Amicus Curiae Brief — Tenn. Wine & Spirits Retailers Ass'n v. Byrd, 139 S. Ct. 52 (2018) (No. 18-96)

In the

Supreme Court of the United States

TENNESSEE WINE AND SPIRITS

RETAILERS ASSOCIATION,

Petitioner,

Vv.

ZACKARY W. BLAIR, ET AL,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit

BRIEF OF 81 WINE CONSUMERS

AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS

James A. Tanford

Counsel of Record

Robert D. Epstein

Epstein Cohen Seif

& Porter LLP

50 S. Meridian St. #505

Indianapolis, IN 46204

(812) 332-4966

tanford@indiana.edu

Attorneys for Amici Curiae

TABLE OF CONTENTS

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

1. INTEREST OF AMICI CURIAE ............. 1

Il. SUMMARY OF ARGUMENT............... 4

EE s 56k duc cae bebe dksvéescdevds 7

A. State laws prohibiting buying wine from

out-of-state retailers harm consumers. ........ 7

B. There is inconsistency in the lower couris

about how the Commerce Clause should

apply to wine retailer regulations............ 10

C. Discrimination favoring in-state over

out-of-state wine retailers violates the

Commerce Clause and is not saved by

the Twenty-first Amendment. .............. 17

Pe ED 00 iis de chadeeeten'vece seen 25

Te ee a ee A-1

A. Names of individual amici. ............. A-1

B. Other contributors to cost of brief ......... A-3

il

TABLE OF AUTHORITIES

CASES

Arkansas Game & Fish Com'n v. U.S.,

PS coco ces sesevabeosiees os 22, 24

Arnold’s Wines v. Boyle,

571 F.3d 186 (2d Cir. 2009) ...............---. 13

Assoc. Indus. of Mo. v. Lohman,

a ceedaens 20

Bacchus Imports Lid. v. Dias,

NS incu vecsenencacedenes 11, 21

Best & Co. v. Maxwell,

ioe cb enee eneaceas 20

Bridenbaugh v. Freeman- Wilson,

Se Be ND En co scbcccvccccsces 8

Brown—Forman Dist. Corp. v. N.Y. State

Liq. Auth., 476 U.S.573 (1986). ........ 10, 11, 18

Byrd v. Tenn. Wine & Spirits Retailers

Assoc., 883 F.3d 608 (6th Cir. 2018). .......... 15

C & A Carbone, Inc. v. Town of Clarkstown,

TR a 25

Capital Cities Cable, Inc. v. Crisp,

es di awecesn6e6b08s 00068 14

Cooper v. Texas Alcoholic Beverage Com'n,

820 F.3d 730 (5th Cir. 2016). ................ 12

Dept. of Revenue of Ky. v. Davis,

oe ip ebcccs tcceweus 11

ill

Direct Mktg. Ass'n v. Brohl,

136 S.Ct. 1124 (2015)................4-.. 17, 18

Freeman v Corzine,

629 F.3d 146 (3d Cir. 2010) ................... 9

Gibbons v. Ogden,

rr 20

Granholm v. Heald,

OG ee EI s o ccscnccccccevcooce passim

Halliburton Oil Well Cementing Co. v. Reily,

ES ne wed heedeseddeeecsces 20

Healy v. Beer Inst.,

re 11, 20, 21

H.P. Hood & Sons, Inc. v. DuMond,

336 U.S. 525 (1949). ......... Pie ted-eneneee's 3

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

ee ee Es cecccnsccccsccvoes 5,11, 14

Lebamoff Enterpr., Inc. v. Rauner,

__ F.3d__, 2018 WL 6191351 (7th Cir. 2018). passim

Lebamoff Enterpr., Inc. v. Snyder,

__ F. Supp. 3d __, 2018 WL 4679612

CT, vec cdoucesssaceeewe 13, 16, 17

North Dakota v. U.S.,

496 U.S. 423 (1990)... eee eee 22, 24

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

Pe ENS cdcdeccvoccecenectdes 11, 18

Pike v. Bruce Church, Inc.,

Se es ES cn cecnacccccecccceseses 25

iv

Sarasota Wine Mkt. v. Parsons,

CP 6 db 665.004.0060 c0 es 8s 17

Siesta Village Mkt., LLC v. Granholm,

596 F. Supp.2d 1035 (E.D. Mich. 2008).......... 9

South Dakota v. Wayfair, Inc.,

SPs Cn bc oc ccdcecvccccuces 4,17, 24

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

Alcohol & Tobacco Control,

731 F.3d 799 (8th Cir. 2013). ............. 14, 15

Wine Country Gift Baskets.com v. Steen,

612 F.3d S00 (Gth Cir. 2010)... ccc cece 15

CONSTITUTIONAL and STATUTORY

PROVISIONS

Ee Ga, MDG, Billion 6 ccccncvvecess passim

Ole Ge... Ot, B BE Ge Bisccccccesevss passim

Mich. Comp.L. §436.1537(1) (2004) ............ 19

OTHER AUTHORITIES

Eric Asimov, Wines are No Longer Free to

Travel Across State Lines, N.Y. Times

Ge See Se a6 cebu chases eeeetese ness 1,9

Dept. of Commerce, U.S. Census Bureau

News, Quarterly Retail E-Commerce Sales:

4th Quarter 2017 (CB18—21, Feb. 16, 2018)... .. 18

Free the Grapes, Issue Summary 4 2 (2018)

https://freethegrapes.org/issue-summary/...... . . i)

v

FTC, Possible Anticompetitive Barriers to

E-Commerce: Wine (2003) . ............55-. 7,10

K&L Wine Merchants, Shipping, https://

www. klwines.com/Shipping/StateLegality . ..... 2

H. Lee Murphy, Interstate sales ban hurts

local wine merchants, Crain’s Chicago

Business (Nov. 10. 2017). ............65-5555: i)

