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

___________

TENNESSEE WINE AND SPIRITS RETAILERS ASSOCIATION

Petitioner,

v.

ZACHARY W. BLAIR, ET AL.,

Respondents.

___________

On Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

__________

BRIEF FOR THE CATO INSTITUTE

AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

__________

Ilya Shapiro

Counsel of Record

Trevor Burrus

CATO INSTITUTE

1000 Mass. Ave. N.W.

Washington, D.C. 20001

(202) 842-0200

ishapiro@cato.org

December 20, 2018

i

QUESTION PRESENTED

Whether Tennessee’s durational residency requirements for retail liquor licenses are unconstitutional because they establish a regulatory regime

that discriminates against interstate commerce and

non-resident citizens.

ii

TABLE OF CONTENTS

QUESTION PRESENTED .......................................... i

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

INTEREST OF THE AMICUS CURIAE ................... 1

INTRODUCTION AND SUMMARY OF

ARGUMENT.......................................................... 1

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

I. THE COMMERCE CLAUSE AND

PRIVILEGES AND IMMUNITIES CLAUSE

WERE INTENDED TO PROSCRIBE

DIFFERENTIAL TREATMENT IN

INTERSTATE COMMERCE ................................ 3

A. The Commerce and Privileges and

Immunities Clauses Were Adopted to

Prevent Economic Divisions Between

States ................................................................ 3

B. The Commerce Clause and Privileges and

Immunities Clause Have a “Mutually

Reinforcing” Relationship ................................ 5

II. STATE REGULATION OF ALCOHOL IS

LIMITED BY THE NON-DISCRIMINATION

PRINCIPLE OF THE COMMERCE CLAUSE,

WHICH TENNESEE’S DURATIONAL

RESIDENCY REQUIREMENTS VIOLATE ........ 7

A. The Court Has Already Held That The

Twenty-First Amendment Does Not

Insulate State Liquor Laws From

Commerce Clause Scrutiny. ............................ 7

B. Tennessee’s Licensing Statute Is

Discriminatory on Its Face ............................ 10

iii

C. Tennessee’s Durational Residency

Requirements Do Not Serve a Legitimate

Local Purpose ................................................. 12

III.THE TWENTY-FIRST AMENDMENT DOES

NOT PERMIT STATES TO VIOLATE OTHER

SUBSTANTIVE CONSTIUTIONAL

PROVISIONS, INCLUDING THE

PRIVILEGES AND IMMUNITIES CLAUSE .... 15

A. The Twenty-First Amendment Does Not

Save State Laws That Violate Other

Constitutional Provisions. ............................. 15

B. The Twenty-First Amendment Does Not

Save Discriminatory Laws That Violate the

Privileges and Immunities Clause. ............... 17

C. Tennessee’s Durational Residency

Requirements Violate the Privileges and

Immunities Clause ......................................... 19

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

iv

TABLE OF AUTHORITIES

Page(s)

