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

Supreme Court brief2018

Ask Donna

What actually matters in this document.

Text

No. 18-96

In the Supreme Court of the United States

TENNESSEE WINE AND SPIRITS RETAILERS

ASSOCIATION,

Petitioner,

CLAYTON BYRD, ET AL..,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

BRIEF OF NATIONAL BEER WHOLESALERS ASSOCIATION

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

Paul E. Pisano Michael D. Madigan

National] Beer Counsel of Record

Wholesalers Association Brandt Erwin

1101 King Street Madigan, Dahl & Harlan, P.A.

Suite 600 222 South Ninth Street

Alexandria, VA 22314 Suite 3150

703-683-4300 Minneapolis, MN 55402

612-604-2000

madigan@mdh.law.com

erwin@mdbh-law.com

Counsel for Amicus Curiae National Beer Wholesalers

Association

TABLE OF CONTENTS

pO k,n ii

INTEREST OF AMICUS CURIAE........000.0.000............ 1

SUMMARY OF ARGUMENT .....000.......... eee 5

EEE SCE Nes one ease aeRO EN 7

Be rial hacia aerate 7

ll. Policy Underlying the Challenged Statute. ....8

Ill. The Congressional and Constitutional History

of Liquor Regulation..........................-.-:ccsccee00000 23

A. The Eighteenth Amendment. ....................... 23

B. The Twenty-first Amendment..................... 29

C. The Twenty-first Amendment and

Dormant Commerce Clause. ...................... 32

1V. State Liquor Laws Structuring the

Distribution System Within the State’s

Borders are Entitled to Extraordinary

Deference Under the Twenty-first

a EL APE ERR ee ease §2

SEE erratiticincstuinibsnisienisieensarieatescenenainmannenieetpnd 57

Cases

44 Liquor Mart, Inc. v. Rhode Island,

gk STE TT OR 34

Arnold’s Wines, Inc. v. Boyle,

571 F.3d 185 (2d Cir. 2009)........................... passim

Bacchus Imports, Lid. v. Dias,

| SEE 35, 36, 37, 39

Bowman v. Chi. & Nw. Ry. Co.,

ee it ciictecicuccsninnnestnrivcntemveenssnnnecsebes 25

Brooks v. Vassar,

462 F.3d 341 (4th Cir. 2006)...................... 44, 46, 47

Brown-Forman Distillers Corp. v. N.Y. State Liquor

Auth.,

I EIT oss ncnteniinenretiniesesncenavehemiinnanianaees 35

Byrd v. Tennessee Wine and Spirit Retailers

, tation,

883 F.3d 608 (6th Cir. 2018)...................0.. 1, 2, 6, 7

Cal. Retail Liquor Dealers Ass’n v. Midcal

Aluminum, Inc.,

a ee 30

Capital Cities Cable, Inc. v. Crisp,

I tdicincstienitcnnssetnenaiemmnnenendesied 38

Clark Distilling Co. v.

Western Maryland Railway Co.,

i ccensubiebinensionenide 27

Carter v. Virginia,

gS Se eR ee eT 53

Cooper v. Texas Alcoholic Beverage Commission,

820 F.3d 730 (Sth Cir. 2016)................cccccceeeee sees 51

Costco v. Hoen,

522 F.3d 874 (9th Cir. 2008).................................. 54

Craig v. Boren,

TE aaa ET 34

Dugan v. Bridges,

16 F. Supp. 694 (D.N.H. 1936) ................0.0.0.. 26, 27

Finch v. McKittrick, 305 U.S. 395 (1939), abrogated

by Granholm v. Heald, 544 U.S. 460 (2005)......... 34

Granholm v. Heald,

EE I cncceerncgemninpennacumuntiiatsiaiiia passim

Healy v. Beer Inst., Inc.,

eT TT 35

Indianapolis Brewing Co. v. Liquor Control Comm'n,

305 U.S. 391 (1939), abrogated by Granholm v.

Heald, 544 U.S. 460 (2005)..............cccccccccccceeeeeeeees 34

Larkin v. Grendel’s Den,

I i ueeeneeiies 34

Lebamoff Enterprises, Inc. v. Huskey,

666 F.3d 465 (7th.Cir. 2012).....................c..eeeeeeeees 54

Lehnhausen v. Lake Shore Auto Parts, Co.,

Ie IT nrc ccrnencnatenneninsannaninsenentaunetines 56

Leisy v. Hardin,

I een ener 24

Loretto Winery, Lid. v. Gazzara,

601 F. Supp. 850 (S.D.N.Y. 1985) ......................... 28

North Dakota v. U.S.,

| EE eee aoe 35, 37, 38

Rhodes v. lowa,

nan rca tclnenenatnenininintinneiinasital 25

Southern Wine & Spirits of America, Inc. v.