National Association of Wine Retailers, Liquor

sumers from Buying More Than 200,000 Wines

(2018), https://nawr.org/press- releases/ .. .. . . 8, 10

National Association of Wine Retailers,

Michigan Wine Lovers Have No Access to 89%

of Wines (2017), https://nawr.org/commentary/. .. 8

PricewaterhouseCoopers, Understanding How

U.S. Online Shoppers Are Reshaping the Retail

Experience 3 (Mar. 2012). ...........---++55- 18

1

I. INTEREST OF AMICI CURIAE '

A woman in Troy, Michigan, asks her local wine

shop if they have a 1998 Chateau Margaux to

celebrate a twentieth anniversary, but is told they do

not carry anything that old. A man in Moline, Illinois,

who loves chardonnay, tries to order some highly

rated Kistler Chardonnay directly from the winery,

but is told it has all been allocated and he should try

again next year. Members of a wine tasting club in

Bloomington, Indiana, want to taste recent red wines

from Argentina, but can find only four examples in

town. The wines these consumers are searching for

are readily available from out-of-state sources and

sold over the internet, but each lives in one of the 36

states that imposes a residency requirement on wine

retailer licenses that prevents consumers from buying

from retailers in other states.’

' Pursuant to Supreme Court Rule 37.6, counsel! for

amici curiae state that no counsel for a party awthored this

brief in whole or in part or made a monetary contribution.

Every individual who made a contribution toward the

preparation and submission of the brief is listed in the

Appendix. Pursuant to Supreme Court Rule 37.2, counsel

for amici curiae state that Petitioner and Respondents have

all entered blanket consents on the docket to the filing of

amicus curiae briefs.

2 Fourteen states allow some kinds of internet sales.

Eric Asimov, Wines are No Longer Free to Travel Across

State Lines, N.Y. Times (Oct. 23, 2017) (https//www myt

mes.com/2017/10/23/dining/drinks/interstate-wine- sales

2

This Amicus Curiae Brief is written on behalf of

81 wine consumers like these.* They live in twenty-

five different states. They share a common frustration

that they cannot find the wines they want locally and

are prevented from buying them from out-of-state

sellers because of laws like Tennessee's residency rule

that protect local retailers from out-of-state compe-

tition. The problem is especially serious in smaller

and grocery stores may stock only a few hundred out

of the hundreds of thousands of wines carried by out-

of-state retailers and sold online.‘

The case before the Court does not directly

concern the ability of consumers to buy wine from out.

-shipping-laws.html?_r=0). However, because of regulatory

complexity, not all internet retailers will ship to all

fourteen. E.g., K&L Wine Merchartits, one of the biggest,

will ship only to ten states. See https//www.

klwines.com/Shipping/StateLegality. (all web sites last

visited Nov. 29, 2018).

° The names of al) amici are listed in the Appendix and

include Ejeanor and Ray Heald, lead plaintiffs in Granholm

v. Heald, 544 U.S. 460 (2005). Another Amicus brief has

been filed by an organization called Consumer Action that

purports to represent the interests of consumers. It argues

that consumers favor restrictive state laws that ban

interstate competition, reduce supply and raise prices. Its

claim cannot be taken seriously..

* A consumer can go to wine-searcher.com and quickly

find internet retailers with a wine in stock, ready to ship.

3

of-state and internet retailers; it concerns Tennessee's

residency requirement for operating a bricks-end-

mortar wine store. However, the implications for

internet sales are obvious and profound. If the Court

were to rule, as the Petitioner has suggested, that the

Twenty-first Amendment overrides the Commerce

Clause and permits states to enforce protectionist and

discriminatory residency rules when regulating

bricks-and-mortar retailers, it would follow that states

may also enforce discriminatory residency rules when

regulating internet retailers. They could expand the

right of their own retailers to sell wine via web sites

and ship to consumers’ homes, while prohibiting out-

of-state retailers from doing so. Consumers would

remain limited to the wine stocked by in-state sellers,

no matter how limited or expensive their selection,

and would be cut off from the more robust online wine

market. The promise of the Commerce Clause that

“every consumer may look to the free competition from

every producing area in the Nation to protect him

from exploitation by any” would become a hollow one.

H_P. Hood & Sons, Inc. v. DuMond, 336 U.S. 525, 539

(1949).

Despite the fact that this case concerns retail sales

of consumer goods, no consumers are parties to it. The

parties are competing business interests fighting over

the right to sell wine in Tennessee. But, how the

Court resolves that dispute will obviously affect wine

consumers, either limiting or expanding their access

to the broad variety of wines sold by national chains,

out-of-state sellers, and internet retailers. Kighty-one

wine ccnsumers have therefore submitted this brief to

4

urge the Court to affirm the Sixth Circuit’s decision

that Tennessee’s residency rule, which prevents out-

of-state entities from obtaining retail liquor licenses,

is unconstitutional, and to declare unambiguously

that the Twenty-first Amendment does not overrule

the nondiscrimination principle of the Commerce

Clause when state laws are regulating retail sales.

Il. SUMMARY OF ARGUMENT

As this Court observed in South Dakota v.

Wayfair, Inc., 138 S.Ct. 2080, 2095-97 (2018), the

internet has transformed the national economy and

redefined interstate commerce in ways that must be

taken into account in implementing the Commerce

Clause. A consumer's favorite store is now just as

likely to be an online merchant located at the other

end of the country as it is a bricks-and-mortar merch-

ant located downtown. Most Americans shop online,

which gives them access to a greater variety of goods

than are available locally. The internet has fulfilled

the Founders’ vision of a national economic union.

Among the goods sold online is wine. There are

hundreds of thousands of wines approved for sale in

the U.S., but only a fraction is available in local

grocery stores and wine shops. If a consumer wants a

brand or type of wine not carried locally, the consumer

can usually find it for sale from an out-of-state retailer

over the internet. The only problem is that many

states do not allow such transactions. They utilize

various kinds of residency rules to deny licenses to

out-of-state retailers and limit sales to merchants

physically located in the state. This benefits in-state

5

businesses by protecting them from competition, but

at the expense of consumers.

The case before the Court does not concern

internet wine sales directly. It involves a different

kind of residency rule that prevents out-of-state

entities from obtaining retail licenses in Tennessee.

