted in the District
of
Columbia.
Practicing
under the supervision of
principals of the firm who
are members of the District
of Columbia bar.
November 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.