Division of Alcohol & Tobacco Control,

731 F.3d 799 (8th Cir. 2013).......................... passim

United States v. Frankfort Distilleries, Inc.,

OO , CE

U.S. v. Anheuser-Busch InBev SA/ NV and

SABMiller pic,

Case No. 1:16-cv-01483-EGS, Doc. 42

fk, eee 10

Wine Country Gift Baskets.com vs. Steen,

612 F.3d 809 (5th Cir. 2010)....................0.00000. 51, 54

Wisconsin v. Constantineau,

A —

Ziffrin, Inc. v. Reeves,

Geren 33

Constitutional Provisions

CT Sle SI itirictccccscccoccccccecescscensesecsensenssens 34

FG a Enero 9, 27

U.S. CONST. amend. XX1 ...............ccccccceeeeeeees passim

U.S. CONST. amend. XX], § 2..................++ 30, 31, 40

oF el OP 6) ES 30

Statutes

235 Ill. Comp. Stat. Amn. § 5/6-8................c:ccceeeeeeeees 13

237 Neb. Admin. Code Ch. 6, Sec. 010 .................0 13

OF Fate Oe tis ercccscescscssnzssceczcastenesecsstenissscsnenennsesnete 17

of 8 eee 17

OF is ee cerintneteenicaescaccncscninsintsncscnenincnntzsnnccasensnens 17

OF Fis ee ceeseccencesnecsenesecsncsoncsesssencnsneenecesnssanes 17

3 R.1L. Gen. Laws Ann. § 3-5-10(a)(1) ...................000 14

3 R.L. Gen. Laws Ann. § 3-5-10(b)(1) .....................0 16

42 U.S.C. § 2O0ed-BGD(D)(7) ...........0...0cccseerecscrssceserees 17

47 Pa. Stat. Amm. § 4-431(E) ..........2000ccccecceccccescccesseees 16

IF a, Ba, Bans BO eisccneciccctcerecstsencncessnercvess 13

47 Pa. Stat. Arn. § 4-410(d) ............cccccsccsscsssessesseseees 14

47 Pa. Stat. Amn. § 4-431(C) .........0.......ccccesccrccscesscoees 14

ee Re 14

Bi, Ge FD vc ceccnstacescrcccssenevnnneeceenvesscenssevesens 13

ee Ce i irrtindeteincecctocentntientntenincmninmnacsian 13

a Oe Oiceccnerstncnttnrereserersisccscssnesasesessesiene 13

Ariz. Rev. Stat. Amn. § 4-202 .................ccccceeeseeeseeeees 16

Ariz. Rev. Stat. Ann. § 4-243.01(B)..................c.cc000e 13

Ariz. Rev. Stat. Ann. § 4-402(A)...............0cccccceseeeeeees 14

Ark. Code Ann. § 3-4-606(a)..............ccccccccceeeeeees 14, 15

Baie, Gate Bate, B OG cecaresecesccceccsesesessenccsesccvecsesse 13

Cal. Bus. & Prof. Code § 24041 .................ccccccceeeeeeees 13

Colo. Rev. Stat. Ann. § 44-3-407(1)(d) .................0006 13

Conn. Agencies Regs. § 30-6-B9..................cccccseeeee0 13

Del. Code Ann. tit. 4, § 501(f).................sssssssssssessseees 13

4 8 4 13

ee 13

Idaho Code Ann. § 23-1028 ...............cccccceeseseseeseeeeeees 13

re Ge IR, © I cccnciccccvevesocerccnscecesseesseresees 14

Ind. Code Ann. § 7.1-3-3-5(D) ..............ccccceeseeereereenenes 13

lowa Code Ann. § 123.130(2) ..............ccccccccceceseeeeneees 13

lowa Code Ann. § 123.3(34) .................cssceseseeeeees 14, 15

lowa Code Ann. § 123,127(2)(b) ..................00.0000 14, 15

> OB ene 13

Ky. Rev. Stat. Ann. § 243.100(1)(f) ..................ceccccees 14

Ky. Rev. Stat. Ann. § 244.167(1)(d) ................ccccccee0s 13

Rik, GR, GAR Fy i ctcccnccsecccneconsencseresennnsnsneeses 13

le, I I, Fe ee Siccatccusicnncsecsmisremesennconn 14

vii

Mass. Gen. Laws Ann. Ch. 138, § 18............ 13, 14, 15

ERE RE SS Ie a a ae 14, 15

I i 15

Md. Code Regs. § 03.02.01.20 ..0..........:cccccccceececeeceeeee 13

Me. Rev. Stat. tit. 28A, § 1361(4) o.oo 13

Me. Rev. Stat. tit. 28-A, § 1401(5)(A).......000000000000000.. 14

Me. Rev. Stat. tit. 28-A, § 1401(5)(B).............000........ 15

Mich. Comp. Laws Ann. § 436.1601(1)............... 14, 15

Mich. Comp. Laws Ann. § 436.1601(4) ......0.............. 15

Minn. Stat. Ann. § 340A.306......................cceccecceeees 13

Miss. Code Ann. § 27-71-349(6) ............cccccccccceeeeceeee 13

Miss. Code Ann. § 67-3-21.............ccccccccsccceeecceeeee 14, 15

ee LE | | 14

ow enn 15

Blo. Amm. Stat. § 811.378 ...............cccccosccecccsccccecsocecses 13

Mont. Code Ann. § 16-3-230....................ccccccscconeceeee 13

N.C. Gen. Stat. Ann. § 18B-1113 .00..0...0.0.cccccceeceeeeee 13

N.C. Gen. Stat. Ann. § 18B-900(a)(2) ..00.000000000000000... 14

N.D. Admin. Code § 81-12-01-04 .0........cccccccccccceeeees 13

N.D. Cent. Code Ann. § 5-03-01(1) .......0..00cccccccceeeeee 14

N.D. Cent. Code Ann. § 5-03-01 .000........0cccccccececeeeeeee 16

N.H. Rev. Stat. Ann. § 178:1 (TTD) .000..0...000ccccceee 14, 15

N.H. Rev. Stat. Ann. § 178:16(1) ..0......00.ccccccceccceeeees 13

NJ. Admin. Code § 13:2-25.3..................0cc.ecccecccecsees 13

Nf, | eee 14, 15

viii

N.M. Stat. Ann. § 60-GA-1(B)..................cccceseeeeeeeeeee 13

N.M. Stat. Ann. § 60-6B-2(A)(3) ......................... 14, 16

Neb. Rev. Stat. Ann. § 53-125.......................0..... 14, 16

Nev. Rev. Stat. Ann. § 369.4855 .....0...0.........cc cece 13

Nev. Rev. Stat. Ann. § 369.487 ......................:ccceeeeeee 13

Ohio Admin. Code § 4301:1-1-22(B) ......................... 13

Okla. Stat. Ann. tit. 37A, § 2-146(A)(1).............. 14, 15

Okla. Stat. Ann. tit. 37A, § 3-110(E) ........................ 13

R.I. Code R. § 11-4-8:4, Rule 19(b)(1) ....................... 13

S.C. Code Ann. § 61-4-1100(2)(d) .................cccccecee eee 13

S.C. Code Ann. § 61-6-110(2) ........................ 14, 15, 16

S.D. Codified Laws § 35-4-GO0.1 ............ccccceeeeeeeeeeeeee 13

I Se I Oy i rcecisccsccccscscccccccccescsssssnsens 17

Tenn. Code Ann. § 57-3-203 (b)(1) ...................... 14, 15

Tenn. Code Ann. § 57-3-203(f) ...................cccceeceeeeeees 16

Tenn. Code Ann. § 57-3-204..............ccccccccsseseeeeeeeeeees 19

Tenn. Code Ann. § 57-3-204 (b) (4) .............0.ccccccceeees 21

Tenn. Code Ann. § 57-5-201(c)..................... cepanieaieen 13

Ca Bs Oe i ctereccecinscnccsccnsscnsncsnsinnsse 20

Se I: Oo ive scrsscscnscssonsenensessonsccntetion 20

Tenn. Code Ann. § 57-3-202.............cccccccccccee-ceseseeeees 18

Tenn. Code Ann. § 57-3-204 (b)..................ccccccceceeeeee es 5

Tenn. Code Ann. § 57-3-301(b)....................00.2-cceeeeees 18

Tenn. Code Ann. § 57-3-303(a)......................cecceeeeee0s 18

a cee 16

Tex. Alco. Bev. Code Ann. § 107.06(b)................ 13-14

Tex. Alco. Bev. Code Ann. § 6.03(a) .................... 14, 15

Tex. Alco. Bev. Code Ann. § 6.03(k)........0..0..000cccc0000 16

Utah Code Ann. § 32B-13-301(9)(b)(ii) ..........00..0.000.... 14

es Ue GIN Or Oi ioc coccsncosucccncsetcnsccsees 14

Va. Code Ann. § 4.1-310 (2007)................. wtteesatneadiaaiaa 46

W. Va. Code Ann. § 11-16-8(a)........00.00000000... 14, 15, 16

Webb-Kenyon Act, 27 U.S.C. § 122 (1913)....... passim

Wilson Act, 27 U.S.C. § 121 (1890) .....0....0.00c. 25, 40

en iy nao cscsinnetatcnsovtsitnmensincgnsin 16

Wis. Stat. Ann. § 125.04(5)(a)(2)..........0..0cccccceee 14, 15

Ws ees ARIEN, BIG cecsicccnccccccsceseccsecccccscusecosens 14

Wyo. Stat. Ann. § 12-1-101 (xii) ..000. cece cecceeeeeeeee 16

Wyo. Stat. Ann. § 12-1-101 (xiii)... 14, 15, 16

Wyo. Stat. Ann. § 12-2-201(a)........0000000ccee 14, 15, 16

Other Authorities

2017 Beer Industry in Review, NBWA....................... 20

David S. Versfelt, Note, The Effect of the Twenty-first

Amendment on State Authority to Control

Intoxicating Liquors, 75 COLUM. L. REV. 1578

Dr. Bill Latham & Dr. Ken Lewis of the Center for

Applied Business & Economic Research at the

University of Delaware, America’s Beer

Distributors: Fueling Jobs, Generating Economic

Growth & Delivering Value to Local Communities,

Wa el icccacccrcceccshconasninscusinagciinemintaindiutaicuiarsamadal 4

How High Are Beer Taxes in Your State?, Tax

i icicensencecccctssinndtiidaianiiiteainiammaiiesianiainesteunaiats 18

Jane O’Brien, The Time When Americans Drank All

Day Long, BBC NEWS (Mar. 9, 2015).................. 23

Jason E. Prince, New Wine in Old Wineskins:

Analyzing State Direct-Shipment Laws in the

Context of Federalism, the Dormant Commerce

Clause, and the Twenty-First Amendment, 79

NOTRE DAME L. REV. 1563 (2004).................... 26

John D. Rockefeller, Foreword in Raymond Fosdick

and Albert Scott, Toward Liquor Control (1933) .28

Michael D. Madigan, Control Versus Competition:

The Courts’ Enigmatic Journey in the Obscure

Borderland Between the Twenty-first Amendment

and Commerce Clause, 44:4 Mitchell Hamline L.

