# 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

a»
. A

TENNESSEE WINE AND
SPIRITS RETAILERS ASSOCIATION,

Petitioner,
v.
CLAYTON BYRD, ET AL..,
Respondents.

»
v

On Writ Of Certiorari To The
United States Court Of Appeals
For The Sixth Circuit

&
.

BRIEF FOR THE MICHIGAN BEER AND
WINE WHOLESALERS ASSOCIATION AS
AMICUS CURIAE IN SUPPORT OF PETITIONER

7

i
QUESTION PRESENTED

Whether the Twenty-first Amendment empowers
States, consistent with the dormant Commerce Clause,
to regulate liquor sales by granting retail or wholesale
licenses only to individuals or entities that have re-
sided in-state for a specified time.

ss

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ....................2...0s000000- iii
INTEREST OF AMICUS CURIAE....................... 1
SUMMARY OF ARGUMENT .......0000000.0.00 eee. 2
I ditidecinitancinenctanbpabiiansctiininanniiitemicinatente 3
Introduction and History ..........................:0000++ 3
Sc indininicacintepiniltceindastanieuiityetipniagtuniiamiicunatsiniiniis 8

I. The dormant Commerce Clause review re-
quired by Granholm applies to laws that
favor in-state products or producers ......... 8

Il. In the alternative, the Court should con-
firm that the Twenty-first Amendment
immunizes from review under the Com-
merce Clause state regulations that are
inherent in the three-tier system, and this
includes requirements that retailers and
wholesalers be physically present in the

TABLE OF AUTHORITIES
Page
CASES
Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185 (2d
PIED TTI oct nidhischisdniacecestntncbeinbeitiiasimmneanandieniions 10, 13, 21
Byrd v. Tennessee Wine and Spirits Retailers
Ass’n, 883 F.3d 608 (6th Cir. 2018) ................... 15, 20
California Retail Liquor Dealers Ass’n v. Midcal
Aluminum, Inc., 445 U.S. 97 (1980)...................... 5,9
Cooper vu. Texas Alcoholic Beverage Comm’n, 820
F.3d 730 (5th Cir. 2016)...........................0--- 15, 16, 20
Duckworth v. Arkansas, 314 U.S. 390 (1941) ............... 3
Granholm v. Heald, 544 U.S. 460 (2005)............ passim
Heublein v. South Carolina Tax Commission,
I viicincihicieetiniemstinigtdegtidieitiatdlieentednans 10
Hostetter v. Idlewild Bon Voyage Liquor Corp.,
Se ee I ssiesccinesssacnnsninaciinibetiennnpeiacindintnpinenceses 21

Lebamoff Enterprises, Inc. v. Rauner, Docket No.
16 C 8607, slip op., 2017 WL 2486084 (N.D. IIl.
June 8, 2017), appeal pending, 7th Cir. Docket

Lebamoff Enterprises, Inc. v. Snyder, U.S. Dist.
Ct., E.D. Mich. Docket No. 2:17-cv-10191.....2, 12, 17

North Dakota v. United States, 495 U.S. 423
CII Ra ale eee 9, 11, 16, 21

Sarasota Wine Market, LLC v. Parson, U.S. Dist.
Ct., E.D. Missouri Docket No. 4:17-cv-029792 ....... 13

iv

TABLE OF AUTHORITIES -— Continued
Page

Southern Wine and Spirits of America, Inc. v. Di-
vision of Alcohol and Tobacco Control, 731

F.3d 799 (8th Cir. 2013)................ccccccccceeeeeeeeeees 11, 20
Wine Country Gift Baskets.com v. Steen, 612 F.3d
I ciensitninsnnnsecncdicdidiuntnsndistahiiecsanivit 14, 15

CONSTITUTIONAL PROVISIONS

ULE, Comme, Gem, FEE 2... ..ccccceccccceccccccccccnsccees passim
I RO I Fi cea snscceententinnesionsenaisinlesiaieniat 1
STATUTES AND CouRT RULES
Act of Mar. 1, 1913, ch. 90, 37 Stat. 699 (codified
i nctnrsscicnscsiesentniscmsnncinacdinssamaeninsencesei 5
Act of Aug. 27, 1935, ch. 740 § 202(b), 49 Stat. 877 ......... 5
Federal Alcohol Administration Act of 1935, 27
IT TIO EAE 16
Bn III, Bin, BI orcccccceccccccesnescoscscocccssnsncness 19
SS 8k EE 18
Bs MN, Wit SII cscccccccccccsccsccssorsssossinesonniese 19
Mich. Comp. L. § 436.1409 ...................ccccccceeeceeeeeeeeees 19
Be, INN, Bie OF IID oecccccccceccccuscncccnccsnccnsesescoate 18
Mich. Comp. L. § 436.1605 ...0.................cccccceeeeeeeeeeeees 18
Mich. Comp. L. § 436.1901 ..................cccccceceeeeeeeeeeeees 18
Mich. Comp. L. § 436.1903 ..................cccccseesscseeeeeeeees 18

