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

No. 18-96

IN THE

Supreme Court of the United States

TENNESSEE WINE AND SPIRITS

RETAILERS ASSOCIATION,

Petitioner,

v.

ZACKARY W. BLAIR, ET AL.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

BRIEF OF NATIONAL ALCOHOL BEVERAGE

CONTROL ASSOCIATION AND NATIONAL LIQUOR

LAW ENFORCEMENT ASSOCIATION AS AMICI

CURIAE IN SUPPORT OF PETITIONER

J. NEAL INSLEY

LARRY BUCKNER

NATIONAL ALCOHOL BEVERAGE

CONTROL ASSOCIATION

4401 Ford Avenue

Suite 700

Alexandria, VA 22302-1473

(703) 578-4200

neal.insley@nabca.org

RACHEL BLOOMEKATZ

Counsel of Record

ALEXANDRIA TWINEM

GUPTA WESSLER PLLC

1900 L Street, NW

Suite 312

Washington, DC 20036

(202) 888-1741

rachel@guptawessler.com

Counsel for Amici Curiae

November 20, 2018

-iTABLE OF CONTENTS

Table of authorities ................................................................ iii

Introduction and interest of amici curiae .......................... 1

Background .............................................................................. 3

I. Regulatory Structure.............................................. 3

II. Alcohol Enforcement Agents ................................ 7

Summary of argument ......................................................... 11

Argument ................................................................................ 13

I. In-state residency requirements are

critical to states’ efforts to enforce alcohol

regulations for the health and safety of

their citizenry. ........................................................ 13

A.

Residency requirements ensure that

agents can physically inspect

licensees’ premises and products. ............. 14

B.

In-state residency requirements

facilitate enforcement actions for

violations of state alcohol laws. .................. 17

C.

Residency requirements foster selfregulation through ties to the

community and local pressure. .................. 19

II. Eliminating in-state presence

requirements would undermine the

efficacy of the entire three-tier system of

alcohol control. ....................................................... 21

A.

The three-tier system provides an

effective method for states to regulate

alcohol within their borders. ...................... 22

-iiB.

Eliminating states’ physical presence

requirements would undermine the

effectiveness of the three-tier system. ..... 25

III. Durational residency requirements are

even more potent in effectuating the goals

of the three-tier system. ....................................... 27

Conclusion .............................................................................. 28

-iiiTABLE OF AUTHORITIES

Cases

Bacchus Imports, Ltd. v. Dias,

468 U.S. 263 (1984)................................................ 2, 11, 13

Burnham v. Superior Court of California,

495 U.S. 604 (1990).......................................................... 19

Duckworth v. Arkansas,

314 U.S. 390 (1941)............................................................ 1

Family Winemakers of California v. Jenkins,

592 F.3d 1 (1st Cir. 2010) ............................................... 24

Granholm v. Heald,

544 U.S. 460 (2005)................................................. passim

North Dakota v. United States,

495 U.S. 423 (1990)........................................................ 4, 5

Southern Wine & Spirits of America v. Division of

Alcohol & Tobacco Control,

731 F.3d 799 (8th Cir. 2013) .......................................... 19

Shaffer v. Heitner,

433 U.S. 186 (1977).......................................................... 18

Statutes and regulations

Ala. Code § 28-5-10................................................................ 14

Ala. Code § 28-7A-6 ............................................................... 14

Alaska Stat. § 04.11.430.......................................................... 5

Ariz. Admin. Code R19-1-201 ................................................ 5

Ark. Code Ann. § 3-2-205 ..................................................... 14

-ivGa. Code Ann. § 3-2-32 ......................................................... 14

Ind. Code § 7.1-2-3-12 ........................................................... 14

La. Stat. Ann. § 26:375 ......................................................... 14

Mass. Gen. Laws Ann. Ch. 138, § 15 .................................... 5

Md. Code Ann., Alco. Bev. § 6-202 ..................................... 14

Mo. Rev. Stat. §§ 311.490–311.540 ..................................... 14

N.C. Gen. Stat. Ann. § 18B-502 .......................................... 14

N.C. Gen. Stat. Ann. § 18B-900 ............................................ 5

N.D. Cent. Code § 5-03-01 ..................................................... 5

N.H. Rev. Stat. Ann. § 177:16 ............................................... 5

Neb. Rev. Stat. Ann. § 53-125 ............................................... 5

R.I. Gen. Laws Ann. § 3-5-10 ................................................ 5

Tenn. Code Ann. § 57-3-203................................................... 6

Tenn. Code Ann. § 57-3-204............................................. 6, 14

Tenn. Code Ann. § 57-3-409................................................. 14

Texas Alco. Bev. Code Ann. § 101.04 ................................. 14

Va. Code Ann. § 4.1-204 ....................................................... 15

Legislative materials

Legal Issues Concerning State Alcohol Regulation:

Hearing Before the Subcomm. on Courts &

Competition Policy of the H. Comm. on the

Judiciary, 111th Cong. 43 (2010) ................................. 16

-vSober Truth on Preventing Underage Drinking Act,

Pub. L. No. 109-422, 120 Stat. 2890 (2006) ................. 19

Other authorities

American Association of Wine Economists,

Working Paper No. 61, Direct Ship Blowout:

How the Supreme Court’s Granholm Decision

Has Led to a Flood of Non-Taxed Wine

Shipments (June 2010)................................................... 26

The Beverage Information Group Handbook

Advance (2011) .................................................................. 6

The Beverage Information Group Handbook

Advance (2018) .................................................................. 6

Jack Broom,

NW Grocery Chain Pulls Four Loko Drinks off

Shelves, Seattle Times (Oct. 26, 2010) ......................... 21

Centers for Disease Control & Prevention,

Impaired Driving: Get the Facts (2017) ....................... 8

Centers For Disease Control & Prevention,

Fact Sheets—Alcohol Use and Your Health

(Jan. 3, 2018) ...................................................................... 1

Cowen, Nielsen Spirits Update,

(Nov. 13, 2018) ................................................................... 6

Death Toll from Indonesia Tainted Liquor Rises to

82, Reuters (Apr. 11, 2018) .............................................. 9

Jessica De Nova,

Business Owners Around Cancun Admit

Tainted Alcohol Is an Ongoing Problem,

WFAA (ABC Dallas) (Dec. 7, 2017) ............................... 9

-viRoni Elias,

Three Cheers for Three Tiers: Why the ThreeTier System Maintains Its Legal Validity and