TERI CIETY ccisssianatiscsicdasintinsipsianiiibibnliddaediiaiuataiainaes 12-13

National Prohibition Law: Hearings Before the S.

Comm. on the Judiciary, Subcomm. on Bills to

Amend the National Prohibition Act, 69th Cong.

I Ge eiiinccscicnssistinsensnneeniciinanidilitiesdinpiaitecsesacuasiadaies 29

Nora v. Demleitner, Organized Crime and

Prohibition: What Difference Does Legalization

Make?,

15 WHITTIER L. REV. 613 (1994) ...............0.0..... 28

Norman H. Clark, Deliver Us From Evil:

An Interpretation of American Prohibition, 122

NES SEES ESS TSI 24

Note, “Police Power” Under the Wilson Act of 1890,

19 HARV. L. REV. 53, 53-54 (1905) ............00.0..... 25

Preventing Alcohol Abuse, Centers for Disease

Control amd Prowomtiiom, .................000..c0cceccesceeceees... 3

Preventing Excessive Alcohol Consumption:

Regulation of Alcohol Outlet Density, The

Copmmammnmity Gurbie, CIIC......ccsccccccccccccscsccsscccessessccces 11

Public Law 114-255 Stop Underage Drinking Act... 17

Raymond B. Fosdick and Albert Scott,

Toward Liquor Control, Harper &

ESSER TE 11, 23, 28

Sidney J. Spaeth, The Twenty-first Amendment and

State Control over Intoxicating Liquor:

Accommodating the Federal Interest, 79 CAL. L.

a 27, 28, 30, 31

State Shared Taxes in Tennessee, Tennessee

Advisory Commission on Intergovernmental

SEITE SESS DEES SEE ee 18

State-Level Alcohol Laws Face A Federal Challenge

in the Supreme Court, Leonine Public Affairs......53

Testimony of Craig Purser, President, National Beer

Wholesaler Association, to the Senate Judiciary

Subcommittee on Antitrust, Competition, Policy,

a cisgutlioge 5

Thomas Pinney, A History of Wine in America: From

the Beginnings to Prohibition 434 (19839) ............. 28

W.J. Rorabaugh, The Alcoholic Republic: An

American Tradition 5 (1979) ...............ccccccccc0s 23, 24

xii

Wet and Dry Counties, NABCA

xiii

Congressional Record

49 CONG. REC. 2687 (1913)

49 CONG. REC. 4292 (1913)

TEP eT P CCC eee eee eee

INTEREST OF AMICUS CURIAE”

Since 1938, the National Beer Wholesalers

Association (“NBWA”) has served as the national

membership organization of the beer distributing

industry representing over 3,000 family-owned

independent licensed beer distribution entities. Its

members reside in all 50 states and employ over

130,000 individuals.

This case implicates critical interests of

NBWA and its members. The Sixth Circuit decision

in Byrd v. Tennessee Wine and Spirit Retailers

Association, 883 F.3d 608 (6th Cir. 2018) threatens to

either dismantle or substantially undermine complex

state regulatory systems governing alcoholic

beverages that have worked remarkably well for over

* No counsel for any party authored this brief in whole or in

part, and no counsel or party made a monetary contribution

intended to fund the preparation or submission of this brief. No

person other than NBWA or its members made a monetary

contribution for the briefs preparation or submission. The

parties have filed blanket consent waivers with the Court

consenting to the filing of all amicus briefs.

80 years. Through these delicately balanced and

historically tested regulatory schemes, states have

addressed several fundamental interests: preventing

vertical integration of the industry; inhibiting overly

aggressive marketing and consumption; preventing

illegal sales to minors; collecting taxes; creating

orderly, transparent, and accountable distribution

and importation systems; and preventing a

recurrence of the problems that led to the enactment

of National Prohibition.

Specifically, the Byrd decision puts at risk the

requirement that all alcoholic beverages sold in a

State must be delivered to an in-state wholesaler and

sold to the public through an in-state retailer,

thereby assuring effective regulation. Wholesalers

serve as the essential regulatory gateway through

which alcoholic beverages must pass. As the licensed

in-state entity subject to effective audit and

enforcement, wholesalers are required to ensure that

the suppliers from whom they buy product and the

retailers to whom they sell product are fully

compliant with all applicable regulatory

requirements. Furthermore, wholesalers are

obligated to pay excise and other taxes to the State

and retain records of their purchases from suppliers

and their sales to retailers, thereby creating a

transparent and accountable distribution system.

They have typically invested millions of dollars in

refrigerated warehouses, rolling stock, a sales force,

a delivery force, and marketing and promotion funds

in order to build the necessary distribution

infrastructure in a highly regulated environment.

These investments are jeopardized if the industry is

deregulated in effect by judicial review and the

competitive playing field is tipped against in-state

licensees.

The existence of the wholesale tier produces

significant efficiencies for suppliers, retailers and the

economy by reducing the costs of transporting beer,

servicing retailers and providing consumers with a

wider range of choices than they would otherwise

enjoy.' In addition, small suppliers and new market

entrants, lacking substantial resources, leverage the

wholesalers’ infrastructure to create and grow a

market for their products. Without this

infrastructure, the barriers to vertical integration

erected by the three-tier system and the prohibitions

embodied in the related tied-house laws, small

suppliers would be unable to compete with

multinational suppliers. Furthermore, American

' Dr. Bill Latham & Dr. Ken Lewis of the Center for Applied

Business & Economic Research at the University of Delaware,

America’s Beer Distributors: Fueling Jobs, Generating Economic

Growth & Delivering Value to Local Communities, at 8-13 (2015)

(https://www .nbwa_org/resources/economic-impact.).

consumers would not enjoy the unprecedented choice

and variety offered by the current regulatory

system.?

SUMMARY OF ARGUMENT

In a divided decision, the Sixth Circuit Court

of Appeals invalidated a Tennessee durational

residency requirement for retail liquor licenses on

the basis that it violated the dormant Commerce

Clause doctrine. However, Tenn. Code Ann.§ 57-3-

204 (b) (hereinafter referred to as the “challenged

statute”) constitutes a key component of Tennessee's

comprehensive regulations governing the sale and

distribution of liquor within its borders. As such, it

is shielded from challenge under that doctrine.

* See Testimony of Craig Purser, President, National Beer

Wholesaler Association, to the Senate Judiciary Subcommittee

on Antitrust, Competition, Policy, and Consumer Rights.

(https://www .judiciary.senate.gov/imo/media/dod 1 2-08-

15%20Purser%20Testimony .pdf).

As articulated by the Court in Granholm uv.