Cases

44 Liquormart, Inc. v. Rhode Island,

517 U.S. 484 (1996) ................................................ 16

Austin v. New Hampshire,

420 U.S. 656 (1975) ............................................ 4, 17

Bacchus Imports, Ltd. v. Dias,

468 U.S. 263 (1984) ....................................... 7, 11-12

Baldwin v. Mont. Fish and Game Comm’n,

436 U.S. 371 (1978) .................................................. 6

Brown-Forman Distillers Corp. v. N.Y. State Liquor

Auth., 476 U.S. 573 (1986) ............................. 7, 8, 10

Byrd v. Tenn. Wine & Spirits Retailers Ass’n,

883 F.3d 608 (6th Cir. 2018) .................................. 14

C & A Carbone, Inc. v. Clarkstown,

511 U.S. 383 (1994) .................................................. 8

Cal. Retail Liquor Dealers Assn. v. Midcal

Aluminum, Inc., 445 U.S. 97 (1980) ...................... 16

Camps Newfound/Owatonna, Inc. v. Town of

Harrison, 520 U.S. 564 (1997) ................................. 6

Capital Cities Cable, Inc. v. Crisp,

467 U.S. 691 (1984) ........................................... 15-16

Chemical Waste Management, Inc. v. Hunt,

504 U.S. 334 (1992) ................................................ 12

Cooper v. McBeath, 11 F.3d 547 (5th Cir. 1994) .. 10-11

Corfield v. Coryell, 6 Fed. Cas. 546

(C.C.E.D. Penn. 1823) (No. 3,230) ........................... 6

Craig v. Boren, 429 U.S. 190 (1976) .......................... 16

v

Dean Milk Co. v. Madison, 340 U.S. 349 (1951) ... 4, 12

Dep’t of Revenue v. James B. Beam Distilling Co.,

377 U.S. 341 (1964) ................................................ 16

Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824) ......... 6

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

Healy v. Beer Inst., 491 U.S. 324 (1989) ...... 7, 9, 16-17

Hicklin v. Orbeck, 437 U.S. 518 (1978) ........... 5, 19, 20

Hillside Dairy Inc. v. Lyons, 539 U.S. 59 (2003) ........ 6

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

377 U.S. 324 (1964) .................................................. 7

Hughes v. Oklahoma, 441 U.S. 322 (1979) ............. 3, 8

Larkin v. Grendel’s Den, Inc., 459 U.S. 116 (1982) .. 16

Lewis v. BT Investment Managers, Inc,

447 U.S. 27 (1980) .................................................. 11

New Energy Co. of Ind. v. Limbach,

486 U.S. 269 (1988) ............................................ 8, 12

North Dakota v. United States,

495 U.S. 423 (1986) ...................................... 9, 10, 13

Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality,

511 U.S. 93 (1994) .................................................... 8

Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1869) ........ 2, 6

Philadelphia v. New Jersey,

437 U.S. 617 (1978) ...................................... 2, 10, 12

Supreme Court of N.H. v. Piper,

470 U.S. 274 (1985) ...................................... 6, 18, 19

Toomer v. Witsell, 334 U.S. 385 (1948) ..... 6, 18, 19, 20

vi

United Bldg. & Constr. Trades Council of Camden

County v. City of Camden,

465 U.S. 208 (1982) ...................................... 6, 18, 19

United States v. South-Eastern Underwriters Ass’n,

322 U.S. 533 (1944) .................................................. 6

Ward v. Maryland,

79 U.S. (12 Wall.) 418 (1870) ........................ 6, 17-18

Wisconsin v. Constantineau, 400 U.S. 433 (1971) .... 16

Zobel v. Williams, 457 U.S. 55 (1982) ......................... 6

Statutes

Tenn. Code Ann. § 204(b)(4) ...................................... 13

Tenn. Code Ann. § 57-3-204(b)(4).............................. 15

Tenn. Code Ann. § 57-3- 213(a) ................................. 11

Tenn. Code Ann. § 57-3-204(b)(2)(A) ......................... 11

Other Authorities

Gordon S. Wood, The Creation of the American

Republic, 1776-1787 (1969)...................................... 4

Max Farrand, Records of the Federal Convention of

1787 (2d ed. 1937) ................................................. 4-5

The Federalist No. 7 (Hamilton) ................................. 4

The Federalist No. 22 (Hamilton) ............................... 9

The Federalist No. 42 (Madison) ................................. 5

The Federalist No. 80 (Hamilton) ............................... 5

Constitutional Provisions

U.S. Const. amend. XXI, sec. 2 .................................. 16

U.S. Const. art. I, sec. 8, cl. 3 ...................................... 4

U.S. Const. art. IV, sec. 2, cl 1 ..................................... 5

1

INTEREST OF THE AMICUS CURIAE1

The Cato Institute is a nonpartisan public-policy

research foundation established in 1977 and dedicated

to advancing the principles of individual liberty, free

markets, and limited government. Cato’s Robert A.

Levy Center for Constitutional Studies was established in 1989 to help restore the principles of limited

constitutional government that are the foundation of

liberty. Toward those ends, Cato publishes books and

studies, conducts conferences, and produces the annual Cato Supreme Court Review.

This case interests Cato because durational residency requirements like those at issue here are contrary to the Founders’ vision of promoting united commercial markets and avoiding economic discrimination between in-state and out-of-state residents.

INTRODUCTION AND

SUMMARY OF ARGUMENT

The Constitution guarantees citizens’ right to engage in interstate commerce free from discriminatory

and protectionist state regulations. This fundamental

rule stems from the Framers’ concern that, left unchecked, states would enact commercial regulations

favoring their own residents at the expense of non-residents. Indeed, this Court has time and again struck

down state laws that deprive citizens of their right to

access the markets of other states on equal terms.

1 Rule 37 statement: Petitioner and Respondents have filed blan-

ket consents with the Clerk. Further, no counsel for any party

authored this brief in whole or in part and no person or entity

other than amicus funded its preparation or submission.

2

In striking down discriminatory state commercial

regulations, the Court has primarily relied on the

dormant Commerce Clause. See, e.g., Philadelphia v.

New Jersey, 437 U.S. 617 (1978). As the Court reaffirmed in Granholm v. Heald, the Commerce Clause

has always applied to “differential treatment of instate and out-of-state economic interests that benefits

the former and burdens the latter.” 544 U.S. 460, 472

(2005). In line with this principle, the Court has also

acknowledged the role of the Privileges and Immunities Clause of Article IV, § 2 in securing comity and

preventing economic discrimination by ensuring nonresident citizens have “equality of privilege” with resident citizens. Paul v. Virginia, 75 U.S. (8 Wall.) 168

(1869).2 Together, the Commerce and Privileges and

Immunities Clauses ensure citizens of their right to access the markets of other states on equal terms. The

statute at issue here, however, contradicts this central

constitutional principle.