Mich. Comp. L. § 436.1905 .........cc.ccccccceccsessessesseesveeees 18

Vv

TABLE OF AUTHORITIES — Continued

Page
Bee, Gone, Ta, © GI BID nnnceccecsvccccccsceccesesevesccresecsers 18
Mich. Comp. L. § 436.2013 ...................cccsceeeeeeeeceeeeeees 19
Mich. Comp. L. § 600.3801 ......................ccccceeeeeeeeeeeees 18
Sober Truth on Preventing Underage Drinking

Act, 42 U.S.C. § 290bb-25b 2... eee ceccccceceeeeeeeeeeeeee 6
Twenty-first Amendment Enforcement Act, 27

SE 6
OTHER
Brief of Ohio and 35 Other States as Amici Cu-

riae in Support of Petitioner, 2004 WL 530965

TIEN nhiainanensidinaistidiinitabagiistedgbiebinemiiuetinigibieemenes 9
Bureau of Alcohol, Tobacco and Firearms (ATF),

a I crcctnccntincnincscestectesssusctnccencsascenscne 16
Mich. Admin. Code, R. 436.1007........................... 18, 19
Mich. Admin. Code, R. 436.1011.............0...00.0ccccccceeee 18
Mich. Admin. Code, R. 436.1025....................0cccccccceees 18
Mich. Admin. Code, R. 436.1533...................0.0ccccc0c0ee 18
Mich. Admin. Code, R. 436.1631.....................0000:c0000- 19
Mich. Admin. Code, R. 436.1641 ...................000:cccccceee 19
Mich. Admin. Code, R. 436.1645.....................ccccccceeeee 18
Mich. Admin. Code, R. 436.1720...........0......0.cccccccceeees 19
Mich. Admin. Code, R. 436.1725....................cccccccceeeee 19
Mich. Admin. Code, R. 436.1727 ....................cccccccceeeeee 19

Mich. Admin. Code, R. 436.1865.....................cccccceeees 19

vi

TABLE OF AUTHORITIES — Continued

Toward Liquor Control, Fosdick and Scott, 1933
by Harper & Brothers, 1960 by Raymond B.

AERTS ESET R To 6, 7,17

1

INTEREST OF AMICUS CURIAE'

The Michigan Beer and Wine Wholesalers Associ-
ation (“MB&WWA’”) is a Michigan non-profit associa-
tion of licensed Michigan beer and wine wholesalers.
Its members distribute over 90% of all wine and beer
sold to retailers under Michigan’s three-tier distribu-
tion system.

MB&WWA is committed to working with regula-
tors and others for responsible and effective regulation
of the sale of alcoholic beverage products. MB&WWA
believes state laws concerning the structure of a state’s
alcoholic beverage distribution system are entitled to
judicial deference and that the power delegated to the
States under the Twenty-first Amendment of the U.S.
Constitution should be upheld.

MB&WWA has been involved, as either an inter-
venor or amicus curiae, in numerous federal and state
lawsuits where state alcoholic beverage laws were
challenged. MB&WWA, as an intervenor, participated
in Granholm v. Heald, 544 U.S. 460 (2005), this Court’s
most recent decision on the interplay between the dor-
mant Commerce Ciause, U.S. Const. art. I, § 8, cl. 3 and
U.S. Const. amend. XXI. MB&WWA is participating as

' Pursuant to Sup. Ct. R. 37.6 amicus curiae and its counsel
state that no counsel for any party authored this brief in whole or
in part. No party or party’s counsel contributed money for the
preparation or submission of this brief. No person other than ami-
cus curiae (or its members) contributed money that was intended
to fund the preparation or submission of this brief. Amicus curiae
files this brief pursuant to the blanket consents given by the par-
ties, copies of which are on file in the Clerk’s office.

2

an intervenor in L-/amoff Enterprises, Inc. v. Snyder,
US. Dist. Ct., E.D. Mich., Docket No. 2:17-cv-10191,
which is currently pending in the Sixth Circuit Court
of Appeals, Docket Nos. 18-2199/2200. The decision in
the instant case will shape the result in Lebamoff and
in other pending challenges to state-based alcoholic
beverage regulation.”