Heald, 544 U.S. 460 (2005), state liquor laws which

discriminate against out-of-state producers and their

products implicate federal interests under the

Commerce Clause and are thereby subject to its

dormant constraints. On the other hand, state liquor

laws, like the challenged statute, which structure a

state’s liquor distribution system within its borders

implicate state interests under the Twenty-first

Amendment and are free from such restraints. In

this way, the Court struck a delicate balance

between the respective federal and state interests

and conclusively resolved the conflict between the

two constitutional provisions.*

% In his dissent, Judge Sutton noted that the Twenty-first

Amendment “created an exception to the normal operation of

the Commerce Clause”. Byrd, 883 F.3d at 631 (Sutton, J.

dissenting). While the Commerce Clause still limita “state

efforts to regulate activity outside of a State's territorial

domain” and prohibits discrimination against producers and

their products, the Twenty-first Amendment shields state

liquor laws which structure the State's distribution system

ARGUMENT

I. Introduction.

NBWA urges the Court to reverse the Sixth

Circuit and uphold the constitutionality of the

challenged statute. NBWA’s Brief will focus on the

pertinent policies underlying Tennessee’s liquor

regulatory system and the challenged statute, the

constitutional history underlying the Twenty-first

Amendment as it applies to this case, the holding of

the Granholm Court which struck an appropriate

balance between state authority under the Twenty-

first Amendment and federal authority under the

Commerce Clause, and the reasons why that holding

within its borders from Commerce Clause challenge. /d at 632-

33. On that basis, Judge Sutton would have validated the

durational residency statute except as to its application to 100%

of a retailer's stockholders and the imposition of a ten-year

residency requirement for renewal of a license. /d. at 635.

Presumably, Judge Sutton felt that the latter two provisions did

not pass muster under even the Equal Protection rational! basis

test.

supports a conclusion that the challenged statute

passes constitutional muster.

Il. Policy Underlying the Challenged

Statute.

Since the dawn of recorded history, alcohol has

enriched our culinary experiences, social gatherings,

and lives. When abused, however, it has also

occasioned great harm. According to the federal

governments Centers for Disease Control and

Prevention, alcohol contributes to over 88,000 deaths

each year in this country, and excessive drinking

costs our economy over $224 billion annually.* Few,

if any, publicly-available products embody a similar

potential to create such great societal harm.

Federal, state, and local governments have

attempted to mitigate the detrimental impacts of

alcohol abuse through regulation of the alcohol

4 Preventing Alcohol Abuse, Cen‘ers for Disease Control and

Prevention CDC”)

(https//www.cdc.gov/alcohol/fact -sheets/prevention.htm).

industry and the consumer. Alcohol has always been,

and remains, one of the most heavily regulated

products in the United States. It is unique in terms

of its status in law. It is the only commercial product

that has been the subject of two constitutional

amendments: the Eighteenth Amendment, which

instituted national Prohibition, and the Twenty-first

Amendment, which not only repealed Prohibition,

but, also assigned primary responsibility for alcohol

regulation to the states.®

All state alcohol regulatory systems strive to

achieve moderation in both the consumption and sale

of intoxicating liquor. The goal is to create an

“orderly” market that balances competition with

appropriate control. Three-tier and tied-house laws

are the keystones of American alcohol regulation.

Pursuant to their plenary authority under the

5 U.S. CONST. amends. XVIII, XXI.

Twenty-first Amendment, states regulate alcohol

within their respective borders through a three-tier

system with licensed and structurally separate

producers, wholesalers, and retailers. “Tied-house”

laws support a three-tier system by prohibiting

suppliers and wholesalers, with narrow exceptions,

from providing items of value to or exercising control

over or ownership in retailers. The purpose of the

system is, in part, to avoid the harmful effects of

vertical integration in the industry by saiiieainn

these market participants t \ their respective service

functions.®

The American historical experience has

proven that vertical integration and “tied houses”

lead to excessive retail capacity, cutthroat

® As illustrated by the recent Modified Final Judgment entered

in the matter of U.S. v. Anheuser-Busch InBev SA/NV and

SABMiller pic, concerns about vertical integration remain very

relevant today. Case No. 1:16-cv-01483-EGS, Doc. 42 (D.D.C.

October 22, 2018) (requiring divestiture of certain assets and

imposition of safeguards protecting wholesaler independence).

competition for market share, and overstimulated

sales which ultimately leads to intemperate

consumption.’ It is widely recognized that prior to

prohibition, “tied houses” were a root cause of alcohol

abuse and related problems because retailers were

pressured to sell product by any means including

selling to minors, selling after hours, and overselling

to intoxicated customers.* This Court has expressly

recognized that the three-tier system is

“unquestionably legitimate.” Granholm v. Heald,

544 U.S. 460, 488-89 (2005).

‘In Toward Liquor Control, Fosdick and Scott noted that “tied-

houses” lead to a “multiplicity of outlets.”

Raymond B. Fosdick and Albert Scott, Toward Liquor Control,

Harper & Brothers, at 43 (1933) (Republished by Center for

Alcohol Policy 2011). Federal officials have noted a correlation

between the number and density of retail outlets, on the one

hand, and consumption patterns and abuse, on the other. See

Preventing Excessive Alcohol Consumption: Regulation of

Alcohol Outlet Density, The Community Guide, CDC,

(https://www thecommunityguide.org/findings/alcohol -

excessive-consum ption-regulation-aicohol-outlet-density).

® These remain a concern of policymakers ‘o this day. See, for

example, Preventing Excessive Alcohol Consumption, The

Community Guide, CDC

(http://www.thecom munityguide.org/alcohol).

In addition to promoting temperance, State

regulatory systems have achieved many other

benefits for the American public, including

unprecedented choice and variety of distilled spirits,

wines, and beers. As evidenced by the explosion of

craft distilleries, wineries, breweries, and the

existence of a strong, independent middle tier, the

system nurtures small, entrepreneurial businesses

and provides a level playing field on which they can

fairly compete. The industry remains one of the last

mainstays of family-owned businesses. As a result,

alcohol vendors are rooted in their community, more

likely to be sensitive to local norms and standards,

more likely to be compliant with existing regulations,

and more vulnerable to effective enforcement. See

Michael D. Madigan, Control Versus Competition:

The Courts’ Enigmatic Journey in the Obscure

Borderland Between the Twenty-first Amendment

and Commerce Clause, 44:4 Mitchell Hamline L. Rev.

(2018).

The three-tier system has been likened to an

hour glass. With very limited exceptions, all alcohol

sold within a state, regardless of its origin, must be

sold through a wholesaler with a physical presence

in the state."° Beyond physical presence, twenty-

irr

3-110(K); 47 Pa. Stat. Ann. § 4-441(@); RL. Code R. § 11-4-8:4,

Rule 19()(1); S.C. Code Ann. § 61-4-1100(2\(4); S.D. Codifiew

Laws § 35-4-60.1; Tenn. Code Anim. § 57-5-201(c); Tex. Alco. Bew

— Ct”

eight states impose a residency requirement upon

individuals in order to obtain a wholesaler license. '!

Of the states that impose a residency requirement,

sixteen states also impose a durational aspect to that

requirement.'2 A number of those states that require

Code Ann. § 107.06(b); Utah Code Ann. § 32B-13-301(9)(b)(ii); 7

New Jersey retailers); N.M. Stat. Ann § 60-6B-2(A)(9)

(requiring a New Mexico resident that has power of attorney

and power to bind applicant related to sales and operations);

203 (b)(1); Tex. Aleo. Bev. Code Ann. § 6.03(a); Va. Code Ann. §

duration); La. Stat. Ann. § 26:80(A)(2) (2 year duration); Me.

tit. 28-A, § 1401(5)(A) (6 month duration); MD AL

any form of residency extend that requirement to

corporate applicants.'* Finally, some states require

BEV § 3-102 (2 year duration); Mich. Comp. Lows Ann. §

436.1601(1) (1 year duration); Miss. Code Ann. § 67-3-21 (2 year

duration); N.H. Rev. Stat. Ann. § 178:1(IID) (3 year duration for

liquor and wine representatives); Okla Stat. Ann. Tit. 37A, § 2-

146(A)(1) (5 year duration for non-beer wholesalers); S.C. Code

Ann. § 61-6-110(2) (30 day duration); Tenn. Code Ann. § 57-3-

203 (b)(1) (2 year duration); Tex. Alco. Bev. Code Ann. § 6.03(a)

(1 year duration); W. Va. Code Ann. § 11-16-8(a) (4 year

duration); Wis. Stat. Ann. § 125.04(5)(a)(2) (90 day duration);

Wyo. Stat. Ann. §§ 12-1-101(xiii) and 12-2-201(a) (1 year

duration).

