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

No. 18-96

IN THE

Supreme Court of the United States

TENNESSEE WINE AND SPIRITS

RETAILERS ASSOCIATION,

Petitioner,

v.

CLAYTON BYRD, ET AL.,

Respondents.

On Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

BRIEF OF MAJOR BRANDS, INC. AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

RICHARD B. WALSH, JR.

Counsel of Record

LEWIS RICE LLC

600 Washington Avenue, Suite 2500

St. Louis, MO 63101

rwalsh@lewisrice.com

(314) 444-7600

Counsel for Amicus Curiae

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TABLE OF CONTENTS

Page

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

INTEREST OF AMICUS ............................................ 1

SUMMARY OF ARGUMENT ..................................... 2

ARGUMENT ............................................................... 3

I.

TENNESSEE’S RESIDENCY

REQUIREMENTS ARE PROTECTED

BY THE TWENTY-FIRST

AMENDMENT. .............................................. 3

A. Under this Court’s Decision in

Granholm v. Heald, this Court

Already Has Determined that

Statutes Requiring that

Wholesalers and Retailers Be “InState” to Distribute and Sell

Liquor, Respectively, Are

Protected by the Twenty-First

Amendment. ............................................. 3

B. Tennessee’s Residency

Requirements Are Related to

Legitimate State Interests....................... 8

1. The Experience of Major

Brands Has Demonstrated the

Benefits of Residency

Requirements. .................................... 9

CONCLUSION .......................................................... 13

ii

TABLE OF AUTHORITIES

Page(s)

CASES

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

185 (2d Cir. 2009) ...................................................7

Brooks v. Vassar, 462 F.3d 341 (4th Cir.

2006) .......................................................................7

Cal. Retail Liquor Dealers Ass’n v.

Midcal Aluminum, Inc., 445 U.S. 97

(1980) ..................................................................5, 7

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

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

423 (1990) ....................................................... 4, 5, 6

S. Wine & Spirits of Am., Inc. v. Div. of

Alcohol & Tobacco Control, 731 F.3d

799 (8th Cir. 2013) ......................................... 5, 7, 9

STATUTES

Mo. Rev. Stat. § 311.015 ...........................................10

Mo. Rev. Stat § 311.060 ..............................................1

Tenn. Code Ann. § 57-3-204 ......................................13

FEDERAL CONSTITUTIONAL PROVISIONS

U.S. Const. Amend. XXI .................................... passim

INTEREST OF AMICUS1

Major Brands, Incorporated (“Major Brands”) is a

Missouri corporation in good standing and is a Missouri-resident wholesaler of wine, spirits, and beer in

the State of Missouri. As a Missouri based and operated wholesaler, Major Brands is licensed by the Missouri Division of Alcohol and Tobacco Control to engage in the wholesale distribution of wine and liquor.

Major Brands operates under Missouri’s threetier liquor distribution system, which includes a statute that limits the issuance of corporate wholesaler licenses to only “resident corporations.” See Mo. Rev.

Stat § 311.060. A “resident corporation” under the

statute is a corporation incorporated under the laws

of the State of Missouri whose officers, directors, and

at least 60% of its shareholders are “qualified legal

voters and taxpaying citizens of the county and municipality in which they reside and who shall have

been bona fide residents of the state for a period of

three years continuously immediately prior to the

date of filing of application for a license.” Id.

While the present case involves residency requirements at the retail tier, the Court’s decision may

likely impact residency requirements at the wholesale

tier, as well. Accordingly, as a wholesaler operating

within a State three-tier liquor distribution system

Pursuant to Supreme Court Rule 37.6, counsel for amicus curiae states that no counsel for a party authored this brief in whole

or in part and no one other than the amicus and its counsel made

a monetary contribution to fund the preparation or submission

of this brief. Pursuant to Supreme Court Rule 37.2, counsel for

amicus curiae states that Petitioner and Respondents have all

entered blanket consents on the docket to the filing of amicus

curiae briefs.

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that includes a three-year in-state residency requirement for licensure, Major Brands has a direct and

compelling interest in ensuring that the validity of

such residency requirements within a three-tier system are upheld and that the State-determined policies

that this regulatory scheme is intended to promote

and protect are not compromised.