Social Benefits After Granholm,

14 DePaul Bus. & Com. L.J. 209 (2016) ...................... 23

Pamela Erickson,

Safe and Sound: How the Three-Tier Alcohol

Regulatory System Promotes Safe Products

and High Revenue Collections (Apr. 2015) .......... 23, 24

Benjamin Fearnow,

Blackouts, Deaths at Mexican Resorts Prompt

US State Department Investigation,

International Business Times (Dec. 13, 2017) ........... 25

Raymond B. Fosdick & Albert L. Scott,

Toward Liquor Control (1933) ..................................... 20

Pat Gagliardi,

The Need for State Alcohol Regulatory

Funding: Fighting Deregulation by Defunding

(2013) ........................................................................ passim

Sarah Kaplan,

Nearly 100 Die from Drinking Tainted Alcohol

in Mumbai ‘Hooch Tragedy’, Washington Post

(June 22, 2015) ................................................................. 25

Neil MacFarquhar,

Where the Booze Can Kill, and Putin Is

Deemed a ‘Good Czar’, N.Y. Times (Feb. 18,

2017) .................................................................................. 25

-viiBenjamin Mueller,

Tainted Bootleg Alcohol Kills Dozens and

Poisons Hundreds in Iran, New York Times

(Oct. 2, 2018)....................................................................... 9

Matthew Reid,

Medford Liquor Stores Pull Four Loko from

Shelves before Ban, Wicked Local

(Nov. 24, 2010) ................................................................. 21

Moonshine Bust: Police Seize 67 Gallons from

Alleged Bootlegger’s Home, NBC Washington

(Oct. 19, 2017) .................................................................... 9

More than 80 gallons of moonshine seized in

Hancock County, Miss.: report, WGNO

(ABC New Orleans) (June 28, 2018) .............................. 9

National Highway Traffic Safety Administration,

Pub. No. 812 450, Alcohol-Impaired Driving

(Oct. 2017)........................................................................... 8

National Highway Traffic Safety Administration,

The Role of Alcohol Beverage Control Agencies

in the Enforcement and Adjudication of

Alcohol Laws (2005) ............................................. 8, 15, 17

National Institute on Alcohol Abuse & Alcoholism,

Alcohol Facts and Statistics (Aug. 2018) ..................... 1

César Rodriguez,

45 gallons of pulque seized in Laredo amid

warning of tainted alcohol in Mexico,

Laredo Morning Times (Aug. 8, 2017) .......................... 9

-viiiBibeka Shrestha,

Boston Beer Gets $20.5M to Settle Recall

Claims, Law 360 (May 10, 2011) .................................. 24

Jessica C. Starns,

The Dangers of Common Ownership in an

Uncommon Industry: Alcohol Policy in

America and the Timeless Relevance of TiedHouse Restrictions (2017) ............................................... 4

Scores of TGI Fridays Among New Jersey Bars

Accused of Substituting Cheap Alcohol for

Premium Brands in Statewide Crackdown,

Daily Mail (May 24, 2013) .............................................. 15

Substance Abuse & Mental Health Services,

U.S. Department of Health & Human Services,

National Survey on Drug Use and Health:

Comparison of 2008–2009 and 2015–2016

Population Percentages (2016) ...................................... 8

Robert M. Tobiassen,

The “Fake Alcohol” Situation in the United

States: The Impact of Culture, Market

Economics, and the Current Regulatory System

(2014) ........................................................................ passim

Virginia Department of Alcoholic Beverage

Control, Annual Report (2017)..................................... 14

Wegmans Pulls Four Loko off Store Shelves,

Rochester First (Nov. 10, 2010) ................................... 21

-1INTRODUCTION AND INTEREST

OF AMICI CURIAE1

Alcohol is no ordinary product. It has an inherent

dichotomy in its use. Consumed responsibly and properly

regulated it can be safely enjoyed by adult consumers.

However, it can also be “a lawlessness unto itself.”

Duckworth v. Arkansas, 314 U.S. 390, 398 (1941)

(Jackson, J., concurring). Drinking causes more than

80,000 deaths each year, including the deaths of over

1,800 young people between the ages of 18 and 24.

Alcohol consumption results in higher rates of accidental

injury (and death); sexually transmitted disease; and

interpersonal violence, including homicide, suicide,

sexual assault, and domestic violence. Regular alcohol

consumption can have long-term health consequences,

such as high blood pressure, stroke, liver disease, cancer,

cardiovascular disorders, and dementia. Altogether, the

harmful effects of alcohol consumption cost the U.S.

economy almost $250 billion annually. See Ctrs. For

Disease Control & Prevention, Fact Sheets—Alcohol Use

and Your Health (Jan. 3, 2018), https://perma.cc/N446CASB; Nat’l Institute on Alcohol Abuse &

Alcoholism, Alcohol Facts and Statistics (Aug. 2018),

https://perma.cc/NH7F-SX48.

States are charged with the great responsibility, and

daunting task, of regulating alcohol within their borders

to protect the health and safety of their citizens from

these very real threats that alcohol poses. Yet states

must do so under profound constraints: The number of

agents they can employ is dwarfed by the number of

1

No counsel for a party authored this brief in whole or in part

and no person other than amici and their counsel made a monetary

contribution to its preparation or submission. The parties’ letters

consenting to the filing of amicus briefs are on file with the Clerk.

-2companies involved in the alcohol trade. And alcohol

oversight agencies have limited budgets to fund investigations into potential wrongdoing and enforcement

actions to hold wrongdoers accountable. In light of this

reality, states must pursue the most efficient method of

overseeing the alcohol industry.

That is where residency requirements—and durational residency requirements—come in. Far from the

type of protectionist policy the Dormant Commerce

Clause targets, residency requirements are a critical tool

of state regulation to “combat the perceived evils of an

unrestricted traffic in liquor.” Bacchus Imps., Ltd. v.

Dias, 468 U.S. 263, 276 (1984). Striking down such

requirements would jeopardize the entire system of state

regulation and oversight of the alcohol industry.

Amici here have a unique understanding of alcohol

regulatory enforcement schemes and the critical role

that residency and durational requirements play in

furthering health and safety. The National Alcohol

Beverage Control Association (NABCA) is an organization composed of government agents responsible for

controlling and regulating the distribution and sale of

alcoholic beverages in eighteen states throughout the

country. As such, it is intimately acquainted with the

realities of enforcing alcohol regulation within the

United States and how best to effectuate the goals of

maintaining an orderly alcohol market, ensuring product

integrity, and promoting the states’ interests in the

health and safety of their citizens.

The National Liquor Law Enforcement Association

(NLLEA) is a non-profit association comprised of

approximately 1,100 law enforcement personnel dedicated to the enforcement of liquor laws and regulations. The

NLLEA is committed to improving the standards and

-3practices of liquor law enforcement, the professional

development of its members, and public recognition of

the role and achievements of liquor law enforcement in

protecting and promoting public safety. The NLLEA

also collaborates with other state and national law

enforcement organizations to enhance understanding of

the overall importance liquor law enforcement plays in

preventing crime and community problems.