'8 See Ark. Code Ann. § 3-4-606(a) (5 year duration for each

officer, director, manager, or stockhe!der); lowa Code Ann. §§

123.3(34), 123,127(2)(b) (residency requirement extended to

each officer, director, partner, and person owning or controlling

10% or more of stock, or with an interest of 10% of more in the

ownership or profits of such person); Me. Rev. Stat. tit. 28-A, §

1401(5)(B) (6 month durational business requirement for

corporate applicant); MD AL BEV § 3-105(b) (corporate license

to be issued to 3 officers as individuals, with at least one of the

officers required to be a resident of Maryland for at least 2

years); Mass. Gen. Laws Ann. Ch. 138, § 18 (requiring majority

of directors of a corporation to be residents of Massachusetts);

Mich. Comp. Laws Ann. § 436.1601(4) (1 year durationa!

residency requirement for al! stockholders); Miss. Code Ann. §

67-3-21 (prohibiting granting of a wholesaler’s license unless

applicant has been a resident for 2 years); Mo. Ann. Stat. §

311.060(3) (3 year durational residency requirement for officers,

directors, and 60% of stockholders); N.H. Rev. Stat. Ann. §

178:1(11T) (3 year durational residency requirement for at least

one officer, director, or partner of corporate applicant for a

liquer and wine representatives license); N.J. Stat. Ann. § 33:1-

11.3 (prohibiting a foreign person |which, by definition includes

a corporation] to sell to New Jersey retailers unless a reciproca!

provision exists in the state in which such person is a resident),

Okla Stat. Ann. Tit. 37A, § 2-146(A)(1) (6 year durationa!

residency requirement for non-beer wholesalers including, by

a corporate entity to have an appointed agent,

manager, or attorney in fact that satisfies residency

requirements in order for such entity to receive a

wholesaler license.'* Most states impose similar

requirements on retailers.

Tennessee regulates the sale and distribution

of alcohol within its borders through a “three-tier

system” of licensed and structurally separate

producers, wholesalers, and retailers. See Tenn. Code

Ann., Title 57. A wholesaler must obtain a Federal

implication, corporate applicants); 47 Pa. Stat. Ann. § 4-

431(c)(residency requirement for officers, directors, and 51% of

capital stock ownership); 3 R.I. Gen. Laws Ann. § 3-5-10(b)(1)

(residency requirement for officers, directors, or stockholders of

corporate applicant if corporation has less than 25

stockholders); S.C. Code Ann. § 61-6-110(2) (30 day durationa!

residency requirement for person in control and management of

the business); Tenn. Code Ann. § 57-3-203(f) (5 year durationa!

residency requirement for stockholders); Tex. Alco. Bev. Code

Ann. § 6.03(k) (1 year durational residency requirement for 51%

or more of its stockholders); W. Va. Code Ann. § 11-16-8(a) (4

year durationa! residency requirement for members, officers, or

other persons in active control of the activities of the company);

Wyo. Stat. Ann. §§ 12-1-101(xii) and (xiii) and 12-2-201(a) (1

year durational residency requirement for a “person” which

'* See Ariz. Rev. Stat. Ann. § 4-202; Neb. Rev. Stat. Ann. § 53-

125; N.M. Stat. Ann. § 60-6B-2(A)(3); N.D. Cent. Code Ann. § 5-

03-01; Wis. Stat. Ann. § 125.04.

Basic Permit from the Alcohol and Tobacco Tax and

Trade Bureau,'® a Wholesaler License from the

Tennessee Alcoholic Beverage Commission, and an

Employee Permit for each employee involved with

the delivery and sale of alcohol.’ The wholesaler is

obligated to verify that each of its manufacturers and

importers has obtained a Certificate of Label

Approval from the Tax and Trade Bureau.'’? The

wholesaler must further verify that each

manufacturer or importer is duly licensed by

Tennessee Alcoholic Beverage Commission, that each

'* 27 U.S.C. § 204. The Federal Alcohol Administration Act

(FAAA’), 27 U.S.C. § 201 et seq., itself acknowledges the

primacy of state law, at least with respect to malt beverages.

See 27 U.S.C. § 205 (referred to as the “Penultimate Paragraph"

which provides that the tied-house provisions of the FAAA only

apply to the extent that state law embodies similar provisions),

see also 42 U.S.C. § 290bb-25b(b)(7), reauthorized in Public Law

114-255 (2016), Stop Underage Drinking Act (“Alcoho! is a

unique product and should be regulated differently than other

products by the States and Federal Government. States have

primary authority to regulate alcohol distribution and sale, and

the Federal Government should support and supplement these

State efforts.”).

'® Tenn. Code Ann. § 57-3-203 (outlining the requirements for

obtaining such a license).

1727 USC. § 205(e).

of their brands are duly registered with the

Tennessee Alcoholic Beverage Commission, and that

the corresponding brand registration privilege tax

has been paid.'*

In addition, the wholesaler is obligated to pay

all applicable excise taxes on the alcohol.'9

Tennessee has the highest beer tax rate in the

country.2° Finally, the wholesaler must verify that

each retailer to whom it delivers is duly licensed by

the state, is compliant with all applicable

regulations, and has remitted all applicable taxes. If

the wholesaler sells products in violation of any of

these obligations, which exist to facilitate

'® Tenn. Code Ann. §§ 57-3-202 & 57-3-301(b).

'%Tenn. Code Ann. §57-3-303(a). The gross receipt taxes that

Tennessee wholesalers collect are paid directly to their host

counties and municipalities. They are a very important source

of local governmental revenue. See State Shared Taxes in

Tennessee, Tennessee Advisory Commission on

Intergovernmenta! Relations

(https://www.tn.gov/content/dam/tn/tacir/documents/exec. pdf)

2° How High Are Beer Taxes in Your State?, Tax Foundation

(https://taxfoundation.org/beer-taxes-state/).

enforcement of state requirements imposed on

suppliers and retailers, it is subject to fine,

suspension or revocation of its license.

In turn, retailers must also obtain a state

retail license as well as an Employee Permit for each

employee involved with the delivery and sale of

alcohol.?) They may only purchase alcohol from a

Tennessee-licensed wholesaler. They are responsible

for and must secure their licensed premise. Tenn.

Code Ann. § 57-3-204. The retail premise is

specifically defined and must generally be compact

and contiguous. The retailer is responsible for strict

compliance with all alcohol regulations within the

retail premises and furthermore is responsible for

collecting and remitting all applicable alcohol sales

taxes.

2) Tenn. Code Ann. § 57-3-204 (outlining the requirements for

obtaining euch a license).

It would be virtually impossible for the

Tennessee Alcoholic Beverage Commission to

regulate effectively over 640,000 alcohol retailers

scattered across the country” without a regulatory

system that funneled all alcohol being sold in the

state through in-state wholesalers and retailers who

were subject to audit, control, and enforcement

action by the Tennessee Alcoholic Beverage

Commission. Similarly, it would be virtually

impossible to collect the millions of dollars of taxes

levied on alcohol sales without such a system. In

short, there would be no accountable, transparent

and orderly alcohol distribution market without a

three-tier system.