However, the implication for consumer access to the

internet marketplace is obvious. If the Court were to

rule that the Twenty-first Amendment overrides the

Commerce Clause and permits states to deny licenses

to nonresidents for bricks-and-mor'ar retail stores,

this precedent would also give states the authority to

deny licenses to online retailers based on residency.

In-state businesses could take internet orders and

make home deliveries; those located out of state could

not. This would cut off consumer access to the most

important national marketplace and stand the Com.

merce Clause on its head.

Since 1964, this Court has consistently said that

the Twenty-first Amendment does not override the

Commerce Clause when alcoholic beverages are

involved. Hostetter v. Idlewild Bon Voyage Liquor

Corp., 377 U.S. 324, 332 (1964). Most recently in

Granholm v. Heald, 544 U.S. 460, 487-89 (21005), the

Court said explicitly that “state regulation, of alcoho!

is limited by the nondiscrimination principle of the

Commerce Clause,” and discriminatory laws are “not

saved by the Twenty-first Amendment.” A residency

rule that benefits local interests and prevents compe-

tition from those outside the state is a classic type of

discrimination forbidden by the Commerce Clause.

6

Despite this Court’s consistent precedents, some

lower courts have held to the contrary, that the

nondiscrimination principle does not apply to

residency rules for wine retailers. Their reasons have

varied. Some read Granholm as saying that the non-

discrimination principle applies only to producers and

not to retailers; others that the nondiscrimination

principle does not apply to laws regulating the basic

operation of the three-tier system. These strained

interpretations of Granholm are based on dicta and

phrases taken out of context, and should be rejected,

as the Seventh Circuit did in Lebamoff Enterpr., Inc.

v. Rauner, F.3d ___, 2018 WL 6191351 (7th Cir.

2018). This Court’s prior decisions and its discussion

of the history and meaning of the Twenty-first

Amendment lead to only one conclusion: Whatever

power the Amendment gave states to impose even-

handed burdens on interstate commerce in alcohol, it

did not give them the authority to enact discrim-

inatory laws. A state does not have to authorize the

sale of wine by remote ordering and home delivery,

but if it does -- and many states are beginning to -- it

must allow out-of-state retailers to participate.

7

Ill. ARGUMENT

A. State laws prohibiting buying wine from

out-of-state retailers harm consumers

In 2003, the FTC issued a report called Possible

Anticompetitive Barriers to E-Commerce: Wine.° The

FTC concluded that state laws prohibiting buying

wine on the internet from out-of-state sellers harmed

consumers by limiting choices, reducing supply and

increasing prices. FTC Report at 3-4.° Even 15 years

ago, the FTC took note that the internet was “trans-

forming the nation's economy [and letting] consumers

purchase an unprecedented array of goods and

services from the convenience of their homes.” /d. at

1. Instead of a few local wine stores with limited

inventories, the internet gave consumers access to

“thousands of goods” from online retailers. Jd. The

problem was that many states prohibited their

citizens from buying wine over the internet and

restricted them to whatever might be available

locally.

That might not seem like a significant problem at

first glance. There are thousands of retail wine outlets

in every state, from big-box stores like Wal-Mart and

° https://www .ftc. gov/sites/default/files/documents/

reports/possible-anticompetitive-barriers-e-com merce-wi

ne/winereport2_0.pdf (last visited Nov. 29, 2018).

“The FTC report was cited heavily by this Court in

Granholm v. Heald, 544 U.S. 460, 466, 467, 468, 490, 491,

492 (2005).

8

Costco, to grocery chains like Kroger and Safeway, to

package stores, fine wine shops, drug stores, and

convenience stores. But wine availability is not a

question of quantity -- it is a matter of variety and

selection. Some wines are available everywhere, like

the Gallo brands Apothic and Barefoot that sell for

under $10. Others, like a $350 Penfolds Grange, may

be available only at two or three outlets in the entire

country. Wines are not interchangeable. See Briden-

baugh v. Freeman- Wilson 227 F.3d 848, 849 (7th Cir.

2000) (inability to obtain a special wine is a palpable

injury).

Jocal retailers carry only a small percentage of

the wine that has been approved for sale by the

Alcohol and Tobacco Tax and Trade Bureau (TTB).

The National Association of Wine Retailers (NAWR)

calculated that the TTB approved 405,513 wines from

2014-2017, but only 44,233 wines were on sale in

Michigan and 7,438 in New Hampshire.’ That means

a majority of wines are not actually available to most

consumers. There are several reasons for this.

a “ome producers cannot find a wholesaler,

especially those making small-production wines or

trying to introduce new products. See Granholm v.

Heald, 544 U.S. at 467-68.

’ See NAWR, Michigan Wine Lovers Have No Access to

89% of Wines (2017) (https://nawr.org/commentary/);

NAWR, Liquor Commission Banning New Hampshire

Consumers from Buying More Than 200,000 Wines (2018)

(https://nawr.org/press- releases/) (sites last visited Dec. 3,

2018).

9

b. Collectible, rare, and uncommon wines are sold

primarily by a small number of specialty wine

stores and auction houses in New York and other

major cities.. Freeman v Corzine, 629 F.3d 146,

154 (3d Cir. 2010); H. Lee Murphy, Interstate sales

ban hurts local wine merchants, Crain’s Chicago

Business (Nov. 10. 2017)*

c. A popular wine may sell out at local stores that

do not carry deep inventories, especially if it gets

a good review in a national wine magazine. Siesta

Village Mkt., LLC v. Granholm, 596 F.Supp.2d

1035, 1037 (E.D. Mich. 2008).

d. Consumers may have difficulty getting to a

store with a large wine inventory if they live in

small towns or rural areas, Eric Asimov, supra

n.2, or if they are elderly or disabled.