MB&WWA supports the Petitioner for reversal of
the Sixth Circuit.

SUMMARY OF ARGUMENT

Courts have disagreed on how to interpret
Granholm with respect to state laws that do not dis-
criminate against out-of-state products or producers,
but regulate the retailer and wholesaler tiers of a
State’s three-tier distribution system.

The Twenty-first Amendment and this Court's
precedent require that rational laws regulating in-
state retailers and wholesalers are free from the nor-
mal operation of the dormant Commerce Clause when
those laws do not discriminate against out-of-state
products or producers. The Sixth Circuit’s decision

? The District Court in Lebamoff entered an order staying its
decision pending the appeal and staying enforcement of the in-
junctive portion of its decision pending this Court’s decision in the
present case. Document No. 47, order entered October 11, 2018.
The Sixth Circuit in Lebamoff entered a stipulated order holding
the appeals in abeyance pending this Court’s decision. Document
No. 15-2, order entered November 6, 2018.

3

should be reversed and the owner residency law should
be deemed constitutional.

However, if this Court affirms the Sixth Circuit, it
should preserve three-tier distribution systems that
funnel alcoholic beverages through licensed in-state
wholesalers and retailers, which Granholm recognized
were “unquestionably legitimate.” In particular, this
Court should explicitly affirm the Sixth Circuit’s recog-
nition that requiring physical presence of licensed
retailers and wholesalers is an inherent part of three-
tier systems and is consistent with the powers given
to States by the Twenty-first Amendment, free of
dormant Commerce Clause restraints that might oth-
erwise apply were another product at issue.

°

ARGUMENT
Introduction and History
A.

It has long been recognized that “liquor” is “a
lawlessness unto itself” and that the Twenty-first

* Duckworth v. Arkansas, 314 U.S. 390, 398-399 (1941) (Jack-
son, J., concurring in result):

“The people of the United States knew that liquor is
lawlessness unto itself. They determined that it should

be governed by a specific and particular constitutional
provision. They did not leave it to the courts to devise
special distortions of the general rules as to interstate
commerce to curb liquor’s ‘tendency to get out of
bounds.’”

4

Amendment gives states the primary responsibility for
regulating distribution of wine, beer and spirits for use
within their borders.

The last eight decades have demonstrated the
utility and effectiveness of state-based regulation of al-
coholic beverages. Before and during National Prohibi-
tion, abuse of alcoholic beverages was an acute problem
generating constant public outcry. Because of gener-
ally effective state regulation since the repeal of Na-
tional Prohibition, it has been no more than a chronic
problem.

Public concern with both intemperate and under-
age consumption is obvious and justified. This leads to
efforts to control over-selling as the best way to control
over-consumption. The alcoholic seller’s appetite for
profit was to be restricted along with the buyer’s appe-
tite for alcohol. Restriction was extended beyond
drinkers and retailers up the supply chain to create a
culture of control. All sellers were to be regulated. No
one group was supposed to feel unfairly and dispropor-
tionately regulated unlike the experience of some dur-
ing National Prohibition. No one engaged in selling of
alcoholic beverages was to be burdened so onerously
that they were pressed to disobey the law.

State enforcement powers are needed to ensure
accountability, curb overstimulation of sales, avoid dis-
orderly market conditions and ensure compliance with
state regulations. State laws defining who is allowed
to traffic in alcoholic beverages should not be lightly
set aside. Otherwise, there is great danger that the

5

balance struck by a State’s legislature — furthering
temperance by restricting selling while not endanger-
ing temperance by over-restricting and thereby incit-
ing illicit and unregulated sales — will be severely
compromised.

In 1913, Congress exercised its power under the
Commerce Clause to enact the Webb-Kenyon Act
which forbids the “shipment or transportation ... of
any .. . intoxicating liquor of any kind from one State
... into any other State . . . which said . . . liquor is in-
tended ... to be received, possessed, sold, or in any
manner used .. . in violation of any law of such State.”
Act of Mar. 1, 1913, ch. 90, 37 Stat. 699 (codified at 27
U.S.C. § 122). In 1933, at the end of National Prohibi-
tion, Section 2 of the Twenty-first Amendment made
this federal protection of State power permanent by
placing it into the Constitution. Section 2 prohibits
“(t/he transportation or importation into any State . . .
for delivery or use therein of intoxicating liquors, in
violation of the laws thereof.” In 1935, to show it recog-
nized the States’ power, Congress re-enacted Webb-
Kenyon. Act of Aug. 27, 1935, ch. 740 § 202(b), 49 Stat.
877.