In Tennessee, alcohol may only be sold by local

option. Tenn. Code Ann. §§ 57-3-102 & 57-3-103. Of

the 96 counties in Tennessee, 24 still prohibit the

” 2017 Beer Industry in Review, NBWA

(https://www .nbwa.org/resources/2017 beer industry review).

sale of alcohol.” This evidences the wide divergence

of opinion among Tennessee citizens regarding this

socially sensitive product. It also explains the desire

and intent of its policymakers to accommodate local

norms and standards in the establishment of

effective alcohol regulation.

In deference to this deep divide in public

opinion regarding alcohol, a retail license may only

be issued to a Tennessee resident who has satisfied

the durational residency requirement. The reasons

for that requirement are expressed in Tenn. Code

Ann. § 57-3-204 (b) (4):

It is the intent of the general assembly

to distinguish between licenses authorized

generally under this title and those

specifically authorized under this section.

Because licenses granted under this section

include the retail sale of liquor, spirits and

high alcohol content beer which contain a

higher alcohol content than those contained in

Wet and Dry Counties, NABCA

(https//www .nabca_org/sitesd/defau!t/files/ assete/publicationa/wh

ite papers/WetDry%20Counties.pdf).

wine or beer, as defined in § 57-5-101(b), it is

in the interest of this state to maintain a

higher degree of oversight, control and

accountability for individuals involved in the

ownership, management and control of

licensed retail premises. For these reasons, it

is in the best interest of the health, safety and

welfare of this state to require all licensees to

be residents of this state as provided herein

and the commission is authorized and

instructed to prescribe such inspection,

reporting and educational programs as it shall

deem necessary or appropriate to ensure that

the laws, rules and regulations governing such

licensees are observed.

A statute that requires durational residency

ensures that the applicant has a demonstrated

commitment to the host community, an

understanding of its local norms and standards, and

a thorough knowledge of the applicable state and

local laws governing the sale of alcohol. Southern

Wine & Spirits of America, Inc. v. Division of Alcohol

& Tobacco Control, 731 F.3d 799 (8th Cir. 2013)

(upholding a durational residency requirement on

the officers and owners of a corporate wholesaler

licensee); see Raymond B. Fosdick and Albert Scott,

Toward Liquor Control, Harper & Brothers, at 43

(1933).

Ill. The Congressional and Constitutional

History of Liquor Regulation.

The congressional and constitutional history of

alcohol illustrates the intent to safeguard the States’

authority to regulate alcohol within their borders

free from the dormant constraint of the Commerce

Clause.

A. The Eighteenth Amendment.

Alcohol regulation was minimal in_ the

nineteenth century.” In that era, America was

characterized as “a nation of drunkards.”

Temperance movements, such as the Woman's

Christian Temperance Union and Anti-Saloon

” See Jane O'Brien, The Time When Americans Drank All Day

Long, BBC NEWS (Mar. 9, 2015),

http//www .bbe.com/neww magazine 31741615.

*” WA. Rorabaugh, The Alcoholic Republic: An American

Tradition 6 (1979).

League, arose to address the problem.” Initially,

these prohibition advocates pursued local option laws

that permitted localities to ban the sale of alcohol

and close tied-house saloons.”” Thereafter, they

sought similar measures statewide.” By the end of

1916, twenty-three states banned the sale of

alcohol,”9

As the nation grew, companies engaged in

interstate commerce began challenging state

statutes that barred the sale of alcohol. In the late

nineteenth century, the United States Supreme

Court substantially limited the authority of states to

regulate liquor importation under the dormant

Commerce Clause doctrine.”

* Id. at 187-222.

27 Norman H. Clark, Deliver Us From Evil: An Interpretation of

American Prohibition, 122-27 (1976).

* Id.

™ Id. at 97 (1976).

” See, eg., Leiay v. Hardin, 136 US. 100, 159-60 (1890)

(holding that intoxicating liquor shipped into the state

remained an article of “interstate commerce” immune from

These decisions frustrated the efforts of

prohibition advocates and prompted a petition to

Congress. In response, Congress passed the Wilson

Act, 27 U.S.C. § 121 (1890), in order to safeguard a

state’s right to regulate alcohol, including the

importation of alcohol into the state.*' The Wilson

Act provided that state law applied to the sale,

distribution, and transportation of intoxicating

liquor upon its arrival in the state. Jd. In Rhodes v.

lowa, however, the Supreme Court held that the

dormant Commerce Clause doctrine prohibited state

regulation of direct shipments of alcohol to in-state

consumers by out-of-state companies, effectively

gutting the Wilson Act. As a result, train stations

state regulation if it remained in its original package); Bowman

v. Chi. & Nw. Ry. Co., 126 U.S. 465, 500 (1888) (striking down a

state law that restricted the importation of intoxicating liquor

to those who possess a permit).

" See Note, “Police Power” Under the Wilson Act of 1890, 19

HARV. L. REV. 63, 563-64 (1905).

” 170 U.S. 412, 426 (1898).

began to function as retail outlets.” In response,

Congress passed the Webb-Kenyon Act, 27 U.S.C. §

122 (1913), which authorized states to prohibit the

sale, distribution, transportation, or importation of

alcohol into the state in violation of its laws.”

Congress passed these two acts in direct

response to the Supreme Court decisions that limited

state authority to regulate liquor™ ‘This

unequivocally demonstrates the intent of Congress to

make state law primary regarding the regulation of

alcohol. The risk that state legislation may burden

interstate commerce was overridden by the desire to

™ See 49 CONG. REC. 4292 (1913). In vetsing the bill,

President Taft described it as permitting “the states to exercise

their old authority, before they became states, to interfere with

commerce between them and their neighbors.” /d.

” See Granholm v. Heald, 544 U.S. 460, 502-03 (2005)

% See, e.g., Dugan v. Bridges, 16 F. Supp. 694, 704 (D.N.H.

1936); 49 CONG. REC. 2687 (1913).

respect local standards and ensure effective state

regulation of liquor.*” The constitutionality of the

Webb-Kenyon Act was upheld in 1917 in Clark

Distilling Co. v. Western Maryland Railway Co., 242

U.S. 311, 332 (1917).

Flushed with success in the states and the

passage of the Webb-Kenyon Act, temperance

advocates then focused their efforts on a nationwide

ban on the sale of alcohol. In 1917, Congress passed

the Wartime Prohibition Act (grain and barley were

needed for the war effort). Thereafter, prohibition

advocates pursued adoption of the Eighteenth

Amendment, an effort that required two-thirds

majority vote in both the House and Senate and a

subsequent affirmative vote by three-fourths of the

" See Dugan, 16 F. Supp. 694 at 704.

Federal Interest, 79 CAL. L. REV. 161, 175 (1991)

states. Only two states, Connecticut and Rhode

Island, refused to ratify the Amendment.”

Prohibition took effect on January 16, 1920.*'

Prohibition proved to be a noble but failed

experiment and was largely responsible for the rise

of organized crime and a nationwide disregard for

the law.*? There were two lessons learned from

Prohibition. First, morality-driven legislation was

difficult to sustain without long-term support.”

Second, disparate community norms and standards

® See Thomas Pinney, A History of Wine in America: From the

Beginnings to Prohibition 434 (1989).

Id.

*! Spaeth, supra note 38, at 175.

@ See, e.g., Loretto Winery, Lid. v. Gazzara, 601 F. Supp. 850,

856 (S.D.N.Y. 1985); Nora v. Demleitner, Organized Crime and

Prohibition: What Difference Does Legalization Make?, 15

WHITTIER L. REV. 613, 621 (1994).

