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

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## Record

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

## Text

No. 18-96

In The
Supreme Court of the Anited States

,
-

TENNESSEE WINE AND
SPIRITS RETAILERS ASSOCIATION,

Petitioner,
Vv.
CLAYTON BYRD, et al.,
Respondents.

»
4

On Writ Of Certiorari To The

United States Court Of Appeals
For The Sixth Circuit
BRIEF OF AMICUS CURIAE
KHBC PARTNERS II, LTD.
IN SUPPORT OF PETITIONER
HARRY HERZOG
HERZOG & CARP
427 Mason Park Blvd.
Katy, Texas 77450
Telephone: (713) 781-7500
HHerzog@hcmlegal.com

Counsel for KHBC Partners II, Lid.

COCKLE LEGAL BRIEFS (800) 225-6964
www. COM

TABLE OF CONTENTS

Page

Disclosure Statement and Interest of Amici Cu-
ilsisialancicidiidonteiaiaetingndistipiabienitnmtetetanintnasenanuanineeeimssnes 1
Summary of the Argument ..............................00+- 1
I iiiick iaitinicessincitaceesetinsietncidsieinsdininehaienetbiansieiemtibiiciatlds 4
he — ennttnens 4
2. The uniqueness of alcohol regulations ...... 6
A. State police powers...........................++ 6

B. Adding the 21st Amendment to state

police powers creates unique and ex-
ceptional state powers......................... 6

1. States have broad regulatory pow-
a 7

2. Broad regulatory power includes
ce cetesctintencedsnsernnnevinniiens 7

3. Broad regulatory power, with wide

latitude within the constitutionally

sanctioned zone of state control, cre-
ates special power in the states...... 8

4. The 21st Amendment grants states

virtually complete control over lo-
cal alcohol sales .............................. 8
C. The three-tier system.......................... 9
D. Strong presumption of validity ........... 9

3. Congress wants the power over local alco-
hol sales vested in the states..................... 9

4. The rationale for the dormant Commerce
Se iiitlcdinttimnaincdbicoininnisiegindiisbataideslaniatess 12

i

‘3

TABLE OF CONTENTS -— Continued

Page

5. U.S. Supreme Court analysis and stand-
i cnsectiomissosseuindincansinpiinibinunionmmevanaventenie 14

A. Improper state legislation or regula-
I dieiisstsctsiccennmnstnncnacenasssenses 14

1. They conflicted with a federal law
or impinged on a federal area ........ 14

2. They extended state regulation into
Rr etiscciadaectmnennetiaeineceicen 15

3. They were economic protectionism
designed to disfavor out of state
I casnitccandustiininiatiunsinincestinnnegiete 15

B. Lack of Congressional action elimi-
nates or minimizes application of the

dormant Commerce Clause ................. 15
C. Other principles in dormant Commerce
I riasncbiisensitciocennpetonsdontaen 18
D. Cases supporting residency require-
I ilaintiisticenccerecstensstttnineicascesansesveverns 20
E. “Core §2 power” analysis..................... 21
NN ikastcrinichigineinepicneaiiiksnithnaiinihiniasitilaeniniiveinaieivant 21
APPENDIX

se

TABLE OF AUTHORITIES
Page
U.S. SUPREME Court CASES
324 Liquor Corp. v. Duffy, 479 U.S. 335, 107
Be I icerrniscinienpintrisnrbeeeniomaoinionimibdaceineend 8,14
Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104
SRE SESS SEE eee aoe 15
Baldwin v. G.A.F. Seeling, Inc., 294 U.S. 511, 55
i iciitiennecntnapersisnrnepsonsemmninianatiinimecesesd 5
Brown-Forman Distillers Corp. v. New York State
Liquor Authority, 476 U.S. 573, 106 S. Ct. 2080
ii dadiniecicsiniicidihanipediiadtinnicndeniniaenensiiemininsnininmenete 14
Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520,
ee riccctnsetsennreneennienaianmeidinnenadinens 16
C & A Carbone, Inc. v. Town of Clarkstown, N_Y.,
511 US. 383, 114 S. Ct. 1677 (1994).........0.0...... 12
California Retail Liquor Dealers Assoc. v. Mid-
cal Aluminum, 445 U.S. 97, 100 S. Ct. 937
(iii linsertisnednntatinantsciintasiestanisenesbediinaninnbines 7, 8, 14,19
Capital Cities Cable v. Crisp, 467 U.S. 691, 104
Be Ts diichncniniisinetncsanisieontiniciantabninmianvend 8,14
Carter v. Virginia, 321 U.S. 131, 64 S. Ct. 464
Sai cicarediticidentciectinicieiolaniaimneapintianieteiameibipliniunieieneansemine 5, 16
Clark Distilling Co. v. Western Maryland R. Co.,
242 U.S. 311, 375 S. Ct. 180 (1917)...........000000000..... 10
City of Newport, Ky. v. Iacobucci, 479 U.S. 92, 107
ah inectinntcersiinuicrincinnnaasceginnipinatinetnenenssosens 7