Tennessee’s statute effectively imposes a nine-year

residency requirement on retail liquor license applicants and, for corporations, a requirement that every

officer, director, and stockholder satisfy the nine-year

rule. The durational residency requirements flatly prevent non-residents and businesses from competing on

the same terms as Tennessee residents.3 The only

2 The terms “citizen” and “resident” are synonymous for purposes

of Article IV’s Privileges and Immunities Clause. Austin v. New

Hampshire, 420 U.S. 656, 663 n.8 (1975).

Petitioner has argued that the Privileges and Immunities

Clause does not apply to corporations and should not be held applicable to Tennessee’s exercise of its police powers over liquor

licenses. This argument is not persuasive. Respondent was

named as a defendant in a declaratory judgment action and asserted the individual rights of its owners who were

3

3

plausible purpose of these onerous requirements is to

exclude non-residents from Tennessee’s market,

thereby protecting in-state retailers from competition.

While the Twenty-First Amendment affords states

greater flexibility in devising alcohol regulations than

regulations for other goods or services, it does not protect state laws that are mere economic protectionism.

Tennessee’s durational residency requirements are

thus blatantly discriminatory and protectionist, in violation of both the Commerce and Privileges and Immunities Clauses.

ARGUMENT

I. THE COMMERCE CLAUSE AND PRIVILEGES AND IMMUNITIES CLAUSE WERE

INTENDED TO PROSCRIBE DIFFERENTIAL

TREATMENT IN INTERSTATE COMMERCE

A. The Commerce and Privileges and Immunities Clauses Were Adopted to Prevent

Economic Divisions Between States

The Framers adopted the Commerce and Privileges

and Immunities Clauses with the express intent of

avoiding the “tendencies toward economic Balkanization that had plagued relations among the Colonies

and later among the States under the Articles of Confederation.” Hughes v. Oklahoma, 441 U.S. 322, 325–

26 (1979). Under the Articles, the practice of some

states denying equal treatment to outlanders was

unconstitutionally deprived of the opportunity to obtain a liquor

license solely because they were not Tennessee residents. Furthermore, this Court has never ruled that the Privileges and Immunities Clause does not apply to members of limited liability

companies.

4

widespread. See Austin v. New Hampshire, 420 U.S.

656, 660 (1975). Alexander Hamilton wrote that “regulations of trade by which particular States might endeavor to secure exclusive benefits to their own citizens…naturally lead to outrages, and these to reprisals and wars.” The Federalist No. 7 (Hamilton). Discriminatory state laws ultimately served as a catalyst

for the Federal Convention of 1787. See Gordon S.

Wood, The Creation of the American Republic, 17761787, 463–67 (1969) (describing how state economic

regulations created a fundamental political crisis).

To cure the ills of the Articles of Confederation, the

Framers adopted specific constitutional provisions designed to prevent differential treatment between state

residents and non-residents. The Commerce Clause

provides Congress with the power “to regulate Commerce with foreign Nations, and among the several

States, and with the Native American Tribes.” U.S.

Const. art. I, sec. 8, cl. 3. The Framers believed a main

function of the Commerce Clause was to restrain state

power to impose discriminatory regulations on interstate commerce. See Dean Milk Co. v. Madison, 340

U.S. 349, 356 (1951) (averring the Commerce Clause

was adopted to prohibit a “multiplication of preferential trade areas”). James Madison wrote that this central provision of the Constitution

grew out of the abuse of the power by the importing States in taxing the non-importing, and

was intended as a negative and preventive provision against injustice among the States themselves, rather than as a power to be used for the

positive purposes of the General Government,

in which alone, however, the remedial power

could be lodged.

5

Max Farrand, Records of the Federal Convention of

1787, 478 (2d ed. 1937).

The same historical reasons underlying the Commerce Clause led to the adoption of the Privileges and

Immunities Clause, which reads: “The Citizens of each

State shall be entitled to all Privileges and Immunities

of Citizens in the several States,” U.S. Const. art. IV,

sec. 2, cl 1. For Madison, the purpose of the Clause is

to ensure that “[t]hose who come under the denomination of free inhabitants of a State, although not citizens

of such State, are entitled, in every other State, to all

the privileges of free citizens of the latter.” The Federalist, No. 42 (Madison). Hamilton praised the Privileges and Immunities Clause as “the esteemed basis of

the Union” because it secured “the inviolable maintenance of that equality of privileges and immunities to

which the citizens of the Union will be entitled.” The

Federalist No. 80 (Hamilton).

Together, the Commerce and Privileges and Immunities Clauses illustrate the Framers’ express intent of national uniformity in interstate commerce.

These two central constitutional provisions, one a concurrent grant of power to the federal government and

the other an express restraint on state power, work in

tandem to proscribe economic discrimination between

the states and promote national commercial harmony.