“ See John D. Rockefeller, Foreword in Raymond Fosdick and

Albert Scott, Toward Liquor Control (1933) (Men cannot be

made good by force. In the end, intelligent lawmaking rests on

the knowledge or estimate of what will be obeyed. Law does not

enforce itself.”).

for alcohol precluded the imposition of a single,

national regulatory standard.“

B. The Twenty-first Amendment.

Enacted in 1933, the Twenty-first Amendment

embodied the recognition that Americans did not

accept a national policy that prohibited the

manufacture and sale of alcoholic beverages. U.S.

CONST. amend. XXI. Noble motives alone failed to

achieve prohibition and undermined the public's

belief in the rule of law. The Twenty-first

Amendment shifted the regulation of liquor to the

level of government able to obtain broad support.”

State, not national, regulation assumed the primary

role. The ratification of the Twenty-first Amendment

embedded in the Constitution the policy underlying

“ See National Prohibition Law: Hearings Before the S. Comm.

on the Judiciary, Subcomm. on Bills to Amend the National

Prohibition Act, 69th Cong. 197 (1926).

“ See David 8S. Versfelt, Note, The Effect of the Twenty-first

Amendment on State Authority to Control Intoxicating Liquors,

75 COLUM. L. REV. 1578, 1578 (1975).

the Webb-Kenyon Act; that is, state authority was

primary regarding the regulation of alcohol.

Section 2 of the Twenty-first Amendment

erected a constitutional barrier to invalidation under

the Commerce Clause of state alcohol regulation

regarding importation, transportation, and

distribution within a state. U.S. CONST. amend.

XXI, § 2. The Section “[g]rants the States virtually

complete control over whether to permit importation

or sale of liquor, and how to structure the liquor

distribution system.” Cal. Retail Liquor Dealers

Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 110

(1980).

As originally proposed, Section 3 of the

Twenty-first Amendment conferred upon Congress

concurrent power to regulate alcohol sales, but that

language was not adopted.“ Senators Blaine and

“ See Spaeth, supra note 38, at 180.

Wagner objected to the section, explaining that the

concept of concurrent power was inconsistent with

the state power conferred under Section 2.*”7 The

intent of the Twenty-first Amendment and the Webb-

Kenyon Act was not to encourage state legislation

that burdened interstate commerce but rather to

insulate states from federal interference with local

norms and standards. See Granholm v. Heald, 544

U.S. 460, 525 (2005) (Thomas, J., dissenting). State

authority over the regulation of alcohol was deemed

paramount. See United States v. Frankfort

Distilleries, Inc., 324 U.S. 293, 300 (1945)

(Frankfurter, J., concurring).

*' See Spaeth, supra note 38, at 181-82. States desiring to

remain dry after repeal feared that concurrent power would

allow Congress to overrule a state's choice to remain dry.

Endorsed by both Congress and state

constitutional conventions, the Twenty-first

Amendment was not just a narrow delegation of

federal regulatory authority. The express language of

the Amendment exclusively conferred on the states

the authority to regulate the “transportation or

importation” of intoxicating liquors, without

limitation, and without rendering states subservient

to federal power under the Commerce Clause.

Shortly after the Twenty-first Amendment

was enacted, the Supreme Court recognized the

broad authority that the Twenty-first Amendment

conferred upon the states in the area of alcohol

regulation.

The Twenty-first Amendment sanctions the

right of a state to legislate concerning

intoxicating liquors brought from without,

unfettered by the Commerce Clause. Without

doubt a state may absolutely prohibit the

manufacture of intoxicants, their

transportation, sale, or possession,

irrespective of when or where produced or

obtained, or the use to which they are to be

put. Further, she may adopt measures

reasonably appropriate to effectuate these

inhibitions and exercise full police authority in

respect of them.

See, e.g., Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138

(1939) (upholding a regulation on the exportation of

alcoholic beverages out of the state).

The early cases specifically upheld the states’

power to regulate intoxicating liquor even when it

clearly burdened interstate commerce. The

justification was that the control of importation is an

essential component of the states’ licensing and

regulatory authority, and the Twenty-first

Amendment insulates this authority from a dormant

Commerce Clause challenge.“

State regulation of intoxicating liquor,

however, was not necessarily free from all

constitutional limitations. As noted in Granholm,

“the Court has held that state laws that violate other

provisions {than the Commerce Clause] of the

Constitution are not saved by the Twenty-first

Amendment. Granholm, 544 U.S. at 486-87.

Clearly, the Twenty-first Amendment was

intended to limit application of the Commerce Clause

” See Indianapolis Brewing Co. v. Liquor Control Comm'n, 305

U.S. 391, 394 (1939), abrogated by Granholm v. Heald, 544 U.S.

46) (2005); Finch v. McKittrick, 305 US. 395, 397 (1929),

abrogated by Granholm v. Heald, 544 U.S. 460 (2005).

Grendel's Den, 459 U.S. 116, 120-27 (1982) (recognizing an

the Ketablishment Clause),

to state liquor laws to at least some extent. Prior to

1984, the only state liquor statutes which had been

declared invalid as violative of the Commerce Clause

were those which were extraterritorial in effect™ or

which were preempted by conflicting federal law.

The Bacchus*', North Dakota,” and Granholm*

cases discussed below highlight the subsequent

evolution of jurisprudence in this area and the

Court’s achievement of a balance between state

authority under the Twenty-first Amendment and

federal authority under the Commerce Clause.

Healy v. Beer Inat., Inc., 491 U.S. 324, 343 (1989) (striking

down a price affirmation statute with extraterritorial effect),

Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476

S. 573, 582-85 (1986) (striking down a N.Y. pricing statute

that, in effect, controlled the process of intoxicating liquor in

neighboring states).

" Bacchus Imports, Lid. v. Dias, 468 U.S. 263 (1984).

” North Dakota v. U.S. 495 U.S. 423 (1990).

™ Granholm v. Heald, 544 U.S. 460, 466 (2005).

2. Bacchus, North Dakota, and

Granholm.

In Bacchus Imports, Lid. v. Dias, the Court

addressed the authority of the state to differentiate

between in-state and out-of-state producers in a

manner that benefited the former and discriminated

against the latter. 468 U.S. 263, 265 (1984). The

case involved a Hawaii tax on all intoxicating liquors

except two locally produced products, ti root brandy

and pineapple wine. /d. The Court held the Hawaii

tax was unconstitutional on the basis that it

“favor{ed] local liquor industries” and therefore was

preempted by the “strong federal interest in

preventing economic Balkanization.” Jd. at 276. The

Court indicated that the dormant Commerce Clause

doctrine prohibited States from favoring “local liquor

industries by erecting barriers to competition.” /d.

Significantly, the relevance of the Webb-Kenyon Act

was never argued to the Court. /d. Hawaii did not

even raise the Twenty-first Amendment as a defense

until it submitted its final brief to this Court. Reply

Brief for Appellants, Bacchus Imports, Ltd. v. Dias,

468 U.S. 263 (1984) (No. 82-1565), 1983 US. S. Ct.

Briefs LEXIS 597, at *5. The majority opinion found

this “belated” argument unconvincing. See Bacchus,

468 U.S. at 276.

In the 1990 decision of North Dakota v. U.S.,

495 U.S. 423 (1990), the Court, in a plurality opinion,

reaffirmed that states have “virtually complete

control” over “the importation and sale of liquor and

the structure of liquor distribution system” within

their borders. /d. at 431 (involving a positive

Commerce Clause challenge) (citations omitted).

Because the two challenged North Dakota

regulations requiring the purchase from physically

present licensed wholesalers fell “within the core of

the State’s power under the ‘Twenty-first

Amendment”, the Court held that the regulations

were “supported by a strong presumption of validity

and should not be set aside lightly.” /d at 433 (citing

Capital Cities 467 U.S. at 714). As such, the

regulations were shielded from preemption under the

Supremacy Clause.