Collins v. Yosemite Park & Curry Co., 304 US.
Se 14

iv

TABLE OF AUTHORITIES — Continued

Page
Cooley v. Board of Wardens, 429 U.S. 190, 97
a ey et ctcrrenicersdeinnsienipiciinttanniotioecntuedeanioen: 12, 15, 16
Craig v. Boren, 429 US. 190, 97 S. Ct. 451 (1976).....10, 19
Dept. of Revenue v. James B. Beam Distiller Co.,
377 US. 341, 84 S. Ct. 1247 (1964)... 14
Duckworth v. Arkansas, 314 U.S. 390, 62 S. Ct.
Ie et iatncilaiiatanisencnetennaninancminnninnniutvetientes 16, 17
Exxon Corp. v Maryland, 437 U.S. 117, 98 S. Ct.
Se I eiccishesdctihetgieniepetiettianehuinniaaniiaisdenibsatteinideininse 13
Goesaert v. Cleary, 335 U.S. 464, 69 S. Ct. 198
a itchetntcsistinpcsitnclisiesinninniinigtibinninniigdinincnpenministmnvesinnal 6
Granholm v. Heald, 544 U.S. 460, 125 S. Ct. 1885
SET Thhiatsdseaduchipditadsiidaiveheniadunndtaactninieanpenitieats 8,9, 10, 15, 19
Healy v. The Beer Institute, 491 U.S. 324, 109
Be ee tiridinincisnnpeisingunesasnintiinicenisnniipncensieesie 15
Hostetter v. Idlewild Bon Voyage Liquor Corp.,
377 U.S. 342, 84 S. Ct. 1293 (1964)... 14
Heublein, Inc. v. South Carolina Tax Commis-
sion, 409 U.S. 275, 93 S. Ct. 483 (1963) .................. 20
In re: State Freight Tax, 82 U.S. (15 Wall.) 232
Sea icinuiteiesttiaititaliesitnsilenenicsigenidnnihaninmneenennianinasesscueins 12
Joseph E. Seagram & Sons v. Hostetter, 384 U.S.
35, 86 S. Ct. 1254 (1966) ...........cccccccceeceeeeeeceeeeeeeees 4,7
Leisy v. Hardin, 135 U.S. 100, 10 S. Ct. 681 (1890)....... 10

New York State Liquor Authority v. Bellanca,
452 U.S. 714, 101 S. Ct. 2599 (1981).........0.0.. ee. 7

v

TABLE OF AUTHORITIES — Continued

Page
North Dakota v. U.S., 495 U.S. 423, 110 S. Ct.

TR ASE NAA ee ae 8,9
Premier-Pabst Sales Co. v. Grosacup, 298 U.S.

226, 56 S. Ct. 754 (1936) ............ccc-cceeeccecererseeeeeeeeees 20
Railroad Company v. Husen, 95 U.S. 465 (1877)......... 5
Reading Railroad Co. v. Pennsylvania, 82 U.S.

(15 Wall.) 232, 271-83 (1873) .20000.......cccccecceeeeeeeeeeees 12
Rice v. Rehner, 463 U.S. 713, 103 S. Ct. 3291

TREES Roce Ree AO 6, 10
Southern Pacific Co. v. State of Arizona, 325 U.S.

761, 65 S. Ct. 1515 (1945) .................ccceeeeeeeceeceeeeeees 18
The License Cases, 46 U.S. (5 How.) 504 (1847)........... i]
U.S. v. Frankfort Distilleries, 324 U.S. 293, 65

ERE ERE Ey OS 7
U.S. v. State Tax Commission of Mississippi, 412

U.S. 363, 93 S. Ct. 2183 (1973) and after re-

mand 419 U.S. 1104, 95 S. Ct. 1872 (1975)......... 7,14
Vance v. WA. /anderbrook Co., 170 U.S. 438, 18

