Reply Brief — Walmart Stores, Inc., et al., Petitioners v. Texas Alcoholic Beverage Commission, et al.

NO. 19-1368

In the

Supreme Court of the United States

________________

WAL-MART STORES, INC.; WAL-MART STORES TEXAS

L.L.C.; SAM’S EAST, INC.; QUALITY LICENSING

CORPORATION,

v.

Petitioners,

TEXAS ALCOHOLIC BEVERAGE COMMISSION; KEVIN

LILLY; IDA CLEMENT STEEN; TEXAS PACKAGE

STORES ASSOCIATION, INC.,

________________

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

________________

REPLY BRIEF

________________

ERIN E. MURPHY

Counsel of Record

MATTHEW D. ROWEN

KIRKLAND & ELLIS LLP

1301 Pennsylvania Ave., NW

Washington, DC 20004

(202) 389-5000

erin.murphy@kirkland.com

November 4, 2020

Counsel for Petitioners

TABLE OF CONTENTS

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

REPLY BRIEF ............................................................ 1

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

I.

The Decision Below Squarely Conflicts With

This Court’s Commerce Clause Cases ................ 3

II. The Decision Below Squarely Conflicts With

Cases From Other Circuits ................................. 7

III. This Case Is An Excellent Vehicle To Resolve

This Square Circuit Split .................................. 10

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

ii

TABLE OF AUTHORITIES

Cases

Abbott v. Veasey,

137 S. Ct. 612 (2017).............................................. 10

Allstate Ins. Co. v. Abbott,

495 F.3d 151 (5th Cir. 2007).................................. 12

Bacchus Imps., Ltd. v. Dias,

468 U.S. 263 (1984).................................................. 6

Cachia v. Islamorada,

542 F.3d 839 (11th Cir. 2008).............................. 7, 8

Cherry Hill Vineyards, LLC v. Lilly,

553 F.3d 423 (6th Cir. 2008).................................... 9

Exxon Corp. v. Governor of Maryland,

437 U.S. 117 (1978).............................................. 1, 8

Fam. Winemakers of Cal. v. Jenkins,

592 F.3d 1 (1st Cir. 2010) ........................................ 9

Ford Motor Co. v. Tex. Dep’t of Transp.,

264 F.3d 493 (5th Cir. 2001).............................. 6, 12

Tennessee Wine & Spirits Retailers Ass’n

v. Thomas,

139 S. Ct. 2449 (2019).................................... passim

W. Lynn Creamery, Inc. v. Healy,

512 U.S. 186 (1994).................................................. 6

Walgreen Co. v. Rullan,

405 F.3d 50 (1st Cir. 2005) .................................. 8, 9

Other Authorities

Reply.Br., Tennessee Wine & Spirits

Retailers Ass’n v. Thomas, No. 18-96

(U.S. filed Jan. 4, 2019) ......................................... 11

REPLY BRIEF

The decision below holds that a Texas law that

keeps 98% of Texas liquor stores in the hands of

Texans does not have the effect of discriminating

against interstate commerce. More remarkable still,

it reached that bewildering conclusion by insisting

that this Court’s precedent compels it. In reality,

Exxon Corp. v. Governor of Maryland, 437 U.S. 117

(1978), does nothing of the sort, which is why every

other circuit to confront that argument has rejected it.

It is little surprise, then, that Texas spends nearly

all of its opposition trying to reframe the decision

below as fact-bound and non-final. But the court’s own

words refute those efforts. The Fifth Circuit expressly

reaffirmed circuit precedent under which state

“corporate form” laws survive Commerce Clause

scrutiny as a matter of law even if they “create an

obvious and significant barrier against out-of-state

economic actors” as a matter of fact. Pet.App.52 n.11.

For good measure, the court admitted that its decision

is in “tension” (to put it mildly) with Tennessee Wine

& Spirits Retailers Association v. Thomas, 139 S. Ct.

2449 (2019), because this Court actually considered a

public-corporation ban’s “practical effect.” Pet.App.57

n.21. Under the Fifth Circuit’s test, by contrast, the

discriminatory effects analysis began and ended with

the fact that Texas’s public-corporation ban is facially

neutral. That is a legal holding, and it cannot be

reconciled with decisions from this Court or others.

The Fifth Circuit’s decision likewise leaves no

doubt that its resolution of Walmart’s discriminatoryeffects claim was final. On appeal from a final decision

that followed a full-blown trial, the Fifth Circuit

2

definitively declared “that the ban does not have a

discriminatory effect on interstate commerce.”