If a consumer cannot find a particular wine at a

local retailer, sometimes the consumer can obtain it

directly from the winery. Forty-five states now allow

some form of direct shipping from wineries. Free the

Grapes, Issue Summary 4 2 (2018).° However, this

option is only available for domestic wine, and more

than two-thirds of the wine approved for sale by the

TTB is imported from other countries. Foreign wine

cannot be ordered directly from the winery and is

* An online edition is at https://www.chicagobusiness.

com/article/20171110/ISSUE01 (visited Dec. 3, 2018).

* https://freethegrapes.org/issue-summary/ (last visited

Nov. 29, 2018).

10

available to consumers only from retailers. NAWR,

Liquor Commission Banning New Hampshire

Consumers from Buying More Than 200,000 Wines,

supra.. Ordering directly from the winery is also

feasible only if the winery has a retail operation

(many do not), has not sold out, and has not already

allocated the wine to other purchasers."°

Lack of local availability of wine is the inevitable

by-product of a three-tier system in which only in-

state entities may participate and interstate compe-

tition is prohibited. FTC Report at 3-4. If Tennessee

will not issue retail licenses to out-of-state entities,

then consumers are limited to whatever inventory

their local retailers with limited shelf space decide to

stock. Consumers end up cut off from 80% or more of

the wines being sold elsewhere in the country. This is

significant, because the “critical consideration” in

Commerce Clause cases is “the overall effect of the

statute on both local and interstate activity.”

Brown-Forman Dist. Corp. v. N.Y. State Lig. Auth.,

476 U.S.573, 578-79 (1986).

B. There is inconsistency in the lower courts

about how the Commerce Clause should apply

to wine retailer regulations

This Court has long held that the Commerce

Clause, U.S. CONST., art. I, § 8, cl. 3, denies states the

power to discriminate against out-of-state goods

moving in interstate commerce. Or. Waste Sys., Inc. v.

© For an explanation of allocation, see http://www.

kistlervineyards.com/ wines/how-to-acquire-kistler-wines/

1]

Dep't of Envtl. Quality, 511 U.S. 93, 98 (1994). This

principle is driven by concerns about economic protec-

tionism, i.e, regulations that restrict competition from

out-of-state sellers and provide economic benefits to

in-state businesses. Dept. of Revenue of Ky. v. Davis,

553 U.S. 328, 337—38 (2008). Such trade barriers are

inherently destructive of national economic unity.

Therefore, if a law discriminates against interstate

commerce on its face, purposefully, or in practical

effect, courts apply strict scrutiny and usually strike

it down. Brown—Forman Dist. Corp. v. N.Y. State Lig.

Auth., 476 U.S. at 578-79. A discriminatory law may

only be saved if the state proves that the difference in

treatment of in-state and out-of-state entities ad-

vances a legitimate local purpose that cannot ade-

quately be served by less discriminatory alternatives.

The standards for such justification are exacting and

require concrete record evidence. Granholm v. Heald,

466 U.S. at 492-93

In Hostetter v. Idlewild Bon Voyage Liquor Corp.,

this Court said that “[t]o 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, ... patently bizarre and ...

demonstrably incorrect.” 377 U.S. at 331-32. In

Bacchus Imports Ltd. v. Dias, this Court held that the

nondiscrimination principle applied to state liquor

laws, prohibited economic protectionism, and was not

overridden by the Twenty-first Amendment. 468 U.S.

263, 276 (1984). In Healy v. Beer Inst., Justice Scalia

wrote that a liquor law's discriminatory character

12

eliminates whatever immunity might otherwise be

afforded by the Amendment. 491 U.S. 324, 344 (1989)

(Scalia, J., concurring). In Granholm v. Heald, the

Court built upon Hostetter, Bacchus and Healy, and

held that “state regulation of alcohol is limited by the

nondiscrimination principle of the Commerce Clause,”

544 U.S. at 487, and “not saved by the Twenty-first

Amendment.” /d. at 489. Despite this seemingly clear

language, lower federal courts have been inconsistent

when asked to apply the nondiscrimination principle

to state laws regulating wine retailers in ways that

favor local interests. See Lebamoff Enterpr., Inc. v.

Rauner, _ F.3d __, 2018 WL 6191351 at *4

(summarizing different interpretations).

Some courts have followed the quartet of Supreme

Court cases and held that state laws regulating liquor

retailers are limited by the nondiscrimination

principle of the Commerce Clause just like the law

regulating liquor taxes in Bacchus, winery direct

shipping in Granholm, and beer prices that could be

charged by shippers in Healy. The leading circuit

court case is Lebamoff Enterpr., Inc. v. Rauner, __

F.3d __, 2018 WL 6191351 at *3-5. The Seventh

Circuit in a thorough opinion by Chief Judge Wood

held that the nondiscrimination principle applied to

state laws allowing in-state but not out-of-state

retailers to ship wine to Illinois consumers and

declared the Illinois law unconstitutional. In Cooper

v. Texas Alcoholic Beverage Comm'n, 820 F.3d 730,

742-43 (5th Cir. 2016) ), the Fifth Circuit applied the

nondiscrimination principle and struck down a dura-

tional residency rule for retail licenses. In Lebamoff

13

Enterpr., Inc. v. Snyder, __ F. Supp. 3d __, 2018 WL

4679612 at *4-5 (E.D. Mich. 2018), the district court

found the language in Granholm clear and struck

down a Michigan law that allowed in-state retailers to

sell wine over the internet and ship or deliver it to

consumers’ homes, but prohibited out-of-state retailers

from doing so.

Other courts have not extended the nondiscrim-

ination principle to laws regulating retailers. In

Arnold’s Wines v. Boyle, 571 F.3d 185, 189-91 (2d Cir.

2009), a panel of the Second Circuit refused to apply

the nondiscrimination principle to a New York law

that gave in-state wine retailers exclusive rights to

make home deliveries.'' It said that laws regulating

retailers were immune from challenge under the

Commerce Clause and criticized this Court’s decision

in Granholm as “judicial activism.” 571 F.3d at 197-98

(Calabresi, concurring). The Second Circuit seized on

two phrases in Granholm. First, that state laws are

“protected under the Twenty-first Amendment when

they treat liquor produced out of state the same as its

domestic equivalent.” 544 U.S. at 489. It read this not

as a restatement of the nondiscrimination principle

but as a substantive limit upon it, i.e., that principle

only applied to producers. Contra Lebamoff Enterpr.,

Inc. v. Rauner, _ F.3d ___, 2018 WL 6191351 at *4

" The law at issue did not actually discriminate

against interstate wine shippers because New York

retailers were also banned from using common carriers to

ship wine and had to deliver in their own vehicles. 571 F.3d

at 188.