Both the NABCA and NLLEA have a significant

interest in this case because, as explained below, the

elimination of residency requirements would prove

catastrophic to the enforcement of state liquor regulations.

BACKGROUND

Tennessee did not enact the challenged licensing

requirements in a vacuum. For nearly a century since

Prohibition—and since the Twenty-first Amendment

enshrined states’ rights to regulate alcohol—states have

had experience on the front lines of alcohol regulation.

Tennessee, like many other states, adopted a durational

residency requirement for alcohol licensees based on this

experience regulating the flow of alcohol within its

borders and in light of the very real financial and other

practical constraints it faces in regulating this sui generis

product.

I. Regulatory Structure

The Twenty-first Amendment grants to the states

“virtually complete control” to regulate or prohibit the

transportation and importation of alcohol within their

borders in whatever manner they see fit. Granholm v.

Heald, 544 U.S. 460, 488 (2005). Under the wide latitude

granted by the Constitution, each state has developed its

own regulatory system. While many features of these

-4systems vary by state, as a general matter, every state

employs some version of what is known as the “three-tier

system.” See Jessica C. Starns, The Dangers of Common

Ownership in an Uncommon Industry: Alcohol Policy

in America and the Timeless Relevance of Tied-House

Restrictions 8 (2017), https://perma.cc/A8TJ-CH68. The

three-tier system is not a historical accident or a protectionist scheme; it is a deliberate design integral to a

state’s ability to effectively enforce its duly enacted

alcohol laws.

Specifically, the three-tier system was developed in

response to the dangers of the “tied-house” model that

dominated the alcohol market prior to Prohibition.

Under that model, the manufacturers of alcohol products

could directly sell to consumers. That vertical integration

of alcohol production and sale led to rampant oversupply

of alcohol and disregard for alcohol regulations. See id. at

4–5, 8–9. With a direct line between the numerous

suppliers and countless customers, there was little space

for state regulators to intervene and enforce health and

safety laws regulating alcohol.

Under the three-tier system, by contrast, alcohol

travels through at least three independent levels of

distribution before it is enjoyed by the ultimate customer. See North Dakota v. United States, 495 U.S. 423, 428

(1990) (describing North Dakota’s three-tier system).

The alcohol is produced by a manufacturer, such as a

distiller, brewery, or winery. The manufacturer may only

sell its alcohol to a state-licensed (or state-owned) wholesaler, also known as a distributor. The distributor may

sell this alcohol to another licensed wholesaler, or it may

sell it to a state-licensed (or state-owned) retailer. The

retailer, in turn, is the only type of entity that may sell

alcohol directly to the consumer. This Court has

-5recognized the three-tier system as “unquestionably

legitimate.” Granholm, 544 U.S. at 489 (quoting North

Dakota, 495 U.S. at 432). Not only is it legal; it also

provides myriad avenues for state regulators to ensure

that the entire chain of alcohol production and distribution follows the state’s health and safety regulations.

Within the three-tier system, states impose numerous

restrictions on people and corporations who seek to enter

the alcohol industry within their borders. For example,

most states require background checks to determine

whether the applicants can be trusted to exercise

appropriate judgment as an alcohol distributor or

purveyor. As part of this three-tier system, too, many

states have instituted durational residency requirements

on alcohol wholesalers and retailers. See Petition at 24

n.3 (listing at least 21 states with durational residency

requirements). Other states have instituted in-state

presence requirements without mandating a particular

duration of in-state residency. See, e.g., Alaska Stat.

§ 04.11.430; Ariz. Admin. Code R19-1-201; Mass. Gen.

Laws Ann. Ch. 138, § 15; Neb. Rev. Stat. Ann. § 53-125;

N.H. Rev. Stat. Ann. § 177:16; N.C. Gen. Stat. Ann.

§ 18B-900; N.D. Cent. Code § 5-03-01; R.I. Gen. Laws

Ann. § 3-5-10. Under in-state presence requirements, any

alcohol distributor or retailer applying to do business in a

state must demonstrate that the person seeking

the license (or, if a corporation, its owner or manager)

is currently a resident of the state. See, e.g.,

N.D. Cent. Code § 5-03-01; see also North Dakota,

495 U.S. at 447 (Scalia, J., concurring) (“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.”). That is, producers of

alcohol throughout the country—vineyards, distilleries,

breweries, and the like—can only sell their products in a

-6given state by contracting with a licensed wholesaler that

resides in the state. In turn, that wholesaler can only sell

to retailers that reside in the state.

The durational residency requirements, like the one

Tennessee instituted, just extend the in-state residency

requirement by mandating that distributors and retailers

applying to do business in a state demonstrate that the

person seeking a license (or the corporation’s managers

or owners) has resided in the state for a certain period of

time. See, e.g., Tenn. Code Ann. §§ 57-3-203(b), -204(b)(2)

(requiring two years of residency for both retail and

wholesale licenses); see also Petition at 24 n.3 (collecting

durational residency statutes).

Under the three-tier system of regulation, the alcohol

industry has thrived across the fifty states. See Cowen,

Nielsen Spirits Update (Nov. 13, 2018) (highlighting

continued growth in spirits market). Over the past

decade, gross sales of alcohol products have increased by

almost 27%—from approximately $177 billion in 2006 to

nearly $224 billion in 2016. See The Beverage

Information Group Handbook Advance 39 (2018); The

Beverage Information Group Handbook Advance 143

(2011). By preventing producers from owning retailers or

striking anticompetitive deals for retailers to favor their

products over their competitors, state alcohol markets

remain competitive and offer a wide variety of products

at a “wide range of prices from low priced economy to

high priced super-premium.” Robert M. Tobiassen,

The “Fake Alcohol” Situation in the United States:

The Impact of Culture, Market Economics,

and the Current Regulatory System 32, 53–55 (2014),

https://perma.cc/W7LE-UUJD.

-7II. Alcohol Enforcement Agents

While the three-tier system provides structural safeguards against unregulated and oversaturated alcohol

markets, much of the day-to-day responsibility for

protecting the health and safety of the public from

alcohol consumption rests upon the state agencies—and

individual agents—that must enforce the laws. In nearly

all of the fifty states, alcohol control agents are tasked

with ensuring that alcohol markets are orderly and that

the state’s alcohol laws are enforced to protect the health

and safety of its citizens. Though responsibilities differ

between jurisdictions, as a general matter, agents are

responsible for enforcing the state’s laws through

inspections, investigations, and, if necessary, fining

violators and seizing unsafe or illegal products. At the

retail level, for example, agents inspect licensed premises

and investigate allegations that these businesses are

accepting fraudulent identification, serving intoxicated

customers, or providing alcohol to underage patrons. Pat

Gagliardi, The Need for State Alcohol Regulatory

Funding: Fighting Deregulation by Defunding (2013),

https://perma.cc/LEE7-VXA5.