From the repeal of National Prohibition through
Granholm, this Court’s decisions have confirmed the
power granted by the Twenty-first Amendment to the
States over how to structure their alcoholic beverages
distribution systems. See, e.g., California Retail Liquor

6

Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97,
110 (1980) (“The Twenty-first Amendment grants the
States virtually complete control over . . . how to struc-
ture the liquor distribution system.”).

The primacy of state regulation continues to be
recognized and confirmed by Acts of Congress. In 2000,
Congress enacted the “Twenty-first Amendment En-
forcement Act,” 27 U.S.C. § 122a(b), giving state Attor-
neys General the ability to avail themselves of federal
court jurisdiction and injunctive relief to enforce state
laws dealing with alcohol. In 2006, Congress passed
the “Sober Truth on Preventing Underage Drinking
Act,” 42 U.S.C. § 290bb-25b. In that Act, Congress rec-
ognized that “alcohol is a unique product and should
be regulated differently than other products” and that
“states have primary authority to regulate alcohol dis-
tribution and sale, and the Federal Government should
support and supplement these State efforts.” 42 U.S.C.
at § 290bb-25b(b)(7).

Cc.

With the repeal of National Prohibition, states
were faced with the daunting task of establishing alco-
holic beverage distribution systems. Of great influence
in that effort was the study reported in Toward Liquor

7

Control*, which explored and made recommendations
about different forms of regulation.

For states deciding to use a licensing system to
regulate the distribution of alcoholic beverages, To-
ward Liquor Control recommended’ adoption of vari-
ous practices including: a single state licensing board,
tenured administrators, prohibitions against “tied
house” arrangements which have “all the vices of ab-
sentee ownership” where the “manufacturers knew
nothing and cared nothing about the community,”
restrictions on the number of retail outlets, a classi-
fication system for licenses which recognizes “the in-
herent differences between beer, wine and spirits,”’
restrictions on hours of sale, licensing of both persons
and premises, prohibitions on sales practices that
would encourage consumption, limitations on advertis-
ing, and efforts to control profits and prices.*

Many states adopted their own versions of these
recommendations to form the various parts of their
three-tier distribution systems requiring alcoholic

* Toward Liquor Control, Fosdick and Scott, 1933 by Harper
& Brothers, 1960 by Raymond B. Fosdick, 2011 by The Center for
Alcohol Policy.

5 Id. at 28.

* Id. at 29. A residency requirement simply reflects a Legis-
lature’s determination that out-of-state owners, whether or not
they be alcoholic beverage manufacturers, have all the vices of
out-of-state absentee owners.

” Id. at 30.

® Id. at 28 to 34.

8

beverages to pass through licensed in-state wholesal-
ers and in-state retailers who can be effectively regu-
lated.

What is inherent in a three-tier distribution
system is not limited only to those elements that exist
in every three-tier system (i.e., the lowest possible
common denominator). Nor are inherent aspects of
three-tier systems limited to only those things that ex-
isted when a three-tier system was first devised, be-
cause the purpose of state-based regulation of alcoholic
beverages is to allow each State the ability to find the
right regulatory “fit” for its population and circum-
stances and to learn from its regulatory experiences.

Analysis

I. The dormant Commerce Clause review re-
quired by Granholm applies to laws that
favor in-state products or producers.

A.

Granholm struck down exceptions to three-tier
systems in New York and Michigan that, in effect, al-
lowed in-state wineries to by-pass the three-tier distri-
bution systems while requiring out-of-state wineries to
comply with them. In the briefing, Michigan and New
York expressed concern that striking down the statu-
tory exceptions would undercut the States’ Twenty-
first Amendment authority to regulate in-state distri-
bution of alcohol, a concern echoed by 36 other states
in their amici curiae brief in support of Michigan’s pe-
tition: “The possibility that federal courts may eviscerate

9

the States’ ability to maintain their liquor control sys-
tems, as some Circuit Courts have already done, is of
paramount concern to all States.”

This Court responded to the States’ concerns:

“The States argue that any decision invali-
dating their direct-shipment laws would call
into question the constitutionality of the
three-tier system. This does not follow from
our holding. ‘The Twenty-first Amendment
grants the States virtually complete control
over whether to permit importation or sale of
liquor and how to structure the liquor distri-
bution system.’ Midcal, supra, at 110, 100
S.Ct. 937. * * * States may also 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 ‘unques-
tionably legitimate.’ North Dakota v. United
States, 495 US., at 432, 110 S.Ct. 1986. See
also id., at 447, 110 S.Ct. 1986 (SCALIA, J.,
concurring in judgment) (“The Twenty-first
Amendment ... empowers North Dakota to
require that all liquor sold for use in the State
be purchased from a licensed in-state whole-
saler’). State policies are protected under the
Twenty-first Amendment when they treat liq-
uor produced out of state the same as its do-
mestic equivalent.”