8 EE A a ea 20
Wisconsin v. Constantineau, 400 U.S. 433, 91

EEE RE Re a Oe 6
U.S. CONSTITUTION
AMENDMENTS
ITE TT ccecnnatibenmunennsinsomionciial 6
I I sauthiuponiinineieionitiniont 4

es IE, Si oiicistsseninsicticncsestiniocincteeneniniinens passim

vi

TABLE OF AUTHORITIES — Continued

Page

STATUTES
Se ae PHUIIET cninsntecicestesnipasinseniniddnmmhemmmaaaananee 10
Ba I eG sti beseciceccncsicccsinconinetinthaniniianaeieanaaaaiaa 10
Se Ee i ctnicincsenersictinigenictniediinidideiaiaiainieiaae 10
ae I OF ie rsccccicccncctessncstssciecnecsessensdamesiesiamaaumale 10
Se ee 0p ID cicrcccninicssiscnicommeiiemmianamamnl 11
CONGRESSIONAL RECORD
Cong. Rec. Vol. 76, Part 4, pp. 4138-89 (Feb. 15,

DNTIID cicsstidiarsttnidicrnsianinpetmctidgisinnisecisinimdicasaataimimniiaiadae 11
FEDERALIST PAPERS

l

DISCLOSURE STATEMENT AND
INTEREST OF AMICI CURIAE'

We know of no possible basis for recusal by any
member of the court. KHBC Partners II, Ltd. is privately
owned. KHBC, its owners and counsel have no personal!
or business connection to any justice of this Court.

The undersigned counsel authored this entire
brief without notice to or consultation with any lawyer
in this case, and after reading what he believes is every
case ever decided by any court under the 21st Amend-
ment. KHBC and counsel want this Court to reach a
correct result for the right reasons.

°

SUMMARY OF THE ARGUMENT

Since Congress cannot regulate who gets a permit
to sell alcohol locally, the judiciary should not utilize
the dormant Commerce Clause to regulate who can get
those permits. The 21st Amendment empowers only
states to grant local permits implementing the three-
tier c~tem. States ‘eve exceptional, transcendent,
and overwhelming power over their constitutionally
exclusive zone of control to govern the local sale of

' Pursuant to Rule 37.6, Amicus affirms that no counsel! for
any party authored this brief in whole or in part and that no per
son or entity other than Amicus itself provided any monetary con-
tribution intended to fund the preparation or submission of this
brief. All parties have consented to the filing of this amicus brief
through waivers.

2

alcohol. Congress has no such power, therefore, the use
of the dormant Commerce Clause to deprive states of

their power to control permits for local retail alcoho!
sales is inappropriate. The judicial effort to protect
non-existent Congressional power has created doctri-
nal disarray that should be resolved by holding that
each state has the authority under the 21st Amend-
ment to set standards for who may possess a permit
to locally sell alcohol without impingement by the
dormant Commerce Clause.

Shortly after prohibition banned the manufacture,
distribution or sale of alcohol the people of this nation
rose up. In less than a year, through Congress and
state conventions, the people overwhelmingly passed
the 21st Amendment. It vests exclusive power over the
local sale and distribution of alcohol at the state level.
In drafting the 21st Amendment, Congress explicitly
declined concurrent power over local alcohol sales. Im-
proper utilization of the dormant Commerce Clause
takes that power over local alcohol sales away from

states and misplaces it in the federal judiciary.

The essence of the dormant Commerce Clause is
preservation of Congress’ exclusive power to regulate
commerce among the states and thus prevent the cre-
ation of protectionist barriers that would distort the
free flow of goods across state lines. With respect to the
constitutionally unique product of alcohol, Congress
has spent 128 years ceding regulatory power to the
states. This includes expressly declining concurrent
power when the 21st Amendment was drafted. As re-
cently as 2010, Congress wrote into law that alcohol is

3

a unique product and States have primary authority to
regulate alcohol distribution and sale.

Some members of the federal judiciary errone-
ously decrease state authority to regulate the local sale
of alcohol, preserving non-existent Congressional au-
thority in the area. They use the dormant Commerce
Clause to judicially dive into waters where Congress
constitutionally cannot swim. This Court should hold
that the dormant Commerce Clause does not apply to
any states’ exercise of their virtually complete control
over how to structure the retail tier of the three-tier
system.

When a state grants a permit to sell liquor locally
the state does not impinge on a federal area, encroach
extraterritorially on other states, or impact the inter-
state flow of any product. Congress’ inaction in local
permitting increases the sphere of state influence.
Congress’ constitutional inability to act with respect to
local permitting should extend the expanded sphere of
state influence beyond the reach of the dormant Com-
merce Clause. The principles of the dormant Com-
merce Clause enunciated by this Court when it last
considered the 21st Amendment do not support apply-
ing the dormant Commerce Clause to state permits for
local alcohol sales.

4

ARGUMENT

1. The 21st Amendment.

The 21st Amendment is incredibly unique. It is the
only provision in the U.S. Constitution that:

Grants power to states;
Overturns a separate amendment;

c. Passed by state conventions, the people
acting directly rather than by legislature;

d. Was passed by the U.S. Senate, House,
and 37 states in less than 10 months (Ap-
pendix 1), and

e. Is limited to one consumer product.