Agents also enforce financial regulations on alcohol

entities. They collect excise taxes, most often as alcohol

passes through an in-state wholesaler. They also

investigate hidden ownership cases. These may concern

an alcohol producer that has secretly purchased, or made

an exclusive deal with, an alcohol retailer, thereby

reenacting the destructive “tied-house” model that states

have regulated against since the end of Prohibition.

Hidden ownership cases may also concern the use of

alcohol industry members as fronts to launder money for

criminal or terrorist organizations. Id.; Nat’l Highway

Traffic Safety Admin., The Role of Alcohol Beverage

-8Control Agencies in the Enforcement and Adjudication

of Alcohol Laws 4 (2005), https://perma.cc/489K-KLJK.

Agents are further tasked with issues not related to

licensed alcohol establishments, which may include

investigating unlicensed or “underground” alcohol

purveyors, the production and sale of counterfeit alcohol

or moonshine, and the manufacture and distribution of

fraudulent identification cards. Id. at 4. In recent years,

alcohol control agents in many states have also been

tasked with enforcement related to other vice laws, such

as underage tobacco sales, illegal gambling, prostitution,

and illicit drugs. Id.; Gagliardi, The Need for State

Alcohol Regulatory Funding.

As amici have witnessed first-hand, these state

agents have helped achieve significant success in

protecting the health and safety of Americans. Over the

last decade, the national number of fatalities resulting

from drunk driving has decreased nearly twenty percent.

Nat’l Highway Traffic Safety Admin., Pub. No. 812 450,

Alcohol-Impaired Driving 2 fig.1 (Oct. 2017),

https://perma.cc/RJU6-Q4R9. Similarly, the CDC’s data

for 2014—the most recent available—shows that alcoholimpaired driving episodes are at an all-time low. Ctrs. for

Disease Control & Prevention, Impaired Driving: Get

the Facts (2017), https://perma.cc/X6GS-UFVF. The rate

of underage drinking has also markedly decreased in the

last ten years. Substance Abuse & Mental Health Servs.,

U.S. Dep’t of Health & Human Servs., National Survey

on Drug Use and Health: Comparison of 2008–2009 and

2015–2016 Population Percentages tbl.6 (2016),

https://perma.cc/XRC5-358T.

And alcohol agents each year seize thousands of

containers of homemade, counterfeit, tainted, or other

potentially dangerous alcohol before it can be purchased

-9or ingested. See, e.g., More than 80 gallons of moonshine

seized in Hancock County, Miss.: report, WGNO (ABC

New Orleans) (June 28, 2018), https://perma.cc/9SDRQQGF; Moonshine Bust: Police Seize 67 Gallons from

Alleged Bootlegger’s Home, NBC Wash. (Oct. 19, 2017),

https://perma.cc/48LG-DVDV; César Rodriguez, 45

gallons of pulque seized in Laredo amid warning of

tainted alcohol in Mexico, Laredo Morning Times (Aug.

8, 2017), https://perma.cc/6X89-RC33. Indeed, the United

States is considered a global leader in preventing

counterfeit alcohol from entering the stream of

commerce. Tobiassen, “Fake Alcohol” Situation, at 7–8,

11–15, 32–50. Though Americans may take the safety and

purity of their alcohol for granted, death and injuries

related to tainted and counterfeit alcohol consumption

are still a common occurrence in other countries around

the world. See, e.g., Benjamin Mueller, Tainted Bootleg

Alcohol Kills Dozens and Poisons Hundreds in Iran,

N.Y. Times (Oct. 2, 2018), https://nyti.ms/2PDa7xA;

Death Toll from Indonesia Tainted Liquor Rises to 82,

Reuters (Apr. 11, 2018), https://reut.rs/2KeVFFW;

Jessica De Nova, Business Owners Around Cancun

Admit Tainted Alcohol Is an Ongoing Problem, WFAA

(ABC Dallas) (Dec. 7, 2017), https://perma.cc/TDZ7X9PF.

The continued success of state alcohol control efforts,

however, is far from certain. The capacity of state alcohol

enforcement agencies is increasingly strained by

expanding responsibilities that are not matched by

increased funding or personnel. Between 2003 and 2013,

the United States experienced an “enormous increase in

the sale and consumption of alcohol.” Gagliardi, The

Need for State Alcohol Regulatory Funding. Yet thirtytwo states reduced or kept constant the number of

enforcement agents despite this explosion in work. Id.

-10During this same period, nearly half of all states also

reduced their budget allocations for alcohol control,

requiring each agent to do more with fewer resources.

Id.

The result: alcohol enforcement agents are already

unable to provide the type of oversight necessary to meet

the expanding market. While in 2003 there was, on

average, one agent for every 228 licensed premises, in

2013 the ratio grew to one agent to every 280. Id. Since

2013, that ratio has only gotten worse. The reduction in

workforce not only means that each agent has less time

to inspect, investigate, and provide oversight to licensed

(and unlicensed) facilities, it also means that each alcohol

agent must cover a greater geographic area. Each agent

in Minnesota, for example, is now tasked with inspecting

and investigating alcohol establishments covering an

average territory of 28,000 miles. Id. Agents in eleven

other states are also obligated to travel a thousand or

more miles on average to review the licensees under

their purview.2 With diminishing numbers and proximity,

agents no longer pose the deterrence they once did.

Furthermore, enforcement agents face new

challenges arising from technology. Internet platforms

such as Craigslist and Facebook Marketplace provide

easily accessible and largely unregulated grey markets

for the sale and resale of products. Unlicensed resellers

utilize a wide range of websites to make sales and thirdparty delivery services to make deliveries—increasing

2

Agents in Wyoming (22,000 miles), Missouri (13,000 miles),

Nebraska (9,600 miles), Colorado (6,900 miles), New Mexico (5,900

miles), Kansas (4,000 miles), Oregon (2,600 miles), Wisconsin (2,000

miles), Tennessee (1,300 miles), Michigan (1,200 miles), and California (1,100 miles) all cover average territories of 1,000 or more miles.

Gagliardi, The Need for State Alcohol Regulatory Funding.

-11the ease with which underage buyers can purchase

alcohol over the internet. Id. And bad actors across the

globe can utilize all of these avenues to sell counterfeit

and potentially tainted product with complete anonymity.

Despite calls for states to increase the resources

available to alcohol control agencies, see, e.g., id.;

Tobiassen, “Fake Alcohol” Situation, at 3, 7, 34, there

has been little action from the states to increase funding

or personnel within these departments. Thus, effective

alcohol enforcement at the state level is dependent on

agents being able to efficiently administer their

responsibilities—and that often depends on states’ instate or durational residency requirements.