SUMMARY OF ARGUMENT

In this litigation, Respondents challenge Tennessee’s constitutionally established right to determine

for itself the best way to regulate the distribution and

sale of intoxicating liquors within Tennessee’s borders. Specifically, Respondents contend that Tennessee lacks the ability to require that individuals, or in

the case of a corporation, the officers, directors, and

stockholders, desiring to sell liquor at retail within the

State of Tennessee reside in Tennessee for two years

before they are eligible for a license to sell liquor to

Tennessee consumers. Respondents’ challenge fails,

and the decisions of the District Court and of the

Court of Appeals should be overturned, because Tennessee’s residency requirements are protected by the

Twenty-first Amendment of the United States Constitution.

This Court, in Granholm v. Heald, 544 U.S. 460

(2005), already has considered and rejected the arguments raised by Respondents. In that case, consistent

with prior precedent, the Court unanimously expressed constitutional approval of three-tier distribution systems (such as Tennessee’s) and concluded that

the 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 and sold

by a licensed, in-state retailer. Indeed, the majority

in Granholm directly addressed and assuaged the

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States’ concerns that an adverse decision in Granholm

“would call into question the constitutionality of the

three-tier system” and the residency requirements

within such a system by stating that such a system is

“unquestionably legitimate.” Id. at 488–89. Accordingly, this Court already has decided, unanimously,

that the Twenty-first Amendment protects State requirements that its liquor wholesalers and retailers

be residents of the State.

The desirability of such residency requirements,

moreover, is amply illustrated by Major Brands’ experience as a licensed wholesaler operating within a residency requirement in the State of Missouri. Residency requirements ensure that individuals distributing and selling liquor within a State are accessible,

accountable, and actively engaged in the enforcement

of the State’s regulations and public policies concerning the distribution of liquor.

This Court should reject Respondents’ attempt to

second-guess the considered judgment of the Tennessee General Assembly and should discard Respondents’ misreading of the Twenty-first Amendment,

Granholm, and other precedent. The judgment of the

District Court and the Sixth Circuit’s decision affirming the same should be reversed.

ARGUMENT

RESIDENCY

REQUIREI. TENNESSEE’S

MENTS ARE PROTECTED BY THE TWENTYFIRST AMENDMENT.

A. Under this Court’s Decision in Granholm

v. Heald, this Court Already Has Determined that Statutes Requiring that

Wholesalers and Retailers Be “In-State” to

Distribute and Sell Liquor, Respectively,

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Are Protected

Amendment.

by

the

Twenty-First

The Court should be under no illusion as to what

Respondents are seeking in this litigation: Respondents directly challenge Tennessee’s constitutional

right to structure and regulate its system for the distribution and sale of intoxicating liquors within its

borders as it sees fit. Specifically, Respondents argue,

and the courts below incorrectly concluded, that the

dormant Commerce Clause forbids States from excluding out-of-state retailers within a State-defined

three-tier system of liquor distribution unless such

discrimination satisfies some level of heightened scrutiny. The Supreme Court rejected precisely this argument in Granholm, however.

Section 2 of the Twenty-first Amendment provides: “The transportation or importation into any

State, Territory, or possession of the United States for

delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” The

Supreme Court has explained that, “[g]iven the special protection afforded to state liquor control policies

by the Twenty-first Amendment, they are supported

by a strong presumption of validity and should not be

set aside lightly.” North Dakota v. United States, 495

U.S. 423, 433 (1990).

In Granholm, all nine members of the Court

agreed that the Twenty-first Amendment grants

States virtually plenary authority to structure threetier liquor distribution systems as they see fit—including the authority to do so in a way that facially

discriminates against out-of-state wholesalers and retailers. See Granholm, 544 U.S. at 489; id. at 518

(Thomas, J. dissenting). Under a three-tier system of

distribution, a producer (the first tier) sells its wine or

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spirits to a licensed in-state wholesaler (the second

tier), which ensures that all excise taxes have been

paid and then delivers those products to a licensed instate retailer (the third tier). E.g., S. Wine & Spirits

of Am., Inc. v. Div. of Alcohol & Tobacco Control, 731

F.3d 799, 802 (8th Cir. 2013). The specific question

presented in Granholm involved the constitutionality

of State laws that allowed in-state wine producers, but

not out-of-state producers, to obtain licenses to sell

their products directly to consumers. 544 U.S. at 465–

66. Critically for present purposes, however, the

States defending their laws argued that, if the Court

held those laws unconstitutional, it would also cast

doubt on the constitutionality of residency requirements applicable to licensed wholesalers and retailers—requirements that, by definition, discriminate

against out-of-state interests. Id. at 488.