® Brief of Ohio and 35 Other States as Amici Curiae in Sup-
port of Petitioner, 2004 WL 530965 (2004), p. 4.

10

B.

Despite the above-quoted passage, lower courts
continue to express uncertainty as to the tension be-
tween the dormant Commerce Clause and the Twenty-
first Amendment even where a challenged law does not
discriminate against out-of-state products or produc-
ers.'° Some Circuit Courts (and also District Courts)
are still reaching decisions that threaten effective
state alcoholic beverage regulation, including the need
for physical presence" or the use of residency as an el-
ement of physical presence, so long as the residency re-
quirement is reasonable.

The nondiscrimination review adopted in Gran-
holm applies only to statutes that favor in-state prod-
ucts or producers and not to state laws governing
the in-state distribution of alcohol through licensed

© As noted in Judge Calabresi’s concurring opinion in Ar-
nold’s Wines, Inc. v. Boyle, 571 F.3d 185, 192 (2d Cir. 2009):

“(T|he jurisprudence the Supreme Court has created

through this updating lof the meaning of the Twenty-

first Amendment] presents other problems. Regretta-

bly, it often leaves lower courts at a loss in seeking to

figure out what the Twenty-First Amendment means

and what if any governing principles may be derived

from the High Court’s Twenty-First Amendment deci-

sions.”

'! The insistence on physical presence for effective enforce-
ment has been upheld even at the supplier level. See Heublein v.
South Carolina Tax Commission, 409 U.S. 275 (1972), which up-
held a physical presence requirement on manufacturers in cir-
cumstances in which, unlike those in Granholm, there was no
discriminatory exemption from three-tier requirements for any
in-state suppliers.

11

wholesalers and retailers. This view of Granholm was
articulated in, for example, Southern Wine and Spirits
of America, Inc. v. Division of Alcohol and Tobacco Con-
trol, 731 F.3d 799 (8th Cir. 2013), upholding a Missouri
residency requirement for wholesalers:

“Given Granholm’s recency and specificity, we
think the Court’s discussion there provides
the best guidance. The three-tier system is
‘unquestionably legitimate,’ Granholm, 544
U.S. at 489, 125 S.Ct. 1885 (internal quota-
tion omitted), and that system includes the
‘licensed in-state wholesaler. Jd. (quoting
North Dakota, 495 U.S. at 447, 110 S.Ct. 1986
(Scalia, J., concurring in the judgment)). More
broadly, state policies that define the struc-
ture of the liquor distribution system while
giving equal treatment to in-state and out-of-
state liquor products and producers are ‘pro-
tected under the Twenty-first Amendment.’
Id. Viewed in context, the Court’s statement
must mean that such policies are ‘protected’
against constitutional challenges based on the
Commerce Clause.

+ * *

If it is beyond question that States may
require wholesalers to be ‘in-state’ without
running afoul of the Commerce Clause,
Granholm, 544 U.S. at 489, 125 S.Ct. 1885
(internal quotation omitted), then we think
States have flexibility to define the requisite
degree of ‘in-state’ presence to include the in-
state residence of wholesalers’ directors and

12

officers, and a super-majority of their share-
holders.”

MB&WWA submits, initially, the Court should
rule the Twenty-first Amendment insulates from re-
view under the dormant Commerce Clause laws that
are rationally related to the State’s core powers under
the Twenty-first Amendment and do not favor in-state
products or producers.

Il. In the alternative, the Court should con-
firm that the Twenty-first Amendment im-
munizes from review under the Commerce
Clause state regulations that are inherent
in the three-tier system, and this includes
requirements that retailers and wholesal-
ers be physically present in the State.

A.

Subsequent to Granholm there has been an effort
to negate judicially common state requirements that
retailers and wholesalers be physically present in the
state by claiming such laws violate the dormant Com-
merce Clause.

One of the most recent instances of that effort is
Lebamoff, supra, in which the District Court effectively
struck down Michigan’s three-tier distribution system
by enjoining the State from enforcing laws that would
prohibit unlicensed out-of-state retailers from directly
shipping wine to Michigan consumers because Michi-
gan allows in-state retailers (operating within Michi-
gan’s three-tier system) to deliver by common carrier

13

to consumers in the State. Other pending cases chal-
lenging physical presence requirements for retailers
include Lebamoff Enterprises, Inc. v. Rauner, Docket
No. 16 C 8607, slip op., 2017 WL 2486084 (N.D. Ill. June
8, 2017), appeal pending, 7th Cir. Docket No. 17-2495,
and Sarasota Wine Market, LLC v. Parson, U.S. Dist.
Ct., E.D. Missouri Docket No. 4:17-cv-029792.