Pet.App.57.

And while the court remanded on

Walmart’s discriminatory-purpose claim, it did so

because it faulted the district court for treating the

ban’s undisputed effect of foreclosing virtually all outof-state competitors as discriminatory. Awaiting

resolution of a stand-alone purpose challenge to a law

that has been conclusively declared to have no

discriminatory effect would accomplish nothing but a

massive waste of judicial and litigant resources.

That leaves Texas complaining that the lower

courts did not resolve the second step of the Commerce

Clause analysis Tennessee Wine articulated. But that

is hardly a compelling reason to deny review when the

question is whether the Fifth Circuit erred by

rejecting Walmart’s claim at the first step—especially

when the court did so by employing a test that applies

to alcohol and non-alcohol laws alike. At any rate,

Texas’s efforts to defend its ban under the

“predominant effect” test are virtually identical to the

arguments the Court rejected in Tennessee Wine itself.

Indeed, when respondent TPSA (the trade group that

represents Texas liquor stores) is not making the

difficult-to-take-seriously claim that it supports the

ban because the ban reduces liquor sales, it

unabashedly defends the ban as necessary to “ensur[e]

that small businesses in small towns throughout

Texas can survive in the marketplace without having

to compete with large corporations.” TPSA.BIO.4.

That is the definition of “unalloyed protectionism.”

Tennessee Wine, 139 S. Ct. at 2474. No serious effort

to enforce the Commerce Clause’s non-discrimination

principle could allow such a law to survive.

3

ARGUMENT

I.

The Decision Below Squarely Conflicts With

This Court’s Commerce Clause Cases.

In Tennessee Wine, this Court held that a state

law that operates to ensure “that no corporation whose

stock is publicly traded may operate a liquor store in”

the state violates the Commerce Clause because its

“predominant effect” is “simply to protect [in-state

retailers] from out-of-state competition.” 139 S. Ct. at

2457, 2474, 2476. Texas Alcohol Beverage Code

§22.16 has precisely that effect: It expressly bans

public corporations from operating liquor stores in

Texas (unless they did so as of April 1995, when Texas

explicitly barred all out-of-state companies), and it

(unsurprisingly) has had the real-world effect of

protecting in-state liquor-store owners from out-ofstate competition. That is not up for debate. Texas

itself produced evidence that only four of the 1,765 P

permit-holders (less than 0.3%) are out-of-state

entities, and that those four entities hold a collective

five of the 2,579 P permits (less than 0.2%).

Pet.App.87. 1 Yet rather than recognize §22.16 as the

“unalloyed protectionism” it is, Tennessee Wine, 139

S. Ct. at 2474, the Fifth Circuit held that it “does not

have a discriminatory effect on interstate commerce”

as a matter of law simply because it applies to “in-state

1 Texas claims that “as many as 40 companies with out-of-state

ownership” hold P permits, State.BIO.5, but that figure defines

“out-of-state ownership” to mean even one out-of-state owner. See

Pet.App.87.

At any rate, those at-least-one-non-Texan

companies account for less than 2% of permits, leaving 98% of

permits held by entities wholly owned by Texans. Pet.App.87.

4

[and] out-of-state

Pet.App.57.

public

corporations”

alike.

Texas’s half-baked effort to reframe that holding

as fact-bound succeeds only in confirming that the

Fifth Circuit committed legal error. Texas emphasizes

that the court looked to four “factors” drawn from pre–

Tennessee Wine circuit precedent (mis-)interpreting

Exxon. See Pet.App.54, 56-57. But none of those

factors does anything to ferret out discrimination that

is not apparent on the face of a law. One—whether a

law “distinguishes between in-state and out-of-state

entities”—just asks whether a law is facially neutral.

And two more—whether a law “prohibit[s] the flow of

interstate goods” or “place[s] added costs on interstate

goods” or out-of-state actors—are satisfied in the Fifth

Circuit’s view only if a law singles out out-of-state

goods or actors on its face. That is clear from the

decision below, which analyzed those factors solely by

reference to §22.16’s text, without mention of the

evidence of its real-world effects. Pet.App.57.

The only “factor” that even purports to do

anything other than ask whether a law is facially

neutral is the first one, which asks whether a law

“restrict[s] interstate dealers in the retail market.”