The 21st Amendment allocates all of the govern-
mental power to create a system to regulate local alco-
hol sales to the states. Thus, any challenge to that
legislation must begin with an analysis of the 21st
Amendment. “Consideration of any state law regulat-
ing intoxicating beverages must begin with the
Twenty-first Amendment... .” Joseph E. Seagram &
Sons v. Hostetter, 384 U.S. 35, 43, 86 S. Ct. 1254, 1259
(1966).

The dormant Commerce Clause protects the free
flow of commerce. The 18th and 21st Amendments ex-
pressly ban some commerce in alcohol or allow states
to restrict commerce, hence the inherent tension.
When prohibiti 1 it eliminated the licati
of the dormant Commerce Clause to the manufacture,
sale, or transportation of alcohol. When prohibition

5

failed miserably and was repealed by the 21st Amend-
ment, the dormant Commerce Clause was modified
with respect to alcohol. Many states continued to ban
the manufacture or sale of alcohol after the 21st
Amendment passed in 1933: for example, Mississippi
banned all distilled beverages until 1966, and 33 states
have dry counties today. For any other product such a
ban violates the dormant Commerce Clause. Railroad
Company v. Husen, 95 U.S. 465 (1877) (cattle); Baldwin
vu. GA.F. Seeling, Inc., 294 U.S. 511, 55 S. Ct. 497 (1935)
(milk). But a ban on the sale of alcohol is unquestiona-
bly constitutiona!. For decades courts have struggled
to balance and harmonize the dormant Commerce
Clause with the 21st Amendment. The tension and dif-
ficulties inherent in this area are properly resolved by
reviewing all of the phenomenal powers granted to
states against the rationale for the dormant Commerce
Clause.

The lower courts in this case went exactly where
courts were warned not to go in 1944: they embarked
on the “impossible task of deciding, instead of ieaving
it for legislatures to decide, what constitutes a ‘reason-
able regulation’ of liquor traffic.” Carter v. Virginia, 321
US. 131, 142, 4 S. Ct. 464, 471 (1944, Frankfurter con-
curring).

6

2. The uniqueness of alcohol regulation.

A. State police powers.

All states have police powers. They had them be-
fore the constitution was written, after the constitution
was adopted in 1789, and then the 10th Amendment
preserved them in 1791.

State regulation of liquor traffic is “one of the old-
est and most untrammeled of legislative powers.”
Goesaert v. Cleary, 335 U.S. 464, 465, 69 S. Ct. 198, 199
(1948). The state police power to regulate liquor pre-
cedes and is independent of the 21st Amendment's
added powers. Rice v. Rehner, 463 U.S. 713, 723, 105
S. Ct. 3291, 3298 (1983). State police powers over liq-
uor were “extremely broad even prior to the Twenty-
first Amendment.” Wisconsin v. Constantineau, 400
U.S. 433, 91 S. Ct. 507, 509 (1971).

B. Adding the 21st Amendment to state po-
lice powers creates unique and excep-
tional state powers.

The Constitution begins with its three most pow-
erful words: “We the people ...” Only one constitu-
tional provision was created directly by the people: the
21st Amendment. The people of this country created it
with phenomenal speed. Since 1933, a unique body of
law limited exclusively to alcohol has necessarily de-
veloped. In the historically dangerous area of distilled
beverages courts have been justifiably supportive of
states’ legislative discretion. The unique aspects of the
21st Amendment plus state police powers combine to

7

grant exceptional power to the states to regulate the
local sale of alcoholic beverages. This exceptional
power has been expressed by this Court through vari-
ous legal principles or phrases.

1. States have broad regulatory power
in liquor.

“Broad regulatory power” and “full authority,” U.S.
uv. Frankfort Distilleries, 324 U.S. 293, 297-301, 65 S. Ct.
661, 664-65 (1945); “broad regulatory power,” Joseph
E. Seagram & Sons v. Hostetter, 384 U.S. 35, 41, 86
S. Ct. 1254, 1259 (1966); “broad regulatory authority,”
U.S. v. State Tax Commission of Miss., 93 8. Ct. 2183,
2189 (1973); “broad power,” New York State Liquor Au-
thority v. Bellanca, 452 U.S. 714, 714, 101 S. Ct. 2599,
2600 (1981); and “broad regulatory powers,” City of
Newport, Ky. v. Iacobucci, 479 U.S. 92, 93, 107 S. Ct.
383, 385 (1986).

