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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0849%3A14

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2018

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0849%3A14. Public record. Not legal advice.