In holding that the Twenty-first Amendment does

not authorize discrimination against out-of-state

products, the Court squarely addressed, and assuaged, the States’ concern. The majority stated that

three-tier systems are “unquestionably legitimate”

under the Twenty-first Amendment. 544 U.S. at 488–

89 (quoting North Dakota, 495 U.S. at 432). The majority specifically distinguished between discrimination against out-of-state products, which the Twentyfirst Amendment does not authorize, and decisions regarding “how to structure the liquor distribution system” in the State, over which “[t]he Twenty-first

Amendment grants the States virtually complete control.” Granholm, 544 U.S. at 488 (quoting Cal. Retail

Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445

U.S. 97, 110 (1980)). The majority concluded that

“[s]tate policies are protected under the Twenty-first

Amendment” as long as “they treat liquor produced

out of state the same as its domestic equivalent.”

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Granholm, 544 U.S. at 489. In so concluding, the majority emphasized 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.” Id. (quoting North Dakota, 495

U.S. at 447 (Scalia, J., concurring in judgment)).

Unsurprisingly, the dissenting Justices agreed

with the majority that the Twenty-first Amendment

authorizes States to enact residency requirements as

part of their three-tier distribution systems, even if

those requirements necessarily discriminate against

out-of-state interests. Granholm, 544 U.S. at 518

(opinion of Thomas, J.). After surveying the history of

the Twenty-first Amendment and state regulations after its ratification, the dissent concluded that it is “understandable that the framers of the Twenty-first

Amendment . . . would have wanted to free States to

discriminate between in-state and out-of-state wholesalers and retailers.” Id. at 524. When the majority

and dissenting opinions in Granholm are considered

together, therefore, it is clear that all nine members

of the Court agreed that residency requirements of the

type at issue here are authorized by the Twenty-first

Amendment.

The Supreme Court’s reasoning in Granholm defeats any argument that the Court’s holding concerning discrimination against out-of-state products applies equally to discrimination within a State’s threetier distribution system. As explained above, the

Court took care to clarify the implications of its holding in Granholm for the three-tier system and, in so

doing, rejected precisely the approach that Respondents advance here. As other courts of appeals have

correctly recognized in interpreting Granholm, the

Court explicitly limited its holding to discrimination

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against out-of-state products, and permitted discrimination against out-of-state wholesalers and retailers

to continue as part of the administration of three-tier

systems. See S. Wine & Spirits of Am., Inc., 731 F.3d

at 809 (holding that Missouri’s in-state wholesaler

residency requirements are protected by the Twentyfirst Amendment because the “three-tier system is

‘unquestionably legitimate,’ Granholm, 544 U.S. at

489, 125 S.Ct. 1885 (internal quotation omitted), and

that system includes the ‘licensed in-state wholesaler.’”); Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185,

190–91 (2d Cir. 2009) (concluding that a challenge to

discrimination against out-of-state retailers was “directly foreclosed by the Granholm Court’s express affirmation of the legality of the three-tier system”);

Brooks v. Vassar, 462 F.3d 341, 352 (4th Cir. 2006)

(noting, in rejecting a challenge to the discriminatory

regulation of alcohol retailers, that Granholm “repeatedly” distinguished between discrimination against

out-of-state products and the residency requirements

of three-tier systems).

The Granholm Court explained that, far from limiting States’ options in requiring its wholesalers and

retailers have an in-state presence, “[t]he Twentyfirst Amendment grants the States virtually complete

control over . . . how to structure the liquor distribution system.” Granholm, 544 U.S. at 488 (quoting

Midcal, 445 U.S. at 110). Accordingly, it is within

Tennessee’s power to ensure that its wholesalers and

retailers have an in-state presence and, therefore, to

define that in-state presence to ensure it is substantial and genuine to guarantee that the people actually

in charge of the wholesaler and/or retailer will be accessible and accountable.