SUMMARY OF ARGUMENT

States possess nearly unbounded authority to

regulate the flow of alcohol within their borders.

Exercising this authority, they have concluded that they

can best maintain orderly alcohol markets and promote

the health and safety of their citizens by requiring

alcohol distributors and retailers to reside within the

state—often for one or two years—in order to do

business there. These residency and durational residency

requirements are no “mere economic protectionism”

seeking to promote local industry over out-of-state

alcohol purveyors. Bacchus, 468 U.S. at 276. Rather,

states have determined over their almost century-long

experience regulating alcohol markets that requiring

distributors and retailers to maintain an in-state

presence is critical to state enforcement of alcohol laws

“enacted to combat the . . . evils of an unrestricted traffic

in liquor.” Id. Indeed, the states’ broad right to regulate

in this area means nothing if they cannot enforce those

laws successfully.

-12Residency requirements (including durational

residency requirements) facilitate state enforcement

agencies’ monitoring alcohol purveyors within the state

and holding them accountable if they violate state law.

First, in-state residency requirements ensure that

alcohol agents can physically inspect the premises of

licensees as well as their products. Such physical

oversight is critical to detecting legal violations or safety

issues with the alcohol being sold in the state. Second,

in-state residency requirements guarantee that state

alcohol agencies can enforce penalties against violators.

Alcohol purveyors that reside within the state will be

subject to the state court’s personal jurisdiction and will

have assets within the state that can be attached in an in

rem proceeding to satisfy any judgment. Third,

residency requirements subject alcohol distributors and

retailers to both the negative externalities that

aggressive alcohol sales create and social pressure from

the community to promote moderation. These forces

cause alcohol purveyors to self-police, lessening the

oversight burden on already-overloaded state agents.

Residency requirements also substantially contribute

to the effectiveness of the three-tier system that has

been adopted by almost every state. First, requiring

wholesalers and retailers to maintain an in-state

presence facilitates close business ties and regular

in-person interactions at the retailer’s establishment.

This tight relationship allows both parties to detect and

report violations of state law and assist their business

partners in complying with the state’s requirements.

Physically visiting the retailer’s premises also makes it

more likely that one of the parties will detect any

unlicensed, illegal, or counterfeit alcohol before it enters

the stream of commerce. Second, requiring distributors

to reside within a state and sell exclusively to retailers in

-13the state limits the number of wholesalers the market

can sustain. The relatively minor number of wholesalers

through which all alcohol in the state passes provides an

efficient access point to inspect products and transaction

records, collect excise taxes, and track any dangerous

product if a flaw or contaminant is discovered. Absent

residency requirements, the three-tier system would

become diffuse and unwieldy, undermining much of what

has made it so appealing to state regulators.

In sum, states’ purpose in enacting residency

requirements for alcohol purveyors was to ensure that

each state could successfully enforce its laws, which are

designed to vindicate the “clear concern[s] of the

Twenty-first Amendment,” Bacchus, 468 U.S. at 276,

including keeping alcohol out of the hands of children,

preventing the overserving of liquor to inebriated

patrons, protecting consumers from tainted or

counterfeit product, and curbing the availability of

alcohol to promote moderation. These laws are thus

protected under the Twenty-first Amendment or, at the

least, advance “legitimate local purpose[s] that cannot be

adequately served by reasonable nondiscriminatory

alternatives.” Granholm, 544 U.S. at 489. Therefore, the

judgment of the Sixth Circuit should be reversed.

ARGUMENT

I. In-state residency requirements are critical to

states’ efforts to enforce alcohol regulations for

the health and safety of their citizenry.

State laws requiring alcohol retailers and wholesalers

to maintain an in-state presence are an effective means

by which overburdened state agents can protect the

health and safety of the state’s population. In-state

presence requirements facilitate enforcement in three

ways: they (1) enable state alcohol enforcement officers

-14to physically inspect alcohol wholesalers and retailers

operating in the state; (2) guarantee that agents can

enforce the law against such wholesalers and retailers;

and (3) reduce noncompliance by fostering ties between

licensees and the community in which they operate.

A. Residency requirements ensure that agents can

physically inspect licensees’ premises and

products.

The importance of in-state residency requirements

for effective inspection of licensees’ premises and

products is a matter of basic geography. Quite simply,

state alcohol enforcement agents cannot travel around

the country inspecting wholesalers or retailers—

certainly not on their budgets.

The laws of nearly every state authorize state alcohol

enforcement agents to inspect the premises and books of

alcohol manufacturers, wholesalers, and retailers located

within the state. See, e.g., Ala. Code §§ 28-5-10, 28-7A-6;

Ark. Code Ann. § 3-2-205; Ga. Code Ann. § 3-2-32; Ind.

Code § 7.1-2-3-12; La. Stat. Ann. § 26:375; Md. Code

Ann., Alco. Bev. § 6-202; Mo. Rev. Stat. §§ 311.490–

311.540; N.C. Gen. Stat. Ann. § 18B-502; Tenn. Code

Ann. §§ 57-3-204(b)(4), -409; Texas Alco. Bev. Code Ann.

§ 101.04; Va. Code Ann. § 4.1-204. Agents regularly visit

the premises of licensed entities to ensure that they are

complying with the state’s applicable laws. Virginia

enforcement officers, for example, spent 70% of their

time in 2017 on “regulatory compliance,” consisting of

“conducting background investigations, license suitability

and inspections of licensed establishments.” Va. Dep’t of

Alcoholic Beverage Control, Annual Report 8 (2017),

https://perma.cc/B2UC-C8GX. Agents there conducted

12,446 inspections of licensed establishments, 752

additional observations of licensed establishments, and

-153,829 compliance checks regarding underage buyers last

year. Id.

These inspections are the lynchpin of enforcing state

alcohol regulations: research suggests that “the

effectiveness of alcohol control policies depends heavily

on the ‘intensity of implementation and enforcement and

on the degree to which the intended targets are aware of

both the policy and its enforcement.’” Nat’l Highway

Traffic Safety Admin., The Role of Alcohol Beverage

Control Agencies, at 4 (citation omitted). They also

uncover major wrongdoing that jeopardizes the health

and safety of state residents. Enforcement agents in

New Jersey, for example, conducted a yearlong undercover investigation in 2013 known as Operation Swill, in

which they determined that twenty-nine bars and restaurants in the state were selling “scotch” that actually

consisted of rubbing alcohol and caramel coloring and

other brands of spirits that had been diluted with contaminated water. Scores of TGI Fridays Among New

Jersey Bars Accused of Substituting Cheap Alcohol for

Premium Brands in Statewide Crackdown, Daily Mail

(May 24, 2013), https://dailym.ai/2Q5Jela.