B. The Commerce Clause and Privileges and

Immunities Clause Have a “Mutually Reinforcing” Relationship

In Hicklin v. Orbeck, the Court described the Privileges and Immunities Clause of Article IV and the

Commerce Clause as having a “mutually reinforcing

relationship.” 437 U.S. 518, 531 (1978). This

6

relationship stems from their common origin and

shared vision of federalism. See Baldwin v. Mont. Fish

& Game Comm’n, 436 U.S. 371, 379–80 (1978); see also

Sup. Ct. of N.H. v. Piper, 470 U.S. 274, 279–80 (1985).

Although the Commerce Clause and Privileges and

Immunities Clause are found in different sections of

the Constitution, their separation is one of form, not

substance. Seeing as the former is an express grant of

power to Congress and the latter is an express limitation on state power, the Framers separated them accordingly. Baldwin, 436 U.S. at 379–80; cf. United

Bldg. & Constr. Trades Council of Camden County v.

City of Camden, 465 U.S. 208, 220 (1982) (Rehnquist,

C.J.) (distinguishing the Commerce Clause’s “implied

restraint” from the Privileges and Immunities

Clause’s “direct restraint”).

Given the historical connection between the Commerce and Privileges and Immunities Clauses, it is unsurprising that courts have repeatedly found a reciprocal relationship between them. Moreover, the Court

has recurrently invoked both clauses in cases implicating economically discriminatory state regulations. See,

e.g., Hillside Dairy Inc. v. Lyons, 539 U.S. 59 (2003);

Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 570 n.4 (1997); United Bldg. & Constr. Trades Council of Camden County, 465 U.S. 208;

Zobel v. Williams, 457 U.S. 55, 66 (1982) (Brennan, J.,

concurring); Toomer v. Witsell, 334 U.S. 385 (1948);

Ward v. Maryland, 79 U.S. (12 Wall.) 418 (1870); Paul

v. Virginia, 75 U.S. (8 Wall.) 168, United States v.

South-Eastern Underwriters Ass’n, 322 U.S. 533

(1944); Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 68–69

(1824); Corfield v. Coryell, 6 Fed. Cas. 546 (C.C.E.D.

Penn. 1823) (No. 3,230) (Washington, Circuit Justice);

7

As a result of their common origin in the Articles of

Confederation and their shared purpose, the Commerce and Privileges and Immunities Clauses mutually reinforce the constitutional norm that the states

are forbidden from discriminating against out-of-state

residents in interstate commerce.

II. STATE REGULATION OF ALCOHOL IS LIMITED BY THE NON-DISCRIMINATION PRINCIPLE OF THE COMMERCE CLAUSE,

WHICH TENNESEE’S DURATIONAL RESIDENCY REQUIREMENTS VIOLATE

A. The Court Has Already Held That The

Twenty-First Amendment Does Not Insulate State Liquor Laws From Commerce

Clause Scrutiny

In Bacchus Imports, Ltd. v. Dias, the Court firmly

established that the Commerce Clause limits states’

power under the Twenty-First Amendment. 468 U.S.

263 (1984); see also Healy v. Beer Inst., 491 U.S. 324

(1989); Brown-Forman Distillers Corp. v. N.Y. State

Liquor Auth., 476 U.S. 573 (1986). The Court noted

that “[i]t is by now clear that the [Twenty-first]

Amendment did not entirely remove state regulation

of alcoholic beverages from the ambit of the Commerce

Clause.” 468 U.S. at 275. “To draw a conclusion that

the Twenty-first Amendment has somehow operated

to ‘repeal’ the Commerce Clause wherever regulation

of intoxicating liquors is concerned would…be an absurd oversimplification.” Id. (quoting Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 331–32

(1964)). A mere 13 years ago the Court again emphasized in Granholm v. Heald that states’ regulation of

alcohol under the Twenty-first Amendment “is limited

by the nondiscrimination principle of the Commerce

8

Clause.” 544 U.S. at 487. In reviewing the history preceding the Twenty-First Amendment and its prior decisions interpreting the amendment, the Court made

it clear that it is not limited to alcohol “products” or

“producers,” and extends to out-of-state business interests. Id. at 486–89.

The Court has recognized on numerous occasions

that the negative Commerce Clause proscribes “differential treatment of in-state and out-of-state economic

interests that benefits the former and disadvantage

the latter.” Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 99 (1994); see also New Energy Co. of

Ind. v. Limbach, 486 U.S. 269, 273–74 (1988) (applying

the long-standing constitutional rule that “regulatory

measures designed to benefit in-state economic interests by burdening out-of-state competitors” are prohibited under the “‘negative’ aspect of the Commerce

Clause”). When a state statute directly regulates or

discriminates against interstate commerce, or when

its effect is to favor in-state economic interests over

out-of-state interests, the Court has struck down the

statute without further inquiry. See Brown-Forman

Distillers Corp., 476 U.S. at 579. This mandate reflects

the Framers’ central concern in avoiding the tendencies toward economic Balkanization that had plagued

relations among the states under the Articles of Confederation. Hughes, 441 U. S. at 325–26. The rule of

non-discrimination in interstate commerce ensures rivalries among the states are thus kept to a minimum,

and a proliferation of trade zones is prevented. See C

& A Carbone, Inc. v. Clarkstown, 511 U.S. 383, 390

(1994) (citing The Federalist No. 22, (Hamilton)).