Those seeking to circumvent effective state regu-
lation have cited language in Granholm regarding the
ordinary nondiscrimination principles of the dormant
Commerce Clause, in efforts to persuade lower courts
to ignore the Twenty-first Amendment and allow them
to operate outside of the three-tier system within
which in-state retailers must operate.

The Second, Fifth and Sixth Circuits have rejected
that strained interpretation of Granholm, conclud-
ing the holding that three-tier systems are “unques-
tionably legitimate” necessarily forecloses Commerce
Clause challenges to state laws that are an inherent
part of three-tier systems, including laws requiring re-
tailers to be physically present in the state.

In Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185 (2d
Cir. 2009), the plaintiffs challenged parts of New York’s
Alcoholic Beverage Control Law (“ABC Law”), claim-
ing the laws violated the dormant Commerce Clause to
the extent they prohibited out-of-state retailers from
selling and delivering wine directly to New York con-
sumers but allowed licensed in-state retailers to do so.

14

The Court found that was a challenge to the State’s
power to require retailers to be physically present in
the State, an “integral” part of the three-tier system:

“In reaching its hold’ »g, the Granholm Court
noted that the challenged regulations were
discriminatory exceptions to, rather than in-

tegral parts of, the underlying three-tier sys-
tems.

* * *

Because New York’s three-tier system treats
in-state and out-of-state liquor the same, and
does not discriminate against out-of-state
products or producers, we need not analyze
the regulation further under Commerce
clause principles. The [pertinent sections of |
New York’s ABC Law are an integral part of
New York’s three-tier system. Because New
York’s laws evenhandedly regulate the impor-
tation and distribution of liquor within the
state, we hold that they do not run afoul of
the Commerce Clause. 571 F.3d 185, 191-192.”
(Footnote omitted.)

Similarly, in Wine Country Gift Baskets.com v.
Steen, 612 F.3d 809, 818 (5th Cir. 2010), the Court held
disparate treatment inherent in the three-tier system
is permissible under Granholm: “The discrimination
that would be questionable, then, is that which is not
inherent in the three-tier system itself. If Granholm’s
legitimizing of the tiers is to have meaning, it must
at least mean that.” The Court also recognized the

15

“beginning premise” that “wholesalers and retailers
may be required to be in the state.”

In the present case’ the Sixth Circuit followed the
reasoning of the Fifth Circuit in Cooper v. Texas Alco-
holic Beverage Commission, 820 F.3d 730 (5th Cir.
(2016) (“Cooper IT”), that while durational residency is
not an inherent aspect of the three-tier system im-
mune from Commerce Clause review, physical pres-
ence is. After quoting from Cooper I/, 820 F.3d at 743,
the Court stated, 883 F.3d at 623:

“In this language, the Fifth Circuit created an
important distinction: requiring retailer- or
wholesaler-alcoholic-beverages businesses to
be within the state may be essential to the
three-tier system, but imposing durational-
residency requirements is not, particularly
when those durational-residency require-
ments govern owners. n8

n8 The dissent asserts that in-state dis-
tribution regulations are always discrim-

inatory in some manner, and in some
ways, the dissent is correct that ‘|wl/hat
matters is what type of discrimination is
permissible.’ (883 F.3d at 634.| However,
the Fifth Circuit acknowledged this di-
lemma, and it rectified the issue—requir-
ing wholesalers and retailers to be in the
state is permissible, but requiring owners

" 612 F.3d 809, 821.
Byrd v. Tennessee Wine and Spirits Retailers Ass'n, 883
F.3d 608 (6th Cir. 2018).

16

to reside within the state for a certain pe-
riod is not. Cooper II, 820 F.3d at 743.