14

(Granholm did not draw a line between producers and

retailers because the case before did not present that

question). Second, that “[wje have previously recog-

nized that the three-tier system itself is ‘unquestion-

ably legitimate.” 544 U.S. at 489. The Second Circuit

read this phrase not just as a restatement of the

principle that the Twenty-first Amendment gives a

state broad power to regulate alcohol distribution in

even-handed ways, but as a substantive extension of

that power to immunize even discriminatory laws

from Commerce Clause scrutiny if they regulated the

retail tier. In So. Wine & Spirits of Am., Inc. v. Div. of

Alcohol & Tobacco Control, 731 F.3d 799, 809-10 (8th

Cir. 2013), the Eighth Circuit went further and said

that these two phrases in Granholm amounted to a

“bright line between the producer tier and the rest of

the system.” It upheld a residency rule for liquor

wholesaler licensees.

The Fifth and Sixth Circuits have sought a middle

ground in which some state retailer laws are subject

to the nondiscrimination principle and others are rot,

depending on whether they regulate an “inherent”

aspect of a state’s three-tier system. They derive this

from language in two cases that did not involve a state

law that discriminated against interstate commerce.

Hostetter v. Idlewild Bon Voyage Liquor Corp., 377

U.S. at 332 says that “the Twenty-first Amendment

and the Commerce Clause are parts of the same

Constitution [and] each must be considered in light of

the other and in the context of the issues and interests

at stake in any concrete case." Capital Cities Cable,

Inc. v. Crisp, 467 U.S. 691, 714 (1984), says that the

15

issue in each case is “whether the interests implicated

by a state regulation are so closely related to the

powers reserved by the Twenty-first Amendment that

the regulation may prevail, notwithstanding that its

requirements directly conflict with express federal

policies.”

In Wine Country Gift Baskets.com v. Steen, 612

F.3d 809, 819 (5th Cir. 2010), the Fifth Circuit defined

the “inherent” aspects of retailing as retailers doing

what retailers do, a not very helpful analytical tool.

They upheld a law allowing in-state but not out-of-

state retailers to take remote orders and ship wine to

consumers in the immediate area of the store because

these sales were “being made to proximate consumers,

not those distant to the store,” even though they no

longer have to enter the store. It called these

“conceptual” local sales. In Byrd v. Tenn. Wine &

Spirits Retailers Assoc., 883 F.3d 608, 623 (6th Cir.

2018), the case now before the Court, the Sixth Circuit

struck down a 2-year durational residency rule

because where a licensee lived prior to becoming a

licensee was irrelevant (not inherent to) to a three-tier

system.

This middle-ground position has been criticized as

unworkable by the Seventh and Eighth Circuits. In

So. Wine & Spirits of Am., Inc. v. Div. of Alcohol &

Tobacco Control, 731 F.3d at 810, the Eighth Circuit

said that ‘[t]here is no archetypal three-tier system

from which the ‘integral’ or ‘inherent’ elements of that

system may be gleaned.” It noted that “Granholm

itself involved two different versions of that system

from New York and Michigan.” The Seventh Circuit

16

agreed, noting that Illinois had 30 categories of liquor

licenses, including ones for airplanes. A legal standard

that allowed a state to discriminate with respect to

some licenses whose operations are inherent to the

three-tier system, but but not others would be un-

workable. Lebamoff Enterpr., Inc. v. Rauner, _ ¥ 3d

__, 2018 WL 6191351 at *5. The district court in

Lebamoff Enterpr., Inc. v. Snyder, _ ¥. Supp. 3d __,

2018 WL 4679612 at *3 (E.D. Mich. 2018) similarly

found the idea unworkable, noting that Michigan had

“departed from a hermetically-sealed three-tier sys-

tem when it chose to permit its [own] wine retailers to

join the digital marketplace and engage in direct

shipping to customers .. in a manner above-

and-beyond that of a traditional three-tier system.”

Indeed, it is absurd to suggest that states still

maintain a traditional three-tier system where alcohol

sales are exclusively channeled through a wholesaler

and retailer. Whatever may have once been the case,

alcohol is no longer sold just at liquor stores to walk-in

customers, but from hotel minibars, winery tasting

rooms, brewpubs, craft distillers, grocery stores,

farmers’ markets, souvenir shops, airplanes, ships,

football stadiums, wine clubs, and over the internet

from out-of-state wineries.

There are at least three cases pending in the lower

courts in which consumers complain that state laws

against interstate commerce. In each, the state allows

in-state retailers to take remote orders by internet or

telephone and ship wine to consumers, but will not

give out-of-state businesses the opportunity to apply

17

for any kind of similar shipping license. Consumers

are effectively foreclosed from the national wine

marketplace. Lebamoff Enterpr., Inc. v. Snyder, _ F.

Supp. 3d __, 2018 WL 4679612 at *4-5 (appeal

pending); Lebamoff Enterpr., Inc. v. Rauner, _ F.3d

___, 2018 WL 6191351 (remanded to N.D. Ill); and

Sarasota Wine Mkt. v. Parsons, 4:17-cv-02792 (E.D.

Mo.) (motion to dismiss pending). In each case, the

parties are fighting over whether the nondiscrim-

ination principle applies to laws regulating the retail

tier. This Court needs to clarify the extent to which

state liquor laws regulating retailers are constrained

by the nondiscrimination principle.

C. Discrimination favoring in-state over out-

of-state wine retailers violates the Commerce

Clause and is not saved by the Twenty-first

Amendment

This case concerns discriminatory residency rules

for traditional bricks-and-mortar wine retailers, but it

will set the precedent for internet retailers as well.