The implicit limitations on states’ power imposed

by the Commerce Clause in no way proscribes states

9

from enacting broad, universally applicable regulations. See Granholm, 544 U.S. at 493. To be sure, state

policies are generally protected by the Twenty-First

Amendment when they are non-discriminatory and evenhanded. Id.. Even a state that chooses to ban the

sale and consumption of alcohol altogether could bar

its importation entirely without running afoul of the

Commerce Clause—and, as history shows, it would

have to do so to make its laws effective. Id. at 488–89.

It is also firmly established that states may assume

control of liquor distribution through state-run outlets

or funnel sales through the three-tier system, which

the Court has recognized as “unquestionably legitimate.” North Dakota v. United States, 495 U.S. 423,

432 (1986). Although states enjoy broad powers under

the Twenty-First Amendment, they are not without

limits. When a state exercises regulatory power over

the sale of alcohol in a way that discriminates against

out-of-staters, “[t]he discriminatory character [of the

challenged statute] eliminates the immunity afforded

[to the State] by the Twenty-first Amendment.” Healy,

491 U.S. at 344 (Scalia, J., concurring).

The Court’s recent application of the non-discrimination principle in Granholm to prohibit differential

treatment of out-of-state businesses in the alcohol

trade confirms that Commerce Clause principles apply

beyond just liquor products, extending to the treatment of those involved in the liquor market as well.

This follows because alcohol products cannot be separated from the people and businesses that produce and

sell them. The present case involves straightforward

attempts to discriminate in favor of local retailers.

Such blatant protectionism is contrary to the non-discrimination principles recognized by this Court’s

10

Commerce Clause jurisprudence. Thus, the TwentyFirst Amendment cannot save Tennessee’s statute.

B. Tennessee’s Licensing Statute Is Discriminatory on Its Face

In deciding whether a state regulation violates the

dormant Commerce Clause, the Court determines

whether the law facially discriminates against out-ofstate actors or has the effect of favoring in-state economic interests over out-of-state interests. Brown-Forman Distillers Corp., 476 U.S. at 579. Discriminatory

laws are subject to a “per se rule of invalidity.” Philadelphia, 437 U.S. at 624. This presumption can only be

overcome by showing that the state has no other way

to advance a legitimate local purpose, such as “promoting temperance, ensuring orderly market conditions,

and raising revenue.” North Dakota, 495 U.S. at 432.

The discriminatory nature of the Tennessee licensing statute is obvious. Under the statute, in order to

obtain a retail liquor license, an individual must have

“been a bona fide resident of Tennessee during the

two-year period immediately preceding the date upon

which application is made.” Tenn. Code Ann. §57-3204(b)(2)(A). The next clause provides that licenses,

once granted, cannot be renewed unless the applicant

has been a Tennessee resident “for at least ten (10)

consecutive years.” Id. Since liquor licenses in Tennessee are only valid for one year after issuance, Tenn.

Code Ann. §57-3- 213(a), the renewal requirement effectively imposes a nine-year waiting period.

By essentially requiring out-of-staters to wait nine

years to obtain a liquor license, the Tennessee statute

establishes a barrier of entry to the state’s retail liquor

market. See Cooper v. McBeath, 11 F.3d 547, 553 (5th

11

Cir. 1994) (characterizing a similar residency requirement as an “impenetrable barrier to entering the

Texas liquor industry”). In Lewis v. BT Investment

Managers, Inc, the Court struck down a Florida statute because it “overtly prevent[ed] [out-of-state] enterprises from competing in local markets.” 447 U.S. 27,

39 (1980). The Court explained that the statute posed

an “explicit barrier” to “out-of-state firms with the

kinds of resources and business interests that make

them likely to attempt de novo entry.” Id. If a statute

absolutely prohibits entry into an industry by non-residents, then it necessarily discriminates against outof-state economic interests. See Granholm, 544 U.S. at

473 (stating that laws violate Commerce Clause principles when “[t]hey deprive citizens of their right to

have access to the markets of other States on equal

terms”). Such a blanket prohibition is the most extreme form of economic protectionism. See BT Investment Managers, Inc., 447 U.S. at 42.

Even Tennessee has expressly acknowledged the

discriminatory nature of its durational residency requirements in recent attorney general opinions E.g.,

BIO App. 8a, 11a-12a (concluding that the residency

requirements “constitute trade restraints and barriers”). The district court below also determined that the

requirements create a “barrier” for non-residents, who

“will always be unable to obtain a retail liquor license.”