And these inspections would be impossible if

wholesalers and retailers were authorized to do business

in foreign states. Even if they were allowed to do so,

state agents who are already overburdened trying to

oversee hundreds of licensees within the state do not

have the time to travel to foreign states to do inspections.

Nor do already cash-strapped state alcohol control

agencies have the financial resources to fund such

interstate travel by their officers. As one state regulator

testified before Congress:

Michigan uses its limited resources . . . to verify that Michigan’s regulatory system is being

-16followed, that only approved alcoholic beverages are being sold, that alcoholic beverages

are not being sold to underage persons and

that taxes are being paid. Michigan simply

does not have the ability or financial resources

to effectively regulate hundreds of thousands

of out-of-state retailers to ensure they are not

selling to minors and to ensure that they are

paying taxes and only selling products

approved by the Commission.

Legal Issues Concerning State Alcohol Regulation:

Hearing Before the Subcomm. on Courts & Competition

Policy of the H. Comm. on the Judiciary, 111th Cong. 43

(2010) (statement of Nida Samona, Chairperson, Mich.

Liquor Control Commission).

State agents would also find themselves unable to

keep up with the sheer number of establishments for

which they would be responsible. If every existing

wholesaler or retailer could operate in all fifty states,

each agent would be responsible for as many as fifty

times the number of licensees they currently oversee. As

an example of this system’s impracticality, consider

Wyoming, which currently employs three state agents to

ensure compliance with state alcohol law. Gagliardi, The

Need for State Alcohol Regulatory Funding. There are

approximately 570,000 licensed alcohol producers,

distributors, and retailers in the United States. Id. It

would be impossible for Wyoming’s three agents to

monitor every distributor and retailer that might

occasionally distribute or sell alcohol in Wyoming, even if

that number was only 1% of all distributors and retailers

in the country.

-17B. In-state residency requirements facilitate

enforcement actions for violations of state

alcohol laws.

Requiring alcohol distributors and wholesalers to

have an in-state presence ensures that enforcement

agencies have jurisdiction to hold these entities

responsible for violations of the state’s alcohol laws—

particularly with in rem actions. Adjudication of such

violations is necessary to deter future wrongdoing by

licensees and preserve the functioning of the state’s

alcohol regulatory system. See Nat’l Highway Traffic

Safety Admin., The Role of Alcohol Beverage Control

Agencies, at 7. The Sixth Circuit’s decision erodes that

enforcement power.

For state alcohol laws to effectively protect against

health and safety risks, state regulators need to be able

to impose penalties on violators—and in-state presence

ensures that the state can collect on fines and other

monetary penalties imposed by the courts. When

enforcing alcohol laws, state agents regularly seek to

impose fines, payment of outstanding taxes, and

disgorgement of illicit profits made within the state. See,

e.g., Am. Complaint ¶¶ 37–44, Hood v. Wine Express,

Inc., No. 17-cv-2064 (Miss. Chancery Ct. Feb. 1, 2018),

Dkt. No. 14; see also Tobiassen, “Fake Alcohol”

Situation, at 7. These financial penalties deter future

violations of alcohol control laws by ensuring that “the

costs of violating the law significantly outweigh the

benefits obtained.” Nat’l Highway Traffic Safety Admin.,

The Role of Alcohol Beverage Control Agencies, at 7.

Critically, if distributors and wholesalers are

required to be present within the state, these entities

necessarily have assets that can be attached by

enforcement agents in an in rem proceeding. See Shaffer

-18v. Heitner, 433 U.S. 186, 207 (1977). That is a serious

threat. Some violators may tolerate fines as a cost of

doing business, others may attempt to evade fines by just

deciding not to pay them, forcing the state to endure

endless attempts to collect. The power to attach physical

assets adds critical muscle to overburdened state

enforcement agencies. But without in-state residency, in

rem actions are not possible. Shaffer, 433 U.S. at 207.

The upshot: Absent a presence requirement, the state’s

alcohol enforcement regime would be largely toothless.

Furthermore, requiring that licensees have a

presence in the state obviates questions regarding

personal jurisdiction and long-arm statutes. Consider a

recent case where a state sought to enforce its alcohol

laws against an out-of-state entity—the matter was

dismissed for lack of jurisdiction. In Hood v. Wine

Express, Inc., Mississippi enforcement agents brought

an enforcement action against several out-of-state

alcohol retailers that had shipped alcohol into the state

without the required licenses, including shipments to dry

counties and to underage customers. Am. Complaint

¶¶ 12–28, 34, Hood v. Wine Express, Inc., No. 17-cv-2064

(Miss. Chancery Ct. Feb. 1, 2018), Dkt. No. 14. The

chancery court dismissed the action, concluding that it

lacked personal jurisdiction over any of the out-of-state

retailers. Corrected Final Judgment, Hood, No. 17-cv2064 (Sept. 4, 2018), Dkt. No. 59.

This issue has not arisen frequently because most

alcohol distributors and retailers follow in-state presence

requirements, thus ensuring states have jurisdiction to

enforce their laws. See Tobiassen, “Fake Alcohol”

Situation, at 3, 6–7. If, however, states could no longer

require licensees to be present in the state, all alcohol

purveyors in the state could potentially place themselves

-19beyond the reach of enforcement agencies, thus allowing

them to flout state liquor laws. At the very least,

requiring entities to have a physical in-state presence

allows state attorneys to establish the court’s personal

jurisdiction and authority under long-arm statutes

without having to invest time and money in extensively

litigating the issue. See, e.g., Burnham v. Superior Court

of Cal., 495 U.S. 604, 610 (1990) (“Among the most firmly

established principles of personal jurisdiction in

American tradition is that the courts of a State have

jurisdiction over nonresidents who are physically present

in the State.”).

C. Residency requirements foster self-regulation

through ties to the community and local

pressure.

In-state presence requirements also promote orderly

markets by ensuring that wholesalers and retailers are

subject to any negative externalities related to alcohol

consumption occurring in the communities they serve.

Congress has recognized that alcohol “is a unique

product” that “should be regulated differently than other

products by the States and Federal Government.” Sober

Truth on Preventing Underage Drinking Act, Pub. L.

No. 109-422, § 2, 120 Stat. 2890, 2891 (2006). Unlike other

products, the sale of alcohol subjects the surrounding

community to “negative externalities,” including “drunk

driving, domestic abuse, [and] underage drinking.” S.

Wine & Spirits of Am. v. Div. of Alcohol & Tobacco

Control, 731 F.3d 799, 811 (8th Cir. 2013).