2. Broad regulatory power includes wide
latitude.

Joseph E. Seagram & Sons, Inc. v. Hostetter, 384
U.S. 35, 41, 86 S. Ct. 1254, 1259 (1966); California Re-
tail Liquor Dealers Assoc. v. Midcal Aluminum, 445
U.S. 97, 106, 100 S. Ct. 937, 944 (1980).

8

3. Broad regulatory power, with wide
latitude within the constitutionally
sanctioned zone of state control, cre-
ates special power in the states.

California Retail Liquor Dealers Assoc. v. Midcal
Aluminum, 445 U.S. 97, 106, 100 S. Ct. 937, 944 (1980).

4. The 21st Amendment grants states

virtually complete control over local
alcohol sales.

“The Twenty-first Amendment grants the States
virtually complete control over . . . how to structure the
liquor distribution system.”

California Retail Liquor Dealers Assoc. v.

Midcal Aluminum, 445 U.S. 97, 110, 100 S. Ct.

937, 946 (1980),

quoted and reaffirmed in:

Capital Cities Cable v. Crisp, 467 US. 691,
715, 104 S. Ct. 2694, 2709 (1984);

324 Liquor Corp. v. Duffy, 479 U.S. 335, 345,
107 S. Ct. 720, 726 (1987);

North Dakota v. U.S., 495 U.S. 423, 431, 110 S.
Ct. 1986, 1992 (1990); and

Granholm v. Heald, 544 U.S. 460, 488, 125 S.
Ct. 1885, 1905 (2005).

There may be no area of constitutional law in
which states have greater legislative control. There
is no other product over which states have explicit

9

constitutional authority. Congress has spent 128
years ceding legislative power over local liquor sales
to states.

C. The three-tier system.

This Court noted that the three-tier system is con-
stitutional in North Dakota, 495 U.S. at 432. Fifteen
years later, in the most recent case this Court decided
under the 21st Amendment, this Court re-affirmed
that the three-tier system is “unquestionably legiti-
mate.” Granholm, 544 U.S. at 489 (quoting North Da-
kota).

D. Strong presumption of validity.

In light of the 21st Amendment’s special protec-
tion of state liquor control policies, “they are supported
by a strong presumption of validity and should not be
set aside lightly.” North Dakota, 495 U.S. at 433. Any
reading of history concerning the sale of liquor in-
stantly affirms the wisdom of this added deference and
corresponding reticence to cast aside legislative pre-
rogatives.

3. Congress wants the power over local alcohol
sales vested in the states.

In the 1700s and 1800s a variety of states regu-
lated the sale of alcoholic beverages. Before the Civil
War this Court affirmed broad state authority over al-
cohol sales in The License Cases, 46 U.S. (5 How.) 504,

10

579 (1847). This Court decreased state authority to
regulate the sale of alcohol in Leisy v. Hardin, 135 U.S.
100, 10 S. Ct. 681 (1890). Congress immediately re-
acted by reinvigorating state authority through pas-
sage within a few months of the Wilson Act, 27 U.S.C.
§ 121 (1890); summarized in Craig v. Boren, 429 US.
190, 205, 97 S. Ct. 451, 461 (1976). Congress eliminated
a loophole in the Wilson Act with the later passage of
the Webb-Kenyon Act, 27 U.S.C. § 122 (1913), which re-
moved the protection of interstate commerce from all
receipt and possession of liquor prohibited by state law.
Clark Distilling Co. v. Western Maryland R. Co., 242
US. 311, 325, 375 S. Ct. 180 (1917). The 21st Amend-
ment language was designed in part to constitutional-
ize the language of the Wilson and Webb-Kenyon Acts.
Craig, 429 U.S. at 206, 462; Granholm v. Heald, 544
U.S. 460, 483, 125 S. Ct. 1885, 1902 (2005).

Congress has repeatedly transformed power Con-
gress might have over the distribution system for local
alcohol sales into state power.

1. Wilson Act, 27 U.S.C. § 121 (1890);

2. Webb-Kenyon Act, 27 U.S.C. § 122 (1913);
3. Passage of the 21st Amendment (1933);
4

18 U.S.C. § 1161 (1953), by which Con-
gress authorized state regulation over In-
dian liquor transactions. Rice v. Rehner,
463 U.S. 713, 723, 103 S. Ct. 3291, 3299
(1983);

5. 27 US.C. § 122a (2000), the 21st Amend-
ment Enforcement Act; and

11

6. 42 U.S.C. § 290bb-25b (2006) (“Alcohol is
a unique product and should be regulated
differently than other products by the
States and Federal Government. States
have primary authority to regulate alco-
hol distribution and sale, and the Federal!
Government should support and supple-
ment these State efforts.”).