Id. at 74a. The court of appeals then correctly determined that Tennessee’s durational residency requirements are “facially discriminatory.” Pet. App. 31a.

As discussed above, the Twenty-First Amendment

cannot save Tennessee’s discriminatory statute since

the “central purpose of the [Twenty-First Amendment]

was not to empower States to favor local liquor

12

industries by erecting barriers to competition.” Bacchus, 468 U.S. at 276. The type of discriminatory durational residency requirements at issue in the present

case contradict these principles. They deprive citizens

of their right to have access to the markets of other

states on equal terms. Allowing states to discriminate

against out-of-state residents in liquor licensing invites preferential treatment for in-state retailers, an

outcome destructive of the very purpose of the Commerce Clause. See Dean Milk Co., 340 U. S. at 356. Accordingly, under the Court’s Commerce Clause precedents, Tennessee’s discriminatory residency requirements for liquor licenses are subject to “a virtually per

se rule of invalidity.” Philadelphia, 437 U.S. at 624.

C. Tennessee’s Durational Residency Requirements Do Not Serve a Legitimate Local Purpose

Tennessee’s durational residency requirements

serve no other purpose than pure economic protectionism. The Court’s Commerce Clause jurisprudence

place a high burden on states to show discriminatory

laws are justified by a legitimate state purpose. See

Chemical Waste Management, Inc. v. Hunt, 504 U.S.

334, 344 (1992) (stating the “burden is on the State to

show that ‘the discrimination is demonstrably justified.’”). A discriminatory state regulation can only be

upheld if it “advances a legitimate local purpose that

cannot be adequately served by reasonable nondiscriminatory alternatives.” New Energy Co. of Ind., 486

U.S. at 278. The Court has “upheld state regulations

that discriminate against interstate commerce only after finding, based on concrete record evidence, that a

state’s nondiscriminatory alternatives will prove unworkable.” Granholm, 544 U.S. at 493. Moreover, in

13

deciding whether to invalidate state alcohol statutes,

courts examine the “core concerns” of the Amendment.

See North Dakota, 495 U.S. at 432 (identifying “the interest of promoting temperance, ensuring orderly market conditions, and raising revenue”).

Tennessee has consistently pointed to its state interests asserted in the statement of legislative intent,

namely protecting the “health, safety and welfare” of

Tennessee citizens, and ensuring “oversight, control

and accountability” for retail store owners and managers. See Tenn. Code Ann. § 204(b)(4). However, the

Tennessee legislature did not add this statement until

2014 following a formal ruling by the state attorney

general that the residency requirements were unconstitutional. Back in 2012, the state attorney general

conceded that the legislative history of the statute in

question pointed to protectionist motives and admitted

that he could not “conceive” of a legitimate purpose for

the requirements. BIO App. 8a, 11a. He further concluded that the state legislature did not “establish a

local purpose sufficient to justify the discriminatory licensing provisions” and that the residency requirements “cannot be related to any kind of regulatory or

public-safety concern” since they do nothing to address

such concerns. Id. at 13a, 17a.

The district court below looked to the justifications

that the Tennessee legislature added to section 57-3204(b)(4) in 2014, two years after the Tennessee attorney general had formally ruled on the residency requirements. The district court stated that it “fail[ed] to

see how the retailer residency requirements” advance

Tennessee’s purported interests. Id. at 80a. Based on

the concrete record evidence, the district court below

concluded that the state interests asserted in the

14

statement of legislative intent were insufficient to justify the statute’s blatant discrimination. Pet. App. 31a33a, 76a-80a.

The court of appeals majority reached the same

conclusion. It correctly found that the Tennessee statute serves no legitimate local purpose that could not

be readily served by other nondiscriminatory licensing

requirements. See Pet. App. at 32a-33a (describing

such alternatives). In Granholm, this Court similarly

rejected the argument that a discriminatory state law

was justified simply because the states “ha[d] greater

regulatory control over in-state producers than over

out-of-state wineries.” 544 U.S. at 490. Moreover, lawmakers in Michigan and New York had alternative

methods to pursue their legitimate goals. Id. at 490–

91 (“[T]he States can take less restrictive steps to minimize the risk that minors will order wine by mail.”).

The Court further noted that “improvements in technology have eased the burden of monitoring out-ofstate wineries. Background checks can be done electronically. Financial records and sales data can be

mailed, faxed, or submitted via e-mail.” Id. at 492.

These alternative means are equally applicable to Tennessee here.