Pet.App.54. But while that factor looks promising at

first blush, it proves useless as well, for it turns out

that “restrict” actually means “foreclose”: The Fifth

Circuit will find this factor satisfied only if a law bars

literally 100% of out-of-state entrants. So the fact that

§22.16 keeps Texas liquor stores (at least) 98% Texanowned did not even feature in the court’s analysis. 2 All

2 Neither did respondents’ claim, made for the first time in this

Court, that 99% of beer-and-wine permit-holders are Texans.

5

that mattered was that a handful of privately owned

out-of-state entities have slipped through the cracks.

Pet.App.56-57.

To the extent that there were any doubt about the

irrelevance of the law’s real-world effects to the Fifth

Circuit, the court’s footnote endeavoring to reconcile

its decision with Tennessee Wine eliminates it. To its

credit, the court acknowledged (albeit with

considerable understatement) the “tension” between

its decision and Tennessee Wine’s conclusion that a

“provision that shuts out all publicly traded

corporations” was “so plainly based on unalloyed

protectionism” that its unconstitutionality was

obvious, 139 S. Ct. at 2474. See Pet.App.57 n.21. But

in the Fifth Circuit’s view, the way to reconcile that

tension was to read Tennessee Wine as declaring “the

predominant effect of the provision protectionism

because it was facially discriminatory,” not “because

of its practical effect.” Pet.App.57 n.21. That claim is

bewildering; why would this Court have (thrice)

State.BIO.19; TPSA.BIO.1. Nor could that claim have featured

below, for nothing in the record supports it. The sole cite

respondents offer analyzes which entities hold the most permits,

not what percentage of permits are held by out-of-state entities.

ROA.14281-86. And that evidence is unhelpful to respondents,

for it showed that whereas all but one of the ten largest P permit

holders in Texas’s five most-populous areas is a Texas entity, “the

ten largest beer-and-wine retailers in [those same areas] are

evenly split between Texas retailers and out-of-state retailers.”

Pet.App.87-88.

Respondents’ unsubstantiated claim also

conflates the number of out-of-state permit-holders with the

number of permits held by out-of-state entities, as TPSA itself

highlights that at least 15% of beer-and-wine permits are held by

out-of-state entities—and that is just counting the ten permitholders with the most permits. TPSA.BIO.App.4.

6

discussed the law’s practical effect if the analysis

began and ended with its facial discrimination? In all

events, the Fifth Circuit’s candid acknowledgement

that its test is incompatible with an analysis that

actually considers a law’s “practical effect” gives the

lie to Texas’s efforts to portray the decision below as

grounded in fact rather than law.

Ultimately, then, Texas is left defending the

proposition that Exxon really did declare virtually per

se constitutional any “facially neutral statute that

bans particular companies from a retail market.”

Pet.App.53-54. Indeed, Texas conspicuously fails to

identify any such law that it thinks would not be

constitutional. Instead, in its view, the bare fact that

some out-of-state entities “are selling liquor in Texas”

renders it irrelevant that §22.16 keeps Texas liquor

stores (at least) 98% Texan-owned. State.BIO.22.

That is not how this Court or any other (save the Fifth

Circuit) has read Exxon—likely because doing so

would render Exxon “woefully out of step with” a host

of other decisions. Ford Motor Co. v. Tex. Dep’t of

Transp., 264 F.3d 493, 512 (5th Cir. 2001) (Jones, J.,

concurring); see, e.g., W. Lynn Creamery, Inc. v. Healy,

512 U.S. 186, 201 (1994); Bacchus Imps., Ltd. v. Dias,

468 U.S. 263 (1984). But if even an intervening

decision of this Court declaring a law with exactly the

same practical effect as this one “unalloyed

protectionism” was not enough to persuade the Fifth

Circuit to change its ways, then nothing short of

plenary review will suffice.

7

II. The Decision Below Squarely Conflicts With

Cases From Other Circuits.

Respondents’ efforts to deny the circuit conflict

are equally unavailing. According to Texas, an

Eleventh Circuit case striking down a facially neutral

law that “prohibited a certain type of restaurant, and

thereby ‘disproportionately target[ed] restaurants

operating in interstate commerce,’” does not conflict

with the Fifth Circuit’s decision upholding a facially

neutral law that prohibits a certain type of

corporation, and thereby disproportionately targets

corporations that operate in interstate commerce.