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Indeed, there can be no doubt that the Granholm

Court was well aware of residency requirements such

as Tennessee’s when it expressed its approval of instate requirements for wholesalers and retailers. The

dissenting opinion specifically catalogued state licensing schemes that discriminated by “requiring in-state

residency or physical presence as a condition of obtaining licenses.” 544 U.S. at 518 & n.6 (opinion of

Thomas, J.).

Accordingly, the very argument Respondents

make in this case, and which was adopted by the District Court and a majority of the Sixth Circuit, already

has been considered and rejected by this Court.

States’ judgments regarding the inclusion and scope

of residency requirements at the wholesale and retail

level of their three-tier systems are protected by the

Twenty-first Amendment. This Court should likewise

reject Respondents’ argument and reverse the District

Court’s judgment in Petitioner’s favor.

B. Tennessee’s Residency Requirements Are

Related to Legitimate State Interests.

Although the Twenty-first Amendment and the

precedent construing the same settles Tennessee’s authority to enact the residency requirements at issue

here without the need for policy arguments, the historical record presented in this Court’s prior Twentyfirst Amendment decisions and to this Court in other

briefs illustrates why Tennessee’s decision to demand

true in-state presence of its retailers is an eminently

reasonable one. Major Brands will not reiterate that

record here, but Major Brands respectfully submits its

experience as a wholesaler in Missouri to demonstrate

that residency requirements ensure that individuals

behind the distribution and sale of liquor are accessi-

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ble, accountable, and actively engaged in the enforcement of the State’s regulations and public policies concerning the distribution of liquor.

1. The Experience of Major Brands Has

Demonstrated the Benefits of Residency

Requirements.

Major Brands, a Missouri wholesaler of liquor, operates under a three-tier distribution system that has

certain residency requirements for liquor wholesalers.2 As one of the few wholesalers that distributes

spirits, wine and beer statewide, Major Brands respectfully submits that an in-state presence is a core

component of a three-tier system. Indeed, Justice

Thomas explained in his dissenting opinion in

Granholm that “the requirement that liquor pass

through a licensed in-state wholesaler is a core component of the three-tier system.” 544 U.S. at 518.

Missouri has expressly noted the purpose of its

liquor control law:

Alcohol is, by law, an age-restricted product

that is regulated differently than other products. The provisions of this chapter establish

vital state regulation of the sale and distribution of alcohol beverages in order to promote responsible consumption, combat illegal underage drinking, and achieve other im-

The arguments in this case implicate the constitutionality of

Missouri’s wholesaler residency requirements under the Twentyfirst Amendment. The Eighth Circuit, in S. Wine & Spirits of

Am., Inc., 731 F.3d at 802, held that Missouri’s wholesaler residency requirements are constitutional under the Twenty-first

Amendment.

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portant state policy goals such as maintaining an orderly marketplace composed of

state-licensed alcohol producers, importers,

distributors, and retailers.

Mo. Rev. Stat. § 311.015.

Wholesalers acquire wine and spirits from various

suppliers around the globe; take ownership and possession of those products in Missouri; and deliver

them to thousands of retailers for sale to, and consumption by, Missouri consumers. Given the role of

wholesalers in the distribution process, it is unsurprising that the wholesale tier is subject to extensive

oversight and control by the applicable regulator, the

Division of Alcohol and Tobacco Control. For example,

wholesalers must ensure that Missouri excise taxes

have been paid on the alcohol they distribute; their

products are subject to inspection regarding alcohol

content, volume, and contaminants or other health

and safety concerns; and their interactions with retailers are heavily regulated to ensure that only licensed retailers receive alcohol and that all retailers

pay the same price for the same products.

Above and beyond the requirements imposed by

law, personal interest and accountability play an important role in encouraging liquor distributors to

achieve the statutory objectives of “promot[ing] responsible consumption, combat[ing] illegal underage

drinking, and achiev[ing] other important state policy

goals such as maintaining an orderly marketplace.”

Mo. Rev. Stat. § 311.015.