Petitioner here has failed to meet its evidentiary

burden to show that the discriminatory durational residency requirements protect “the health, safety, and

welfare” of its citizens. Byrd v. Tenn. Wine & Spirits

Retailers Ass’n, 883 F.3d 608, 625 (6th Cir. 2018); see

also Tenn. Code Ann. § 57-3-204(b)(4)). The only conceivable purpose of the durational requirements is to

exclude non-residents from Tennessee’s market and

protect in-state retailers from competition. None of the

proffered justifications for the statute establish a

15

nexus between the exclusion of non-resident applicants and promoting a legitimate state interest. Nondiscriminatory alternatives could just as well achieve

the purposes of citizen health and alcohol regulation.

Thus, Tennessee’s durational residency statute serves

no legitimate local regulatory purpose and is unconstitutional.

III. THE TWENTY-FIRST AMENDMENT DOES

NOT PERMIT STATES TO VIOLATE OTHER

SUBSTANTIVE CONSTIUTIONAL PROVISIONS, INCLUDING THE PRIVILEGES AND

IMMUNITIES CLAUSE

A. The Twenty-First Amendment Does Not

Save State Laws That Violate Other Constitutional Provisions

The Twenty-First Amendment grants to the states

special authority to regulate alcoholic beverages in

ways that would otherwise be reserved to the federal

government under the Commerce Clause. Section 2 expressly provides that “[t]he 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.” U.S. Const. amend. XXI, sec. 2. But those

words do not give states a blank check to regulate alcohol in violation of other parts of the Constitution.

Section 2 of the Twenty-First Amendment limits

the effect of the dormant Commerce Clause on a state’s

regulatory authority over the delivery or use of alcoholic beverages within its borders, but “the Amendment does not license the States to ignore their obligations under other provisions of the Constitution.” Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 712

16

(1984); Craig v. Boren, 429 U.S. 190, 206 (1976) (“Once

passing beyond consideration of the Commerce Clause,

the relevance of the Twenty-first Amendment to other

constitutional provisions becomes increasingly doubtful.”); see also 44 Liquormart, Inc. v. Rhode Island, 517

U. S. 484, 515 (1996) (“while [the Twenty-first Amendment] grants the States authority over commerce that

might otherwise be reserved to the Federal Government, it places no limit whatsoever on other constitutional provisions.”).

The Court has already acknowledged several areas

in which the Twenty-First Amendment is subject to

other constitutional provisions, including the First

Amendment, 44 Liquormart, Inc., 517 U.S. 484 (1996);

Establishment Clause, Larkin v. Grendel’s Den, Inc.,

459 U.S. 116 (1982); Supremacy Clause, Cal. Retail

Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445

U.S. 97, 112-114 (1980); Equal Protection Clause,

Craig, 429 U.S. at 204–09; Due Process Clause, Wisconsin v. Constantineau, 400 U.S. 433 (1971); and Import-Export Clause, Dep’t of Revenue v. James B. Beam

Distilling Co., 377 U.S. 341 (1964).

To understand what the Twenty-First Amendment

does not allow, the Court can, as it has in the past, look

to the broader constitutional framework and the substantive protections found therein. Tennessee could

have, in line with its explicit authority under the

Twenty-First Amendment, enacted a wholesale ban of

all in-state liquor. Instead, the state chose to use a

three-tiered distribution system and license its liquor

retailers. In so doing, Tennessee subjected its regulatory scheme to scrutiny under other constitutional provisions, such as the Privileges and Immunities Clause.

After all, the Twenty-First Amendment was not

17

designed to “save” state laws from constitutional scrutiny. See Healy, 491 U.S. at 344 (Scalia, J., concurring).

B. The Twenty-First Amendment Does Not

Save Discriminatory Laws That Violate

the Privileges and Immunities Clause

The Privileges and Immunities Clause of Art. IV, §

2, cl. 1, provides that “[t]he Citizens of each State shall

be entitled to all Privileges and Immunities of Citizens

in the several States.” The Clause establishes a norm

of comity that guarantees equality of treatment to nonresident citizens of one state coming within the jurisdiction of another. By making non-residence an improper basis for imposing a state regulatory burden,

the Clause implicates both the individual right to nondiscriminatory treatment and the structural balance

between states that is essential to the concept of federalism. Austin, 420 U.S. at 662.

On numerous occasions the Court has struck down

laws under the Privileges and Immunities Clause that

were enacted for the protectionist purpose of discriminating against out-of-state residents. Several of these

cases involved state laws precluding non-residents

from obtaining licenses or practicing certain occupations. The Clause has an expansive reach in the realm

of commercial regulations, especially when those regulations create discriminatory resident classifications.

The first such case was Ward v. Maryland, in which

the Court struck down a statute under which non-residents were required to pay $300 per year for a license

to trade in goods not manufactured in Maryland, while

resident traders paid a fee varying from $12 to $150.

79 U.S. 418. Maryland attempted to justify the disparity as a “tax upon a particular business or trade,

18

carried on in a particular mode,” rather than a discrimination against traders from other states. Id. at

422. The Court ultimately held that the discriminatory

licensing fees violated the guarantee of the Privileges

and Immunities Clause against “being subjected to

any higher tax or excise than that exacted by law

of…permanent residents.” Id. at 430.