This Court has noted that there is no longer a

meaningful distinction between them. “Modern

e-commerce does not align analytically with [old rules

based on] physical presence,” so the implementation

of Commerce Clause doctrines today must accom-

modate the “far-reaching systemic and structural

changes ‘in the economy” and “many other societal

dimensions” caused by the Cyber Age. South Dakota

v. Wayfair, Inc., 138 8.Ct. 2080, 2095, 2097 (2018). “A

visit by a consumer to a favorite store is now an easy

click away, regardless of where the physical storefront

is located.” Direct Mktg. Ass'n v. Brohl, 135 S.Ct. 1124,

18

1135 (2015) (Kennedy, J., concurring). The Internet

has changed the very structure of the retail

marketplace. Last year, e-commerce retail sales were

estimated at $453.5 billion. Dept. of Commerce, U_S.

Census Bureau News, Quarterly Retail E—Con.merce

Sales: 4th Quarter 2017 (CB18—21, Feb. 16, 2018),

cited in S.D. v. Wayfair, Inc., 138 S.Ct at 2097. Nearly

70% of Americans are shopping online. Price-

waterhouseCoopers, Understanding How U.S. Online

Shoppers Are Reshaping the Retail Experience 3 (Mar.

2012), cited in Direct Mktg. Ass'n v. Brohl, 135 S.Ct. at

135. If the Court were to decide that the nondis-

crimination principle of the Commerce Clause does

not apply to state regulation of liquor retailers, it

would have a profound effect on (and effectively

eliminate) internet sales for most consumers, because

most internet retailers will be located in states other

than the one in which a consumer resides. This would

stand the Commerce Clause on its head.

The Commerce Clause has long been understood

to deny states the power to discriminate against the

flow of goods moving in interstate commerce. Or.

Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. at

98. Regulatory measures that benefit in-state

economic interests and burden their out-of-state

competitors are virtually per se invalid whether the

discrimination is purposeful or a matter of practical

effect. Brown-Forman Dist. Corp. v. N.Y. State Liq.

Auth., 476 U.S. at 578-79. A state can justify dis-

crimination only by proving that the difference in

treatment of in-state and out-of-state entities

advances a legitimate local purpose that cannot

19

adequately be served by less discriminatory alter-

natives. Granholm v. Heald, 466 U.S. at 492-93. Given

that forty-five states already allow other kinds of

internet ordering and direct-to-consumer shipping

(e.g., from wineries), it is hard to imagine that states

will be able to meet this burden.

In Granholm v. Heald, this Court held that the

nondiscrimination principle of the Commerce Clause

applied to state liquor laws. It invalidated laws from

Michigan and New York that allowed in-state

wineries to sell and ship directly to consumers, but

prohibited out-of-state wineries from doing so.

Petitioner argues that the Granholm decision is not

controlling in this case because it only applies to laws

regulating wine producers and not to wine retailers.

This argument is factually false. The wineries

involved in the Granholm case were not only wine

producers, they were also wine retailers. The

Michigan statute at issue provided that “[t}he follow-

ing classes of vendors may sell alcoholic liquor at

retail .... (0) Wine maker where wine may be sold by

direct shipment at retail on the licensed premises.

Mich. Comp.L. §436.1537(1) (2004) (emphasis sup-

plied). The discrimination between in-state and out-of-

state wineries concerned the wineries’ retail

operations, not their production. In-state wineries

could sell at retail and ship to consumers but out-of-

state wineries could not. Granholm is direct precedent

that the nondiscrimination principle applies to laws

regulating wine retailers.

To the extent that Petitioner is contending that

the Commerce Clause in general gives greater

20

protection to producers than retailers, the argument

is without support. The case that first articulated the

nondiscrimination principle 194 years ago did not

involve producers, but boat companies shipping goods

and passengers across the Hudson River. Gibbons v.

Ogden, 22 U.S. 1, 231 (1824) (Johnson, J., concurring).

Retailing is the heart of commerce, and this Court has

routinely applied Commerce Clause doctrine to retail

transactions. E.g., Assoc. Indus. of Mo. v. Lohman, 511

U.S. 641 (1994) (mail-order sales); Halliburton Oil

Well Cementing Co. v. Reily, 373 U.S. 64, 73-74 (1963)

(retail sale of used oil well equip-ment); Best & Co. v.

Maxwell, 311 U.S. 454 (1940) (retail sales). Not a

single prior Supreme Court case has said that states

are more free to discriminate against out-of-state

retailers than out-of-state producers in any context.'”

Petitioner also asserts that the Twenty-first

Amendment changes (and weakens) how the

nondiscrimination principle applies to state liquor

laws and allows Tennessee to discriminate among

retailers based on residency. It contends that the

Amendment gives states broad power to regulate the

retail sale of wine within their borders, up to and

including the power to discriminate against out-of-

state interests. Granholm rejected this argument..The

Court held that “discrimination is neither authorized

nor permitted by the Twenty-first Amendment,” 544

U.S. at 466, which “does not allow States to regulate

" See also Healy v. Beer Inst., 491 U.S. at 327-31

(nondiscrimination principle applies to both producers and

shippers of beer).

21

the direct shipment of wine on terms that

discriminate.” 544 U.S. at 476. It said that “state

regulation of alcohol is limited by the

nondiscrimination principle of the Commerce Clause,”

544 U.S. at 487, that “discrimination is contrary to the

Commerce Clause and is not saved by the Twenty-first

Amendment,” 544 U.S. at 489, and that “[i]f a State

chooses to allow direct shipment of wine, it must do so

on evenhanded terms.” 544 U.S. at 493.'° The Court

cited its prior holding in Bacchus Imports, Lid. v.