One pernicious feature of the “tied-house” system

that preceded Prohibition was that alcohol purveyors did

not live in the communities in which they sold their

products. “The manufacturer knew nothing and cared

nothing about the community. All he wanted was

-20increased sales. He saw none of the abuses, and as a nonresident he was beyond local social influence.” Raymond

B. Fosdick & Albert L. Scott, Toward Liquor Control 43

(1933). And under the old system, that manufacturer

could sell directly to the consumer or retailer yet stay far

from the eye of the local community.

In modern alcohol regulatory systems, states require

that alcohol wholesalers and retailers reside in the state

so that they will experience any negative externalities

they create by selling alcohol in the community. For

example, alcohol retailers live near those to whom they

sell alcohol and drive on the same streets as their

establishment’s patrons. They pay taxes and vote in the

same location as their customers, aligning their interests

in maintaining the public health and safety of the

community. In theory, wholesalers and retailers will

balance these concerns against their profit motive when

deciding what to sell, to whom, and in what quantity. In

addition, in-state presence requirements subject retailers

to local social pressure if they engage in undesirable

behavior such as overserving intoxicated customers,

failing to adequately prevent underage drinking, or

otherwise failing to run a safe and orderly establishment.

See Tobiassen, “Fake Alcohol” Situation, at 7; see also

Granholm, 544 U.S. at 523–24 (Thomas, J., dissenting)

(“Presence ensures accountability.”).

Consider the example of Four Loko, a notorious line

of caffeinated alcoholic beverages that became popular

on college campuses between 2005 and 2010. Colleges

and universities began to identify a rash of student

hospitalizations due to injuries and blackouts resulting

from the misuse of Four Loko. As a result, in 2010, these

educational institutions urged students to avoid Four

Loko and, in some cases, banned the drinks from

-21campus. In response, a host of national and local retailers

voluntarily stopped selling the beverages. See Matthew

Reid, Medford Liquor Stores Pull Four Loko from

Shelves before Ban, Wicked Local (Nov. 24, 2010),

https://bit.ly/2TlE9Uy; Wegmans Pulls Four Loko off

Store Shelves, Rochester First (Nov. 10, 2010),

https://bit.ly/2KiePdS; Jack Broom, NW Grocery Chain

Pulls Four Loko Drinks off Shelves, Seattle Times (Oct.

26,

2010),

https://perma.cc/N5PZ-LTS8.

When

distributors and retailers live in the community they

service, they see first-hand the damage that they cause

by selling dangerous products like Four Loko. Retailers

had to confront the reality that youth in their own

neighborhoods were going to the hospital because of the

dangerous products they sold. These same retailers also

faced mounting pressure from universities and other

groups of concerned adults in the community. Together,

these forces caused retailers to self-regulate before

states or the federal government could pass formal

regulations.

Due to the burdens placed on state alcohol enforcement agents, in-state presence requirements are critical

to maintaining an effective and orderly system of alcohol

regulation.

II. Eliminating in-state presence requirements

would undermine the efficacy of the entire threetier system of alcohol control.

Adopting the Sixth Circuit majority’s position here

would undermine alcohol enforcement in another way: it

would erode the three-tier system altogether. The threetier system has effectively regulated alcohol across the

fifty states since the end of Prohibition. It has ensured

consumer safety, resulted in the efficient collection of tax

revenue for the state and federal government, created

-22diverse alcohol markets, and promoted moderate consumption among the population. In-state presence

requirements—particularly for alcohol wholesalers—are

critical to maintaining a functional three-tier system.

Eliminating these requirements would threaten the

alcohol regulatory systems that have provided safe and

stable alcohol markets in the United States for more than

a generation.

A. The three-tier system provides an effective

method for states to regulate alcohol within

their borders.

The three-tier system of alcohol regulation developed

by the states has proven tremendously effective in

securing orderly markets and promoting the health and

safety of the community. Two features of the system

particularly contribute to its success in facilitating health

and safety enforcement: (1) it requires that alcohol move

through multiple independent entities, allowing each

level to provide a check on the other tiers, and

(2) because the number of wholesalers remains relatively

small, it allows states to use the wholesale level as a

checkpoint for enforcement measures.

First, the three-tier system fosters compliance with

state alcohol laws by creating three independent levels of

distribution that regularly interact with each other in the

course of business. And because each entity is subject to

regulation and inspection by state agents, these tiers

help police the compliance of the other levels. As both

amici and independent scholars have recognized, “private actors at each of the three tiers have significant

incentives to assure that their business partners in the

other tiers adhere to regulations,” and “the day-to-day

contact with [their business partners] . . . enable[s] them

to identify and address any compliance problems.” Roni

-23Elias, Three Cheers for Three Tiers: Why the Three-Tier

System Maintains Its Legal Validity and Social

Benefits After Granholm, 14 DePaul Bus. & Com. L.J.

209, 219–20 (2015). For example, wholesalers help ensure

that retailers are not selling counterfeit alcohol or alcohol

purchased from a non-licensed wholesaler: “Because

licensed distributors visit licensed retailers regularly,

they notice a product that they did not supply.” Pamela

Erickson, Safe and Sound: How the Three-Tier Alcohol

Regulatory System Promotes Safe Products and High

Revenue Collections (Apr. 2015), https://perma.cc/9M5MA6EP. Conversely, “a distributor is unlikely to jeopardize its license by offering a fake product to a licensed

retailer.” Id. And because both entities are obligated to

report any violations they see committed by another

licensed entity, violations are brought to enforcement

agents without expending significant state resources.

This mechanism of self-regulation is especially

important given that state agencies do not always have

the resources to provide frequent inspections. Without

the separate tiers checking one another, and with the

knowledge that state regulators might not make rounds

for months (or even a year), alcohol purveyors have much

more leeway to violate state law with impunity.

Second, because the number

of licensed

distributors/wholesalers in each state remains relatively

small, they provide an ideal access point for regulators to

control the flow of alcoholic beverages, collect excise

taxes, monitor compliance with regulations, and

quarantine any tainted or otherwise-dangerous alcohol to

prevent it from becoming available to consumers. “The

structure of the usual three-tier system is commonly

described as an hourglass, with wholesalers at the

constriction point.” Family Winemakers of Cal. v.

-24Jenkins, 592 F.3d 1, 5 (1st Cir. 2010). Wholesalers

purchase alcohol from various suppliers around the

world, transport and possess the alcohol in their home

state, then sell the alcohol to numerous local retailers.

Because wholesalers trade in large volumes of alcohol,

the number that can exist in each state alcohol market is

much smaller than the number of producers or retailers

present in that state. As a result, enforcement agents can

most effectively monitor the flow of alcohol through the

relatively few wholesalers in the state and collect taxes

on each transaction by reviewing these wholesalers’

records. See Erickson, Safe and Sound.