The Court has also invalided state laws that imposed discriminatory licensing requirements. In

Toomer v. Witsell, for example, the Court struck down

a state statute imposing a $2,500 license fee on out-ofstate shrimping boats and only a $25 fee on in-state

shrimping boats where purpose and effect of the statute was not to conserve shrimp, but to exclude nonresidents and create a commercial monopoly for South

Carolina residents. 334 U.S. at 385, 395, 397.

The Court has struck down multiple state statutes

that precluded non-residents from obtaining a license

to practice an occupation. In 1985, the Court struck

down a residency requirement for admission to the

state bar of New Hampshire. See Piper, 470 U.S. at

274. After discussing the prior case law, the Court

found that “like the occupations considered in our earlier cases, the practice of law is important to the national economy.” Id. at 281. Therefore, the right to obtain a law license was protected by the Privileges and

Immunities Clause. Id.

Moreover, the Court has repeatedly invalidated

laws that unduly obstruct freedom of enterprise. In

United Building & Constr. Trades Council of Camden

Cty. v. Mayor and Council of Camden, the Court invalidated a New Jersey municipal ordinance requiring

that at least 40 percent of employees of contractors and

subcontractors working on city construction projects

19

be city residents. 465 U.S. 249. The Court found that

the regulation facially burdened out-of-state citizens’

ability to pursue a common calling and was thus subject to Privileges and Immunities Clause review because of its unequal effect on out-of-state citizens. Id.

Finally, in Hicklin v. Orbeck, the Court struck down a

statute containing a resident-hiring preference for all

employment related to the development of the state’s

oil and gas resources. 437 U.S. at 526–31.

The clear aim of the statutes at issue in each of

these cases was to advantage in-state residents and

commercial interests at the expense of their out-ofstate counterparts. The Court appropriately recognized that these protectionist and discriminatory laws

violated the Privileges and Immunities Clause. Similarly, Tennessee’s durational residency requirements

at issue here fit neatly within this Court’s prior Privileges and Immunities Clause jurisprudence.

C. Tennessee’s Durational Residency Requirements Violate the Privileges and Immunities Clause

As underscored in Toomer, the Privileges and Immunities Clause “guarantees to citizens of State A” the

right “of doing business in State B on terms of substantial equality with the citizens of that State.” 334 U.S.

at 396. Thus, a primary purpose of the Privileges and

Immunities Clause is to “outlaw classifications based

on the fact of non-citizenship unless there is something

to indicate that non-citizens constitute a peculiar

source of the evil at which the statute is aimed.” Id. at

398; see also Hicklin, 437 U.S. at 526. Discriminatory

classifications based on residence must have a substantial reason and bear a substantial relationship to

the state’s objective. Piper, 470 U.S. at 284. While

20

Petitioner and their amici offer several justifications

for the discriminatory treatment of non-resident applicants for retail liquor licenses, none can satisfy this exacting standard of scrutiny required by the Privileges

and Immunities Clause.

Tennessee’s durational residency requirements essentially create two classes of persons: those who have

been within the state for the prescribed period and

those who have not. Requiring non-residents to wait

nine years to obtain a liquor license creates a clear

class distinction. The consequential effect of the requirements is to favor one class (in-state Tennessee

residents) and disfavor another (non-residents) in the

retail liquor trade.

Furthermore, Tennessee’s durational residency requirements do not relate to the state’s purported objectives of protecting the health, safety and welfare of its

citizens. The requirements do not directly regulate the

flow of alcoholic beverages within the state. Instead,

they regulate the flow of individuals who can and cannot engage in economic activities. In the courts below,

Petitioner provided no evidence that non-residents are

the source of any “peculiar source of evil.” See Toomer,

334 U.S. at 398; see also Hicklin, 437 U.S. at 526. Petitioner also failed to show a substantial reason for the

discriminatory durational residency requirements. Instead, Petitioner relied on the self-serving justifications that the Tennessee legislature added to section

57-3-204(b)(4) in 2014. None of these can satisfy the

exacting standard of scrutiny required by the Privileges and Immunities Clause.

Tennessee’s discriminatory durational residency

requirements deny non-residents the opportunity to

apply for a retail liquor license on equal footing with

21

citizens of Tennessee. Accordingly, the requirements

violate the Privileges and Immunities Clause.

CONCLUSION

For the foregoing reasons, the decision below

should be affirmed. If the Court vacates the decision

below, it should remand for consideration of a Privileges and Immunities Clause challenge to Tennessee’s

discriminatory durational residency requirements.

Respectfully submitted,

Ilya Shapiro

Counsel of Record

Trevor Burrus

CATO INSTITUTE

1000 Mass. Ave. N.W.

Washington, D.C. 20001

(202) 842-0200

ishapiro@cato.org

December 20, 2018