Dias, that the Twenty-first Amendment did not

“empower States to favor local liquor industries by

erecting barriers to competition,” 468 U.S. at 276, and

said in Granholm that this precedent “forecloses any

contention that § 2 of the Twenty-first Amendment

immunizes discriminatory direct-shipment laws from

Commerce Clause scrutiny.” 544 U.S. at 487-88. It

also cited favorably Justice Scalia’s concurrence in

Healy v. Beer Inst., 491 U.S. at 344, that a liquor

“statute's invalidity is fully established by its facial

discrimination against interstate commerce .. despite

the fact that the law regulates the sale of alcoholic

beverages, since its discriminatory character

eliminates the immunity afforded by the Twenty-first

Amendment.” 544 U.S. at 488

'S See Lebamoff Enterpr., Inc. v. Rauner, — F.3d ___

2018 WL 6191351 at *3 (once a state allows its in-state

licensees to ship wine anywhere within the state, refusing

to extend that privilege to out-of-state businesses is facially

discriminatory).

22

Petitioner and its amici base their argument on a

single phrase in Granholm where this Court noted

that in North Dakota v. U.S., 495 U.S. 423, 432 (1990)

it had “previously recognized that the three-tier

system itself is ‘unquestionably legitimate.” 544 U.S.

at 489. Petitioner repeats this phrase in its main brief

seven times (pp. 13, 16, 22, 35, 45, 46, 54), as if repe-

tition could somehow elevate this phrase into a

holding that discriminatory state laws are immune

from Commerce Clause scrutiny. The argument is

without merit, for three reasons.

First, the sentence appears in Granholm unac-

companied by any discussion, explanation, analysis or

reasoning, and does not actually say anything about

discriminatory state liquor laws. That is not the way

this Court announces its holdings.

We resist reading a_ single sentence

unnecessary to the decision as having done so

much work. In this regard, we recall Chief

Justice Marshall's sage observation that

“general expressions, in every opinion, are to

be taken in connection with the case in which

those expressions are used. If they go beyond

the case, they may be respected, but ought not

to control the judgment in a subsequent suit

when the very point is presented for decision.

Arkansas Game & Fish Com'n v. U.S., 568 U.S. 23, 35

(2012) (citation omitted).

Second, Petitioner is taking the phrase out of

context, thereby distorting its meaning. The phrase

appears in Granholm only after an extended

23

discussion of prior case law and the conclusion that

the nondiscrimination principle applies to state

regulation of alcohol. 544 U.S. at 486-88. In context,

the Court was clarifying that its holding prohibiting

discrimination did not cast into doubt the consti-

tutional authority of states to make basic even-handed

decisions about what kind of liquor distribution

system to create. The Court says that

A State [may choose] to ban the sale and

consumption of alcohol altogether..., assume

direct control of liquor distribution through

state-run outlets or funnel sales through the

three-tier system. We have previously

recognized that the three-tier system itself is

"unquestionably legitimate."

544 U.S. at 488-89. The three-tier system is simply

the licensing process by which a state regulates how

alcohol arrives on retail shelves, which remains intact

with or without residency requirements. There is not

the slightest indication that the Court meant that

states were free to discriminate as to who could obtain

a license or that laws regulating retailers were

exempt from its extensive prior discussion and con-

clusion that the nondiscrimination principle applied to

state liquor laws. See Lebamoff Enterpr. Inc. v.

Rauner, _F.3d__, 2018 WL 6191351 at *5.

Third, the case from which the “unquestionably

legitimate” sentence originates -- North Dakota v.

U.S.,-- was a plurality opinion in a Supremacy Clause

case about liquor sales on military bases that involved

neither the Commerce Clause nor retailers nor

24

discrimination’* and therefore cannot possibly be

precedent that discriminatory wine retailer laws are

immune from Commerce Clause scrutiny. Arkansas

Game & Fish Com'n v. U.S., 568 U.S. at 35. Indeed,

the Granholm Court cautioned against this very

interpretation

The States argue that any decision

invalidating their direct-shipment laws would

call into question the constitutionality of the

three-tier system. This does not follow from

our holding [that] discrimination is contrary

to the Commerce Clause and is not saved by

the Twenty-first Amendment.

Granholm, 544 U.S. at 488-89.

The task for this Court is to weigh the strong

federal interest in a national unified commercial

marketplace against the core concerns of the Twenty-

first Amendment. In Granholm, it said those core

concerns were temperance and tax collection. 544 U.S.

at 489. The requirement that a consumer may only

buy wine from a retailer physically located in the state

does not advance temperance because residents can

purchase the same quantity of alcohol locally. Nor

does it advance tax collection because a state can

require internet retailers to collect and remit the same

tax. South Dakota v. Wayfair, Inc., 138 S.Ct. at 2094

et seq. The law also is unnecessary to advance a

'* Indeed, Justice Scalia joined the North Dakota plur-

ality only because the law at issue was not discriminatory.

495 U.S. at 444 (Scalia, J., concurring).

25

state’s secondary Twenty-first Amendment concerns,

such as facilitating orderly market conditions,

protecting public health and safety, and ensuring

regulatory accountability, because those objectives too

can be achieved by requiring a license as a condition

for making retail sales, and revoking that license for

misbehavior. This how the states regulate their own

in-state retailers. Granholm, 544 U.S. at 492.

Residency requirements just give economic

protection to local businesses and protect them from

competition at the expense of consumers. They are a

type of local processing rule, which this Court has

repeatedly condemned, C & A Carbone, Inc. v. Town

of Clarkstown, 511 U.S. 383, 391 (1994), because it

views “with particular suspicion state statutes

requiring business operations to be performed in the

home State that could more efficiently be performed

elsewhere." Pike v. Bruce Church, Inc., 397 U.S. 137,

145 (1970).

26

IV. CONCLUSION

For the foregoing reasons, the Court should affirm

the ruling of the court below that the nondis-

crimination principle of the Commerce Clause

prohibits Tennessee from imposing residency rules on

the issuance of retail liquor licenses.