State.BIO.25 (quoting Cachia v. Islamorada, 542 F.3d

839, 843 (11th Cir. 2008)). To state that claim is to

refute it. After all, the prohibited restaurant type in

Cachia was not “out-of-state”; it was restaurants that

are “one of a chain or group of three,” 542 F.3d at 841—

a classification that (like public corporation) excluded

virtually (but not literally) all out-of-state entities

with “the scale and capabilities necessary to” enter the

market. Pet.App.50.

Texas’s claim that the Eleventh Circuit “did not

address the presence or absence of the other factors”

the Fifth Circuit (mis-)derived from Exxon in reaching

that conclusion fails too. State.BIO.25. The Eleventh

Circuit expressly acknowledged (citing Exxon) that

“the ordinance does not facially discriminate between

in-state [chains] and out-of-state [chains],” “does not

prevent all out-of-state restaurants from entering the

local market,” and does not distinguish between instate and out-of-state chains. 542 F.3d at 842-43. But

none of that saved from invalidation because the

ordinance “disproportionately target[ed] restaurants

8

operating in interstate commerce” as a factual matter.

Id. at 843. Here, by contrast, the Fifth Circuit did not

(and could not) disturb the district court’s detailed

findings that §22.16 disproportionately targets out-ofstate competitors as a factual matter. See Pet.App.8789. It just deemed those facts not “relevant” under

Exxon. Pet.App.50.

Texas’s effort to distinguish Walgreen Co. v.

Rullan, 405 F.3d 50 (1st Cir. 2005), fares no better.

There too, Puerto Rico’s certification requirement was

“neutral[]” “[o]n its face,” applying to anyone wanting

to open a pharmacy. Id. at 55. And there too, Puerto

Rico argued that the “case [wa]s controlled by

Exxon[’s]” dictum that “‘[t]he fact that the burden of a

state regulation falls on some interstate companies

does not, by itself, establish discrimination against

interstate commerce.’” Id. at 59 (quoting Exxon, 437

U.S. at 127). But unlike here, the First Circuit held

the challenged law unconstitutionally discriminatory

anyway because it “perpetuate[d] local dominance of

the Puerto Rico pharmacy market” as a factual

matter. Id. Texas insists that the real culprit there

was “discriminatory enforcement.” State.BIO.26. But

the discrimination the First Circuit identified

stemmed from the law’s facial exemption for “all

existing pharmacies,” 92% of which “were locally

owned.” 405 F.3d at 55. As a result, most “out-ofCommonwealth entities [were] forced to undergo the

entire administrative process” (which “frequently”

resulted in denials), while most in-Commonwealth

entities were not. Id. at 56. The First Circuit did not

say (as the Fifth Circuit would have) that none of that

mattered because 8% were not locally owned or

because not all out-of-state applications were denied.

9

It instead (correctly) concluded that Exxon cannot

save a facially neutral law that has the practical effect

of “perpetuat[ing] local dominance.” Id. at 59.

And those are just cases outside the alcohol

context.

The Fifth Circuit’s rule is equally

incompatible with Family Winemakers of California v.

Jenkins, 592 F.3d 1 (1st Cir. 2010), and Cherry Hill

Vineyards, LLC v. Lilly, 553 F.3d 423 (6th Cir. 2008).

Texas tries to distinguish Family Winemakers by

noting that there were no “large” wineries in

Massachusetts, which meant that the state’s “small”

wineries preference exclusively disadvantaged out-ofstate entities. State.BIO.27. But that purported

distinction would make no difference in the Fifth

Circuit. Whereas the First Circuit (correctly) refused

to read Exxon as compelling the conclusion that “the

fact that [the law] benefits both in-state and some outof-state ‘small’ wineries … prove[s] that [it] is nondiscriminatory,” 592 F.3d at 13, the Fifth Circuit holds

that a state law is per se non-discriminatory unless all

advantaged entities are in-state and no out-of-state

entities can compete. Pet.App.54-56.

Cherry Hill is likewise irreconcilable. The Sixth

Circuit there found a “small” wineries preference

discriminatory because it disadvantaged “[t]he

majority of wineries” based out-of-state. 553 F.3d at

433 (emphasis added). Under the Fifth Circuit’s rule,

by contrast, the fact that §22.16 has the effect of

“barring nearly all out-of-state companies with the

scale and capabilities necessary to serve the Texas

retail liquor market,” Pet.App.50 (emphasis added), is

irrelevant simply because of the qualifier “nearly.”