It is especially important that States have the
ability to require the physical presence of retailers, be-
cause alcoholic beverage retailers (unlike producers,
importers and wholesalers) are not required to hold
any federal permit in order to operate. Rather, retailers
are regulated by the States."*

The holdings in these Court of Appeals cases are
consistent with Granholm. They are also consistent
with North Dakota v. United States, 495 U.S. 423 (1990)
(Plurality opinion of Justice Stevens):

“ There is no federal permit available to, or required of, alco-
holic beverage retailers. Rather, retailers are licensed and regu-
lated by the individual states, under each state’s own laws which
reflect local needs, local history, and local views on how beer, wine
or spirits should be distributed and sold. There is no federal re-
tailer permit which can be revoked or suspended if a retailer fails
to comply with state law. In contrast, wineries and wine wholesal!-
ers (who form the other tiers of the three-tier wine distribution
system) are required to have a federal permit and to comply with
federal and state laws. See Federal Alcohol Administration Act of
1935, 27 U.S.C. § 201 et seg. (“FAA Act”). See also Bureau of Alco-
hol, Tobacco and Firearms, ATF Ruling 2000-1 (which can be
found at https//www.ttb.gov/rulings/2000-1.htm) which explains
that “[rjetailers are not required to obtain basic permits under the
FAA Act,” and “while the ATF is vested with authority to regulate
interstate commerce in alcoholic beverages pursuant to the FAA
Act, the extent of this authority does not extend to situations
where an out-of-State retailer is making the shipment into the
State of the consumer.”). The Alcohol and Tobacco Tax and Trade
Bureau (“TTB”), the successor agency to ATF, confirms that ATF
Ruling 2000-1 “remains in effect and reflects the policy of TTB
today.” See http:/Awww.ttb.gov/publicationa/direct shipping shtm!.

17

“The two North Dakota regulations fall with-
in the core of the State’s power under the
Twenty-first Amendment. In the interest of
promoting temperance, ensuring orderly mar-
ket conditions, and raising revenue, the State
has established a comprehensive system for
the distribution of liquor within its borders.
That system is unquestionably legitimate.
(Citations omitted.)

Given the special protection afforded to state

liquor control policies by the Twenty-first

Amendment, they are supported by a strong

presumption of validity and should not be set

aside lightly.”

Requiring physical presence of licensed retailers
and wholesalers assures meaningful enforcement of
regulations designed to protect the public, promote
temperance and foster orderly markets. Physical
presence allows state officials to inspect premises of
wholesalers and retailers to ensure compliance, to
cross-check records of wholesaler and retailer licen-
sees, to ensure that only products registered with the
State are being sold to consumers, and to otherwise aid
enforcement, including through sting operations.

Michigan’s three-tier system has been the focus of
federal litigation, including in Granholm and Leba-
moff, and Michigan’s laws are typical of those found in
other states." Therefore, some of the pertinent laws

See discussion of the study reported in Toward Liquor
Control, supra, pp. 5-6.

18

and regulations demonstrating that physical presence
of licensed wholesalers and retailers is a required
and an inherent part of the three-tier system are
set out in the accompanying footnote.'* Many of these

* The three-tier system has strong “anti-tied house” provi-
sions to prevent integration among the three tiers and to ensure
that manufacturers and wholesalers do not dominate or hold any
impermissible financial interests in a retailer. Mich. Comp. L.
§$§ 436.1603 and 436.1605.

Retail licensees are prohibited from selling or furnishing
wine or other alcohol beverages to persons under 21 years of age,
and are required to obtain evidence of age and identity prior to
sale. Mich. Comp. L. §§ 436.1905 and 436.1906(6); Mich. Admin.
Code, R. 436.1533(5).

A license applicant is subject to rules and restrictions related
to the actions of its officers, directors, managers, agents, and em-
Code, R. 436.1011. Violations of these laws and regulations can
subject an applicant or a licensee to denial of an application or of
renewal of a license, suspension and revocation of the liquor li-
cense. Mich. Comp. L. § 436.1903.

Retail licensees must maintain books and records and make
them available for inspection by the State. Mich. Admin. Code,
R. 436.1007 and R. 436.1645. This allows the State to track the
distribution of alcoholic beverages to ensure compliance with laws
and assure that alcoholic beverages are not “bootlegged” and being
illegally diverted from the three-tier system. The State has the
right to inspect the premises of licensees to make sure retailers
and wholesalers are complying with the various laws and ad-
ministrative rules. Mich. Comp. L. § 436.1217; Mich. Admin.
Code, R. 436.1007 and R. 436.1645. Retailers are prohibited from
warehousing alcohol on unlicensed premises. Mich. Comp. L.
§ 436.1901(1); Mich. Admin. Code, R. 436.1025. The premises of a
retailer upon which an unlawful sale occurs are deemed a public
nuisance and subject to abatement, which is a strong deterrent.
Mich. Comp. L. § 600.3801(d). These enforcement mechanisms
would not exist, as a practical matter, without physical presence.