The most important Congressional expression of
relinquishment of power over local alcohol sales came

in the drafting of the 21st Amendment. One draft gave
Congress much more power than they wanted. This
provision was proposed and then deleted during Con-
gressional debate:

“Congress shall have concurrent power to reg-

ulate or prohibit the sale of intoxicating liq-

uors to be drunk on the premises where sold.”
Cong. Rec. Vol. 76, Part 4, pp. 4138-39 (Feb. 15, 1933).
As passed by Congress and the 38 states that ratified it,
the 21st Amendment does not grant Congress concurrent
power to regulate the retail sale of intoxicating liquors.

Congress having deprived itself of concurrent
power over local alcohol sales, and 38 states having

agreed, there is no intellectual justification for re-writ-
ing the 21st Amendment through the backdoor by ap-
plying the dormant Commerce Clause to “preserve”
non-existent Congressional power over local alcohol
sales. Since it is constitutionally impossible for Con-
gress to regulate who may possess a permit to sell te-
quila at the corner store it is improper for courts to
utilize the dormant Commerce Clause to strike down
state rules on who may possess that permit.

12

4. The rationale for the dormant Commerce
Clause.

When the Articles of Confederation were adopted
in 1781 the Congress had no power to regulate com-
merce. This failure was one of the leading causes of the
creation of the constitution. As Alexander Hamilton
noted, lack of federal power over commerce created “oc-
casions of dissatisfaction between the States” and
made negotiation of trade treaties with foreign nations
difficult or impossible. Federalist Papers #22. To pro-
tect the flow of commerce Congress was given the ex-
clusive power to regulate commerce among the several!
states. The theory of the dormant Commerce Clause
first arose in 1851 to preserve Congressional power to
exclusively regulate interstate commerce. Cooley v.
Board of Wardens, 53 U.S. (12 How.) 299 (1851). The
first use of the dormant Commerce Clause to negate a
state law was after the Civil War. Jn re: State Freight
Tax, 82 U.S. (15 Wall.) 232 (1873); Reading Railroad
Co. v. Pennsylvania, 82 U.S. (15 Wall.) 232, 271-83
(1873).

The central rationale for the dormant Commerce
Clause is to prohibit “state or municipal laws whose
object is local economic protectionism, laws that would
excite those jealousies and retaliatory measures the
Constitution was designed to prevent.” C & A Carbone,
Inc. v. Town of Clarkstown, N_-Y., 511 U.S. 383, 390, 114
S. Ct. 1677 (1994). Courts strike down “local laws that
impose commercial barriers or discriminate against an
article of commerce.” C & A, 511 U.S. at 390.

13

When courts improperly utilize the dormant Com-
merce Clause they usually lose sight of commerce. The
Commerce Clause relates to commerce among the
States, foreign nations, and Indian tribes. The dormant
Commerce Clause thus also relates to commerce. The
dormant Commerce Clause preserves Congressional
power over commerce. It protects a national market,
not who participates in the national market.

“The fact that the burden of a state regulation
falls on some interstate companies does not,
by itself, establish a claim of discrimination
against interstate commerce ... the Com-
merce Clause protects the interstate market,
not particular interstate firms, from prohibi-
tive or burdensome regulations.”

Exxon Corp. v. Maryland, 437 U.S. 117, 126-27, 98
S. Ct. 2207 (1978).

Dormant Commerce Clause jurisprudence springs
from the implication that states cannot conflict with
Congressional power and impede the flow of interstate
goods. It would be impossible for Congress to enact a
regulation governing the local sale of alcoholic bever-
ages within a state as the 21st Amendment vests all of
that power within each state. Regulating who may pos-
sess a permit to locally sell liquor does not impede the
flow of one bottle of distilled beverages from the other
49 states, and Congress cannot license local package
stores. Thus the dormant Commerce Clause should not
be improperly used to preserve Congressional power to
do what Congress cannot do with respect to awarding
or denying permits for local retail alcohol sales.

14

5. U.S. Supreme Court analysis and standards.

A. Improper state legislation or regulations
nullified.

Since 1933 this Court has struck down a variety of
state alcohol legislation or regulations. But all fit into
these three categories:

1. They conflicted with a federal law or
impinged on a federal area.

National parks.

International
travel.

Export-import
clause.

Military bases.

Sherman
antitr~ist.

Cable television
signal

retransmission.