To begin with the obvious, Missouri’s residency requirements ensure that the individuals controlling

corporate wholesalers are citizens of the State. As

Justice Thomas recognized in Granholm, “[p]resence

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ensures accountability.” 544 U.S. at 523–24 (dissenting opinion) (internal quotation marks omitted). Presence specifically creates incentives for those individuals to be concerned with the public health and safety

issues accompanying the distribution of liquor. In effect, Missouri’s residency requirements ensure that

individuals behind corporate wholesalers are distributing liquor in their own backyards—where they live,

drive the streets, vote, and pay taxes. Individuals

whose children drive the same streets as potential

drunk drivers have powerful incentives not only to ensure that alcohol is distributed in a responsible manner, but also to support efforts to promote moderate

consumption and to address the social ills of excessive

consumption (such as alcoholism and homelessness).

Out-of-state owners do not possess those incentives to

nearly the same extent because, by virtue of their

physical absence from the community, they are

largely immune from personal reputational damage

and the health and safety consequences of overconsumption.

Major Brands’ experience demonstrates that the

residency requirements ensure a high level of accountability and concern for the health and safety of Missouri’s citizens. As residents of Missouri communities, Major Brands’ owners and employees have taken

leading roles in preventing underage alcohol use and

curbing the toll of alcohol abuse, undertaking numerous charitable activities related thereto.

Major Brands also plays an active role in enforcing Missouri’s regulations concerning the distribution

of liquor. For example, Major Brands monitors retailers’ compliance with state and local licensing laws and

scans the market for unlicensed and “gray-market”

products (i.e., products that were shipped to another

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State but are illegally brought into Missouri for sale).

Because Major Brands is in compliance with the residency requirements, moreover, it is easier for the under-funded Division of Alcohol and Tobacco Control to

oversee its operations than it would be to oversee the

operations of an out-of-state corporation that has not

complied with the requirements.

Missouri’s residency requirements reflect the Missouri General Assembly’s considered judgment regarding how best to structure its liquor distribution

system. As the experience of Major Brands demonstrates, those requirements concern legitimate state

interests.

Similarly, Tennessee’s residency requirements

concern legitimate state interests. As stated by the

Tennessee General Assembly:

Because licenses granted under this section

include the retail sale of liquor, spirits and

high alcohol content beer which contain a

higher alcohol content than those contained

in wine or beer, as defined in § 57-5-101(b), it

is in the interest of this state to maintain a

higher degree of oversight, control and accountability for individuals involved in the

ownership, management and control of licensed retail premises. For these reasons, it

is in the best interest of the health, safety

and welfare of this state to require all licensees to be residents of this state as provided

herein and the commission is authorized and

instructed to prescribe such inspection, reporting and educational programs as it shall

deem necessary or appropriate to ensure that

the laws, rules and regulations governing

such licensees are observed.

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Tenn. Code Ann. § 57-3-204(b)(2)(A), (3)(A)–(B),

(3)(D), (4).

Missouri’s residency requirements reflect the Missouri General Assembly’s considered judgment regarding how best to structure its liquor distribution

system. Likewise, Tennessee’s residency requirements reflect the Tennessee General Assembly’s considered judgment regarding how best to structure its

liquor distribution system. The Twenty-first Amendment allows the States to make such judgments, free

of interference, regarding their in-state liquor distribution systems. To find otherwise severely undermines the authority the people of the United States

intended to give to States to structure and regulate

the distribution and sale of liquor within their borders. The drafters of the Twenty-first Amendment did

not intend for the explicit authority given to the States

to regulate the sale and distribution of alcohol within

their State to be swallowed up by the dormant Commerce Clause. Residency requirements directed at

the distributors and sellers of liquor within a State,

like those at issue here, are central to the power

granted to the States and, therefore, must be upheld.

The decisions of the District Court and the Sixth Circuit should be reversed.

CONCLUSION

The judgment of the District Court and the decision of the Sixth Circuit should be reversed, and judgment should be entered in favor of Petitioner.

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Respectfully submitted,

RICHARD B. WALSH, JR.

Counsel of Record

LEWIS RICE LLC

600 Washington Avenue, Suite

2500

St. Louis, MO 63101

rwalsh@lewisrice.com

(314) 444-7600

Counsel for Amicus Curiae

November 20, 2018