19

regulations (as well as others) would be impossible
to effectively enforce without physical presence of
the licensee giving the State the ability to visit and
inspect the premises and records, and to penalize non-
compliance with meaningful sanctions including put-
ting a transgressor completely out of business by
license revocation or closing.

Cc.

Residency is different than physical presence.'’
One is, or is not, physically located within the borders

Licensed wholesalers and retailers have responsibility for
collecting and remitting state and local taxes and must keep ex-
tensive records, which allows the State to cross check records
among the various tiers to ensure compliance. Mich. Comp. L.
$§ 436.1301 and 436.1409; Mich. Admin. Code, R. 436.1007, R.
436.1641, R. 436.1725, R. 436.1727 and R. 436.1865. Licensees are
required to file monthly statements indicating the total amount
paid for alcoholic liquor purchased during the preceding month.
Mich. Admin. Code, R. 436.1631 and R. 436.1720.

A “cash law” prohibits wholesalers from selling and retailers
from buying wine on credit. Mich. Comp. L. § 436.2013. This en-
sures retailers are operating a viable business (and thus less
likely to skirt the law). It also prevents wholesaler favoritism (“aid
and assistance”) through the grant of credit, which could be used
to induce a retailer to only sell the products carried by the whole-
saler offering credit terms (thus reducing consumer choice) and
likely to skirt the law.

Under the three-tier system, the enforcement activities of
Michigan’s Liquor Control Commission are assisted by Michigan
law enforcement officers. Mich. Comp. L. § 436.1201(4).

‘’ Michigan, for example, does not require its retailers, or the
owners of retailer entities, to reside in the State. But Michigan
does require that retailers and wholesalers of alcoholic beverages

20

of the state. There is no such thing as an arguably ex-
cessive physical presence requirement.

A residency requirement, including a durational
one, has been judged correctly to be legitimate as an
element of a state’s definition of physical presence,
with plausible regulatory benefits. See Southern Wine
and Spirits of America, Inc., supra. Other durational
residency requirements have been rejected as exces-
sive instances of purely protectionist intent. See
Cooper IT, supra, and Byrd, supra. It is hardly surpris-
ing that the Fifth Circuit in Cooper II did not reinstate
a residency requirement that had not existed in Texas
for twenty years and which the State was not request-

ing.

The protection of physical presence requirements
for the two lower tiers by the Twenty-first Amendment
is absolute, often referred to as “inherent,” “integral”
or “critical” to a three-tier regulatory scheme. The pro-
tection of residency requirements may be more limited
and fact dependent. See Byrd, supra, opinion of Sutton,
J., concurring in part and dissenting in part, 883 F.3d
at 628-636.

Even assuming arguendo that the Courts in
Cooper II and Byrd were correct that the residency
laws at issue there were not immune from challenge,
those Courts were wrong in stating that no type of
residency law is immune. Such a broad statement
was merely dictum and contrary to the injunction of

have a physical presence in the State which allows effective en-
forcement of comprehensive regulations.

21

Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.“.
324, 332 (1964), that: “Both the Twenty-first Amend-
ment and the Commerce Clause are parts of the same
Constitution. Like other provisions of the Constitution,
each must be considered in the light of the other, and
in the context of the issues and interests at stake in
any concrete case.”

@
-

CONCLUSION

State laws requiring retailers and wholesalers
to be present in the state are an inherent part of
the three-tier system and are valid under the Twenty-
first Amendment, regardless of whether the regula-
tions may discriminate against out-of-state retailers or
wholesalers who do not participate in the three-tier
system.

The Court’s decision in the present case will likely
have great significance with respect to the ongoing at-
tempts to dismantle three-tier systems and, effectively,
the Twenty-first Amendment.

If the Court chooses to narrow” Twenty-first
Amendment powers to regulate owner residency of re-
tailers, MB&WWA requests the Court to reaffirm Gran-
holm’s and North Dakota’s recognition that States may
require alcoholic beverages to pass through licensed
wholesalers and retailers, and to confirm that states

‘© See Judge Calabresi’s concurring opinion in Arnold's
Wines, 571 F.3d 185, 191.

22

may require licensed retailers and wholesalers to be
physicaliy present in the state, free of any dormant
Commerce Clause concerns.

Respectfully submitted,
Dated: November 16, 2018

ANTHONY S. KoGutT

Counsel of Record
Curtis R. HADLEY
WILLINGHAM & Core, P.C.
333 Albert Ave., Suite 500
East Lansing, MI 48823
517-351-6200
akogut@willinghamcote.com
chadley@willinghamcote.com

Counsel for Amicus Curiae

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0849%3A19. Public record. Not legal advice.