Collins v. Yosemite Park & Curry
Co., 304 U.S. 518, 58 S. Ct. 1009
(1938)

Hostetter v. Idlewild Bon Voyage
Liquor Corp., 377 U.S. 342, 84
S. Ct. 1293 (1964)

Dept. of Revenue v. James B. Beam
Distiller Co., 377 U.S. 341, 84 S. Ct.
1247 (1964)

U.S. v. State Tax Commission of
Mississippi, 412 U.S. 363, 419 U.S.
1104, 93 S. Ct. 2183 (1973) and 95
S. Ct. 1872 (1975)

California Retail Liquor Dealers
Assoc. v. Midcal Aluminum, Inc.,
445 US. 97, 100 S. Ct. 937 (1980)

324 Liquor Corp. v. Duffy, 479 U.S.
335, 107 S. Ct. 720 (1987)

Capital Cities Cable, Inc. v. Crisp,
467 U.S. 691, 104 S. Ct. 2694
(1984)

15

2. They extended state regulation into

other states.
Brown-Forman Distillers Corp. v. New York State
Liquor Authority, 476 U.S. 573, 106 S. Ct. 2080 (1986).

Healy v. The Beer Institute, 491 U.S. 324, 109 S. Ct.
2491 (1989).

3. They were economic protectionism
designed to disfavor out-of-state prod-
ucts,

* Tax exemption for locally produced wine.

Bacchus Imports, Ltd. v. Dias, 468 U.S.
263, 104 S. Ct. 3049 (1984)

* Ban on out-of-state winery direct ship-
ments to consumers, while in-state winer-
ies could direct ship to consumers.

Granholm v. Heald, 544 U.S. 460, 125
S. Ct. 1885 (2005).

None of those improper actions are in issue here.

B. Lack of Congressional action eliminates
or minimizes application of the dormant
Commerce Clause.

Congress’ ability to regulate interstate commerce
has never deprived states of all ability to regulate com-
merce, especially at the local level. This is especially
true when Congress declines to act and leaves regula-
tion to the states. Cooley v. Board of Wardens, 53 U.S.

16

299, 320 (1851). In a case dealing with mudguard fend-
ers, this Court refered to a state having “exceptional
scope for the exercise of its regulatory power” and em-
phasized that “Congress not acting” results in sustain-
ing state regulations “even though they materially
interfere with interstate commerce.” Bibb v. Navajo
Freight Lines, Inc., 359 U.S. 520, 524, 79 S. Ct. 962, 965
(1959). In local alcohol sales states have more than ex-
ceptional scope for the exercise of their regulatory
power: their regulatory powers reach to their constitu-
tional zenith and apex. Their police powers, the only
constitutional grant of powers to states, and the elimi-
nation of concurrent Congressional power over local al-
cohol sales combine to create virtually complete

control: full authority through exceptional and broad
regulatory powers with the widest possible latitude.

The principle of Cooley has been applied to alcohol
after the 21st Amendment. This Court clearly enunci-
ated the rule:

“While the commerce clause has been inter-
preted as reserving to Congress the power to
regulate interstate commerce in matters of
national importance, that has never been
deemed to exclude the states from regulating
matters primarily of local concern with re-
spect to which Congress has not exercised its
power, even though the regulation has some
effect on interstate commerce.”

Duckworth v. Arkansas, 314 U.S. 390, 394, 62 S. Ct. 311,
313 (1941); see also Carter v. Virginia, 321 U.S. 131,
135, 64 S. Ct. 464, 467 (1944). Applying this principle

17

to state legislation governing the transportation for
sale of alcohol without a permit this Court concluded:

“Where the power to regulate commerce for lo-
cal protection exists, the states may adopt ef-
fective measures to accomplish the permitted
end. The Arkansas statute does not conflict
with any act of Congress. It does not forbid or
preclude the transportation, or interfere with
the free flow of commerce, among the states
beyond what is reasonably necessary to pro-
tect the local public interest in preventing un-
lawful distribution or use of liquor within the
state. It does not violate the commerce
clause.” Duckworth, 314 U.S. at 396.

Four years later (between the German and Japa-
nese surrenders) this Court summarized this area of
law:

“Ever since Willson v. Black-Bird Creek Marsh
Co. and Cooley v. Board of Wardens it has been
recognized that in the absence of conflicting
legislation by Congress, there is a residuum of
power in the state to make laws governing
matters of local concern which nevertheless in
some measure affect interstate commerce or
even, to some extent, regulate it. Thus, the
states may regulate matters which, because of
their number and diversity, may never be ad-
equaiely dealt with by Congress. When the
regulation of matters of local concern is local
in character and effect, and its impact on the
national commerce does not seriously inter-
fere with its operation, and the consequent in-
centive to deal with them nationally is slight,

18

such regulation has been generally held
within state authority.”

Southern Pacific Co. v. State of Arizona, 325 U.S. 761,
766-67, 65 S. Ct. 1515 (1945) (internal citations omit-
ted). The effect of the 21st Amendment is that Con-
gress may never deal with (nevertheless adequately
deal with) who gets permits to locally sell alcohol in
each state. Therefore, each states’ determination of
who gets a permit should be insulated from dormant
Commerce Clause scrutiny.