In addition, the small number of distributors allows

producers and state regulators to quickly identify, track,

and quarantine tainted or counterfeit products at these

locations more efficiently than attempting to locate

products at every retailer in a given state. In 2008,

Boston Beer Company Inc. recalled nearly one million

cases of Samuel Adams beer after it discovered a defect

in the bottle that could cause small pieces of glass to

break off and fall into the beer. Bibeka Shrestha, Boston

Beer Gets $20.5M to Settle Recall Claims, Law 360 (May

10, 2011), https://perma.cc/3FN2-8WT4. The company

publicly stated that no injuries were reported to them.

Id. When such recalls—voluntary or involuntary—occur,

manufacturers rely on their suppliers to handle the local

logistics of finding, acquiring, and quarantining

potentially dangerous products. Because of their centralized nature, distributors are able to quickly determine

where dangerous products have been sent and prevent

them from being sold to consumers. By contrast, in

numerous other countries not employing the three-tiered

system, deaths and injuries from tainted and counterfeit

products are common. See, e.g., Benjamin Fearnow,

Blackouts, Deaths at Mexican Resorts Prompt US State

-25Department Investigation, Int’l Bus. Times (Dec. 13,

2017), https://perma.cc/YT8G-V5L3; Neil MacFarquhar,

Where the Booze Can Kill, and Putin Is Deemed

a ‘Good Czar’, N.Y. Times (Feb. 18, 2017),

https://nyti.ms/2lWCxDe;

Sarah

Kaplan,

Nearly

100 Die from Drinking Tainted Alcohol in Mumbai

‘Hooch Tragedy,’ Wash. Post (June 22, 2015),

https://wapo.st/2A4yTf7. The security risks are real, and

the three-tier system allows regulators to act quickly,

without having to go to hundreds of retailers to enforce

state laws; instead, they can cut off problems at the

wholesaler.

B. Eliminating states’ physical presence

requirements would undermine the

effectiveness of the three-tier system.

If states could no longer require alcohol distributors

and retailers to be physically present in the state in order

to do business there, many of the three-tier system’s

benefits would be lost.

First, the check that each tier of the system of

distribution provides on the others would be reduced, if

not eliminated entirely. If wholesalers and retailers could

be located in separate states, wholesalers would no

longer regularly visit retailers’ premises, compromising

their ability to detect the presence of alcohol that had

come from unknown, perhaps unlicensed, sources. In a

national marketplace, each retailer might do business

with hundreds of wholesalers and each wholesaler with

thousands of retailers. In this system, neither party

would be familiar enough with the business operations of

the other to detect the other’s violations of state law. Nor

would they necessarily be familiar with the other’s state

laws. Such a diffuse system would make it easier for bad

actors to sell counterfeit or tainted alcohol to retailers,

-26secure in the knowledge that it would be unlikely to be

detected by state agents or traced back to them among

all of the distributors supplying a particular retailer.

Second, eliminating in-state presence requirements

would massively expand the number of wholesalers

operating in each state. The number of retailers in the

state would no longer limit the number of distributors

able to operate because each distributor could sell in

large quantities to retailers in other states. As a result,

the distributor level of the three-tier system would no

longer act as the narrowing point in the “hourglass,” and

it would no longer provide an efficient point in the alcohol

distribution system to inspect products or collect taxes.

This effect is already apparent due to interstate

shipping of alcohol. When alcohol is shipped from producers to consumers rather than going through the

clearinghouse of the wholesaler, it becomes more

difficult for enforcement agents to track each sale to

ensure excise tax is paid. In 2008, nearly 9.6% of wine

sales were shipped without excise tax ever

collected.

Am.

Assoc.

of

Wine

Economists,

Direct

Ship

Blowout:

How

the

Supreme

Court’s Granholm Decision Has Led to a Flood of NonTaxed Wine Shipments 21 (Working Paper No. 61, June

2010), http://njlsa.com/AAWE.pdf. If alcohol comes into a

state through hundreds or thousands of different wholesalers from around the country (or even the world), it will

be impossible for state agents to review the records of

each distributor to ensure that excise tax on each

transaction has been collected. Nor could agents confirm

that each transaction has been conducted in accordance

with state law.

This Court has held that the three-tier system is

“unquestionably legitimate.” Granholm, 544 U.S. at 489.

-27But eliminating in-state and attendant durational residency requirements would strike at its heart. If this

Court were to adopt the Sixth Circuit’s position, the

three-tier system would lose much of the effectiveness

that has caused it to persist for decades.

III. Durational residency requirements are even more

potent in effectuating the goals of the three-tier

system.

As described above, state laws requiring that alcohol

distributors and retailers reside within the state ensure

that states can maintain orderly alcohol markets and

protect the health and safety of their residents.

Durational residency requirements, like the one adopted

by Tennessee and at least 20 other states, are a further

extension of those regulations, and they provide several

additional benefits that make such regulation even more

effective. That is, in-state requirements are not

protectionist policies; they are policies meant to protect

the health and welfare of a state’s inhabitants. And

durational residency requirements just further those

protections.

For example, consider the value in-state

requirements provide by allowing state enforcement

through in rem actions. By requiring persons interested

in obtaining alcohol licenses to live within the state for a

certain period of time, states increase the likelihood that

the person or corporation will acquire assets (and

significant assets) within the state. Such assets may then

be attached as part of an in rem enforcement action

against the person or entity if it violates state law.

Consider too the value of community ties and local

pressure for self-regulation within the industry

facilitated by in-state residency. Laws requiring that

wholesalers and retailers live in the state for a number of

-28years make it even more likely that licensees have

established strong ties to the community, which makes it

more probable that these entities will be cognizant of the

negative externalities alcohol sales can cause in the

community. Entities will likewise be susceptible to social

pressure from community members. Retailers subject to

durational-residency requirements are thus more likely

to promote moderation above sales, thereby fulfilling the

primary goal of the three-tier system.

For these reasons, durational residency requirements

provide the strongest method of fulfilling states’

purposes of maintaining orderly alcohol markets while

promoting the safety and health of citizens.

CONCLUSION

The judgment of the Sixth Circuit should be reversed.

-29Respectfully submitted,

RACHEL BLOOMEKATZ

Counsel of Record

ALEXANDRIA TWINEM

GUPTA WESSLER PLLC

1900 L Street, NW, Suite 312

Washington, DC 20036

(202) 888-1741

rachel@guptawessler.com

J. NEAL INSLEY

LARRY BUCKNER

NATIONAL ALCOHOL BEVERAGE

CONTROL ASSOCIATION

4401 Ford Avenue, Suite 700

Alexandria, VA 22302-1473

(703) 578-4200

neal.insley@nabca.org

November 20, 2018

Counsel for Amici Curiae