Respectfully submitted,

James A. Tanford

Counsel of Record

Robert D. Epstein

Epstein Cohen Seif

& Porter LLP

50 S. Meridian St., Suite 505

Indianapolis, IN 46204

Tel: 812-332-4966

tanfordl@indiana.edu

Attorneys for amici curiae

December, 2018

A-1

APPENDIX

A. NAMES OF INDIVIDUAL AMICI

Dr. Kosta Arger, Reno NV

Andrew Arntfield, Lewiston NY

Warren Ashenmil, New York, NY

Jeffrey A. Backerman, Concord MA

Faye Bainbridge, Sarasota FL

Jerry Bainbridge, Sarasota FL

Brad Barr, New York NY

Jeremy Bates, New York NY

Joshua Block, New York NY

Brent Bogen. Moline IL

David Boyer, Austin TX

Lee Braem, Maplewood NJ

Gillian Brassil, Brooklyn NY

Russell G. Bridenbaugh, Bloomington IN

Dr. Larry Buckel, Carmel IN

Kitty S. Buckel, Carmel IN

Dr. David Burack, Rock Hill SC

Dr. Harry Burack, St. Louis MO

Susan Burack, St. Louis MO

Anthony Caffrey, Laurel MD

Sharon Cantwell, Holladay UT

Emilio Castelli, Sebastopol CA

Doug Charles, Anacortes WA

Chris Church, Cedar Park TX

Jeffrey A. Clyde, New York NY

Aurelian Craiutu, Bloomington IN

J. Cory Curtis, Jackson WY

John F. Davis, Bloomington IN

Dr. David Deehr, Sandusky OH

Daniel Dixon, Bloomington IN

A-2

Ronald B. Dixon, Bloomington IN

Gregory Fehribach, Indianapolis IN

Adam Feild, New York NY

John J. Fisher, Boca Grande FL

Myra Gassman, Charlotte NC

Grant Gassman, Denver CO

David Geaney, Southampton NY

Layne Gentry, Houston TX

Joel Goldberg, Brighton MI

Dr. Pinkus Goldberg, Indianapolis IN

Rebe :ca Goldberg, Indianapolis IN

Larry Gralla, Reno NV

John Grier, Glenview IL

Sean Harding, Coto de Caza CA

Steven Harrison, Windsor CA

Eleanor Heald, Troy, MI

Ray Heald, Troy, MI

Manuel Hernandez-Martin, Bloomington IN

Franklin L. Hess, Bloomington IN

Robert Homan Igehy, New York NY

Mark W. Johnson, Sioux Falls SD

Gregory J. Kasza, Bloomington IN

Carrie B. Kingsley, New York, NY

Thomas Kisthart, Tampa FL

Deborah Kravitz, Healdsburg CA

Amber LeBeau, Snohomish WA

Philippe Loustaunau, Arlington VA

Jon Maxwell, Bozeman MT

David Moore, St. Louis MO

Will Parks, Anacortes WA

Dr. Sy Rabins, Sarasota FL

Dr. Martin Redish, Chattanooga 'T'N

Dr. Gregory Redish, Dallas TX

A-3

Lisa K. Robertson, Chicago IL

Howard Rolston, Arlington VA

Arthur J. Rose, Warren MI

Mitchell Rubenstein, Boca Raton FL.

Dr. Michael Schlueter, Detroit MI

Jack Schulz, Detroit MI

Kevin Sidders, Charlottesville VA

Neil Singer, Armonk NY

Timothy S. Spurlin, Greenbrier AR

Benjamin J. Steele, Long Island City NY

Jack Stride, Detroit MI

Dr. Charles Thomas, Indianapolis IN

Jon Thorsen, Shakopee MN

Joshua Valdez, San Francisco CA

Peggy Vetti, Franklin TN

Abby Vine, North Caldwell NJ

Harry Vine, North Caldwell NJ

David Waterman, Chicago IL

Frank D. Yeary, Berkeley CA

B. OTHER CONTRIBUTORS

TO COST OF BRIEF

This brief was funded in part by contributions to a

gofundme page. All contributors are listed below. No

anonymous contributions were used to fund any costs

of the preparation or submission of this brief.

Michael Aaron Richard Ammons

John Abowd Joe Arking

Joshua Agrons Robin Baggett

Anthony Aiuto Carol Bailey

John Ammondson David Baker

A-4

A-5

A-6

Michael Manners Gayle Pemberton

Greg Martellotto Scott Pendergast

James Maynard Ken and Wendy Peters

David McCann Susan Petrovich

William McClellan Addison Phillips

John McGann Mark Phillips

Jay McInerney Doug Polaner

Bill McIver Kenneth Porrello

Glenn A. Mcphee Albert Powers

Daniel Meloy Bruce Raben

Peter Mesrobian Andrea Raffo

James Messac Paul Rasmussen

Ross Michels Michael Rauchman

Jay Miller Alison Raymond

Matthew Mirapau! Stephanie Reifers

Ned Moody Tom Riley

Bill Moore Dan Roberts

James Moseley Stuart Roberts

Leo Mueller Eric Roeper

Cameron Myhrvold Jessica Roma

Paul Nash Jeffrey Rosenberh

Phil Nelswender Sean Rositano

William Nemerever Michael Rothman

Charles Newhall Bruce Rounds

Gray Newman David Sacco

John Noble Eric Schaefer

Steve Norman Elaine Schoch

James Ocasek Elizabeth Schneider

Charles Odgers John Schreiner

Megan Oglesby lan Scudder

Luther Ottaway Gustavo Scuseria

Any Pardeshi James Shandley

Stephan Shapiro

Kevin Sidders

David Small

David Smith

Jeffrey Staiman

James C. Stalder

Richard Stanback

Robin Stark

Andrew Steffensmeier

Donn Stoberski

Howard R. Stravitz

Richard Strier

Tracy Sue

Greg Tanner

Warren Taranow

Thomas Terry

Luke Trapp

Jeffrey Troy

Ken Tucker

Todd Tucker

Ken Vastola

A-7

Jim Viner

Russo Vosoughi

Eric Walker

Kengo Watanabe

Randy Wear

Robert Webb

Katie J. Weiner

Steven Weinstein

Daniel Wermeling

Kirke Wheeler

Alik Widge

Richard Wieder

Keith Wollenberg

John Wolfe

John Woods

Tom Yantis

Alder Yarrow

Randall Yuen

Alex Ziegler

Mike Zolik