More than a dozen states have monopolies on the
sale of distilled beverages. For alcohol those state mo-
nopolies are constitutional. The same 21st Amendment
that lets Virginia control the retail sale of bourbon
within the Commonwealth also allows other states to
control permits to conduct local retail sales of alcohol.
Since there can never be federal policy on who gets
a permit to run the corner liquor store, the method
by which each state grants those permits cannot con-
flict with federal policy, cannot impede Congressional
power, does not affect the flow of commerce among the
states, and therefore does not violate the dormant
Commerce Clause.

C. Other principles in dormant Commerce
Clause analysis.

This Court has noted that the commerce clause
and 21st Amendment are in one constitution and must
be harmonized, with the 21st Amendment creating an
exception to the normal operation of the commerce

19

clause. Craig, 429 U.S. at 461; California Retail Liquor
Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97, 108,
100 S. Ct. 937, 945 (1980). In Granholm, this Court em-

phasized these goals, purposes, and rules that underlie
that harmony:

¢ No differential treatment of
out-of-state economic interests p.472

* No burdens on out-of-state

producers p.472
¢ States cannot be compelled to

negotiate p.472
* Minimize or eliminate state

rivalries p.472
* Avoid the proliferation of trade

zones pp.472-73
* Cannot deprive citizens of access

to markets p.473

¢ States cannot require an out-
of-state firm to become a resident p.475

¢ No discrimination against

imported liquor p.476
* No impermissible burdens on
interstate commerce p.477

* In-state and out-of-state liquor
must be treated on the same terms p.481

* Non-discrimination against
out-of-state goods p.483

20

Analysis of these principles and application of
them to the decision by each state on how to award per-
mits for the local retail sale of alcohol should result in
a decision that the dormant Commerce Clause does not
apply to a states’ implementation of the three-tier sys-
tem with respect to who receives a permit.

D. Cases supporting residency requirements.

This Court has never intensely analyzed, focused
on, or squarely ruled on the precise issue involved here,
but it has supplied some glancing blows in the past.
Shortly after passage of the Wilson Act, but well before
the 21st Amendment, this Court viewed a hypothetical
residency requirement for a liquor license as appropri-
ate. Vance v. W.A. Vanderbrook Co., 170 U.S. 438, 451,
18 S. Ct. 674 (1898). Three years after the passage of
the 21st Amendment all parties in a case conceded the
constitutional validity of a two-year durational resi-
dency requirement and this Court enforced that re-
quirement to determine standing. Premier-Pabst Sales
Co. v. Grosscup, 298 U.S. 226, 228, 56 S. Ct. 754 (1936).
In a tax case three decades iater, this Court made ref-
erence to South Carolina’s law requiring a “resident
representative” as an “appropriate element in the
State’s system of regulating the sale of liquor.” Heu-
blein, Inc. v. South Carolina Tax Commission, 409 U.S.
275, 277, 283-84, 93 S. Ct. 483 (1963).

21

E. “Core §2 power” analysis.

Over the past few decades this Court has created
and applied a “core §2 power” analytical approach to
the 21st Amendment. The essence of the analysis is
that the dormant Commerce Clause imposes no limit
on state power when the state is exercising its core §2
power to directly regulate the sale of liquor within the
state in a manner that does not discriminate against
out-of-state alcoholic products. Nothing more directly
regulates the local sale of liquor than deciding who can
obtain a permit or license to sell the liquor. Nothing is
further from the reach of the dormant Commerce
Clause than the determination of who can own the cor-
ner liquor store. That determination is the implemen-
tation of a core §2 power the people of this nation
granted exclusively to the states. That core §2 power
should stay with the states: it does not belong in the
federal judiciary.

&
A

CONCLUSION

Judicial efforts to apply the dormant Commerce
Clause to preserve Congressional power to regulate as-
pects of the three-tier system beyond Congress’ power
to regulate are intellectually erroneous. They extend
the power of the judiciary into a legislative area in
which Congress has no authority to legislate, while
simultaneously depriving states of powers historically
exercised by states since the 1700s and then expressly
granted to the states by Congress and the American

22

people in 1933. This Court should hold that any state
legislation or regulation governing the permitting or
licensing of the retail tier for local alcohol sale within
a state is impervious to attack from the dormant Com-
merce Clause.

Respectfully submitted,

HARRY HERZOG

HeERzoG & Carp

427 Mason Park Blvd.

Katy, Texas 77450

Telephone: (713) 781-7500

Fax: (713) 781-4797
HHerzog@hcmlegal.com

Counsel for KHBC Partners II, Lid.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0849%3A15. Public record. Not legal advice.