The conflict between how the Fifth Circuit and other

10

circuits analyze facially neutral laws that distinguish

on the basis of “size and form,” State.BIO.4, thus could

not be more stark.

III. This Case Is An Excellent Vehicle To Resolve

This Square Circuit Split.

Unable to deny the clear conflict with Tennessee

Wine and decisions from other circuits, Texas urges

the Court to stay its hand because this case is

“interlocutory.” But there is nothing interlocutory

about the Fifth Circuit’s resolution of Walmart’s

discriminatory-effects claim: The court expressly held

that “the ban does not have a discriminatory effect on

interstate commerce.” Pet.App.57. To be sure, the

court remanded Walmart’s separate discriminatorypurpose claim. Pet.App.70. But unlike in Abbott v.

Veasey, 137 S. Ct. 612 (2017) (mem.), where Texas was

asking this Court to consider the same discriminatorypurpose claim the lower courts had not yet resolved,

Walmart asks this Court to consider its effects claim.

Nor would it make any sense to wait until the

purpose claim has been resolved, for “the general flaw”

the Fifth Circuit identified “throughout the district

court’s findings” on that claim was the court’s repeated

reliance on its (undisturbed) finding that §22.16 “had

the ‘effect of barring nearly all out-of-state companies

with the scale and capabilities necessary to serve the

Texas retail liquor market.’” Pet.App.50-51. In the

Fifth Circuit’s view, “[t]hat finding does not answer

the relevant question” because that effect does not

count as discriminatory. Pet.App.50. Thus, even

setting aside the peculiar dynamic of litigating a

stand-alone discriminatory-purpose challenge to a

statute declared to have no discriminatory effect,

11

awaiting resolution of the purpose claim would

accomplish nothing but years of wasted judicial and

litigant resources if the Fifth Circuit’s reading of

Exxon is wrong. 3

Texas complains that the lower courts did not

resolve whether §22.16 could survive Tennessee Wine’s

“predominant effect” test. State.BIO.16. But they did

not do so because the Fifth Circuit concluded that

§22.16 does not have a discriminatory effect at all.

Pet.App.50. This Court need not know how §22.16

would fare at “the second step” of the analysis,

State.BIO.16, to decide whether the Fifth Circuit

erred by upholding it at the first. At any rate, Texas’s

arguments are virtually identical to the arguments

this Court rejected in Tennessee Wine. Compare

State.BIO.17 (touting §22.16’s “protective effects” of

“limiting the availability of liquor and reducing liquor

consumption”), with Reply.Br.16, Tennessee Wine

(U.S. filed Jan. 4, 2019) (“durational-residency

requirements advance the core state interest of

promoting temperance” because “they make it harder

to sell—and thus purchase—alcohol”). And no matter

what facts Texas mustered to support its dubious

reducing-consumption claim, it too is ultimately

doomed by the reality that “there are obvious

alternatives that better serve that goal without

Texas protests that the Fifth Circuit identified other

purported “errors” in the district court’s purpose analysis.

State.BIO.9, 13. But to the extent that Texas is arguing that

Walmart’s purpose claim is unlikely to succeed, it would make

even less sense to force another round of lower-court proceedings

before resolving a constitutional question that has been finally

resolved and, by the State’s own telling, is likely to persist.

3

12

discriminating

against”

out-of-state

Tennessee Wine, 139 S. Ct. at 2476.

entities.

In all events, this Court could always remand if it

prefers not to answer the “predominant effect”

question in the first instance. That course has far

more to recommend it than leaving in place a legal test

that forecloses discriminatory-effects challenges to all

manner of facially neutral laws, not just to those

regulating the alcohol industry. See, e.g., Ford, 264

F.3d at 500-01 (car manufacturers); Allstate Ins. Co. v.

Abbott, 495 F.3d 151 (5th Cir. 2007) (insurance

companies). That test is incompatible with this

Court’s cases, with decision from other circuits, and

with any sensible understanding of the antidiscrimination principle Tennessee Wine affirmed.

The Court should not allow it to continue to foreclose

challenges to laws as blatantly protectionist as Texas’s

public-corporation ban.

13

CONCLUSION

This Court should grant the petition.

Respectfully submitted,

ERIN E. MURPHY

Counsel of Record

MATTHEW D. ROWEN

KIRKLAND & ELLIS LLP

1301 Pennsylvania Ave., NW

Washington, DC 20004

(202) 389-5000

erin.murphy@kirkland.com

Counsel for Petitioners

November 4, 2020