In 2005, the Court in a 5 to 4 decision again

addressed the issue of whether and to what extent

state liquor laws were subject to a dormant

Commerce Clause challenge. Granholm v. Heald,

544 U.S. 460, 466 (2005). The Court first considered

whether the challenged New York and Michigan

laws, which permitted in-state wineries from

shipping direct but prohibited out-of-state wineries

from doing so, discriminated between in-state and

out-of-state wineries in a manner that benefited the

former and burdened the latter. Jd. at 472-~75. The

Court concluded that the direct shipping laws

granted in-state wineries access to each State's

consumers on preferential terms. /d. at 466. (“(T]he

object and effect of the laws are the same: to allow

in-state wineries to sell wine directly to consumers in

that State but to prohibit out-of-state wineries from

doing so, or, at the least, to make direct sales

impractical from an economic standpoint.”).

Accordingly, the Court had “no difficulty” concluding

that the New York and Michigan laws discriminated

against interstate commerce. /d. at 474-76.

The Court then addressed the reach of the

Twenty-first Amendment, specifically whether the

“state alcohol {regulations were] limited by the

nondiscrimination principle of the Commerce

Clause.” Id, at 487 (alteration in original) (citing

Bacchus, 468 U.S. at 276). It began its analysis by

noting that it had previously held that the Twenty-

first Amendment does not save state liquor laws that

violate other provisions of the Constitution.

The Court then considered the central! issue in

the case: whether state liquor laws were subject to

dormant Commerce Clause challenge, or whether the

Twenty-first Amendment provided states with the

auvchority to pass non-uniform liquor laws and

discriminate against out-of-state producers and their

products. See Granholm, 544 U.S. at 484-85. To

answer the inquiry, the Court examined the

legislative history of the Wilson Act, the Webb-

Kenyon Act, and the Twenty-first Amendment. /d.

The Court concluded that Section 2 of the

Amendment was only intended to confer upon states

the immunity as provided by Wilson and Webb-

Kenyon, and Section 2 and the two acts were not

intended to insulate all state liquor laws from the

nondiscrimination principle embodied in the

Commerce Clause. See id. Therefore, certain facially

discriminatory laws which implicated federal

interests would only be upheld if they met the

rigorous dormant Commerce Clause test; namely, the

challenged laws would only be upheld if they

advanced legitimate state interests “that cannot be

adequately served by reasonable nondiscriminatory

alternatives.” See id. at 489.

In Granholm, the laws in question, which

discriminated against out-of-state producers, could

not meet this rigorous test and, accordingly, were

struck down as violative of the dormant Commerce

Clause doctrine. See id. at 493. The Court, however,

54 Justice Kennedy's opinion in Granholm v. Heald 540 US 460

(2005) references the purported existence of a “Model Direct

Shipping Bill” attributed to the National Conference of State

Legislatures (NCSL). /d. at 491. Justice Kennedy proffered

this mode! bill as some form of “least restrictive alternative” to

the challenged statutes. However, there is no NCSL Mode! Bill.

(http://www.ncsl.org/ncs!-in-de/standing-

committees/com munications -financial-services-and-interstate

was careful to include language outlining the limits

of its decision:

The States argue that any decision

invalidating their direct shipment laws would

call into question the constitutionality of the

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

distribution system.” A State which chooses to

ban the saleand consumption of alcohol

altogether could bar its importation; and, as

our history shows, it would have to do so to

make its laws effective. States may also

assume direct control of liquor distribution

through state-run outlets or funnel sales

through the three-tier system. We have

system itself is “unquestionably legitimate.”

State policies are protected under the Twenty-

first Amendment when they treat liquor

produced out of state the same as its domestic

equivalent. The instant cases, in contrast,

involve __ straightforward attempts to

discriminate in favor of local producers. The

discrimination is contrary to the Commerce

Clause and is not sawed by the Twenty-first

Amendment.

Id. at 488-89 (citations omitted).

Of particular note are the last three sentences

of the above-quoted paragraph where the Court

limited its decision to discrimination “in favor of

local producers.” Id. at 489 (emphasis added). The

Court further highlighted this limitation by noting

that “[wjithout demonstrating the need for

discrimination, New York and Michigan have

enacted regulations that disadvantage out-of-state . .

. producers.” Id. at 493 (emphasis added).

This carefully chosen language illustrates the

Court’s attempt to balance the federal interest in

interstate commerce under the Commerce Clause

with the state’s interest in controlling importation

and structuring the liquor distribution system with

its borders under the Twenty-first Amendment.

Discriminating against out-of-state producers and

their products implicated Congress’ Commerce

power. See id. at 489. Structuring a distribution

system within its borders implicated the states’

Twenty-first Amendment power. Jd. The Court thus

inferred that this distinction would determine the

reach of the dormant restraints of the Commerce

Clause.

Accordingly, Granholm upheld the paramount

authority of states to regulate wholesalers and

retailers within their borders free from the

constraints of the Dormant Commerce Clause

doctrine. Jd. at 488-90. Any other interpretation of

Granholm renders the Amendment essentially

meaningless.

3. Arnold’s Wines, Brooks, and

Southern Wine.

The Second, Fourth, and Eighth Circuits have

adopted and applied this interpretation of the

Granholm decision. In Arnold’s Wines, an Indiana

retailer challenged a New York law that prohibited

unlicensed, out-of-state retailers from selling and

delivering alcohol directly to New York consumers.

Arnold's Wines, Inc. v. Boyle, 571 F.3d 185, 186-87

(2d Cir. 2009). The Second Circuit Court of Appeals

noted that the case required it “to chart a course

between two constitutional provisions that delineate

the boundaries of a state’s power to regulate

commerce:” namely, the Twenty-first Amendment

and the Commerce Clause. /d. at 186.

The Arnold's Wines court discussed the

Granholm decision at length. See id. at 189~—92.

Reconciling the constitutional conflict, the Second

Circuit noted the following:

Granholm is best seen as an attempt to

harmonize prior Court holdings regarding the

power of the states to regulate alcohol within

their borders—a power specifically granted to

the states by the Twenty-first Amendment—

with the broad policy concerns of the

Commerce Clause. Granholm _ validates

evenhanded state policies regulating the

importation and distribution of alcoholic

beverages under the Twenty-first Amendment.

It is only where states create discriminatory

exceptions to the three-tier system, allowing

in-state, but not out-of-state, liquor to bypass

the three regulatory tiers, that their laws are

subject to invalidation based on the Commerce

Clause.

Id. at 190 (citations omitted).

Relying upon the Granholm conclusion that

the three-tier system is “unquestionably legitimate,”

the Arnold’s Wines court unanimously upheld the

challenged law on the basis that the Twenty-first

Amendment conferred upon New York the authority

to structure the distribution system within the state

as it saw fit. Jd. at 190-91.

The Fourth Circuit Court of Appeals also

considered similar issues. Brooks v. Vassar, 462 F.3d

341, 344 (4th Cir. 2006). The case involved the

Virginia Personal Import Exception™ to the three-

tier system that limited the amount of wine and beer

% Va. Code Ann. § 4.1-310 (2007).

that Virginia consumers could personally transport

into the state for their personal consumption. The

court rejected the argument that this discriminated

against out-of-state retailers and violated the

dormant Commerce Clause doctrine. See id. at 352.

Judge Niemeyer noted that “an argument that

compares the status of an in-state retailer with an

out-of-state retailer—or that compares the status of

any other in-state entity under the three-tier system

with its out-of-state counterpart—is nothing

different than an argument challenging the three-

tier system itself.” Id.

Similarly, Southern Wine & Spirits of

America, Inc. v. Division of Alcohol & Tobacco

Control 731 F.3d 799, 802 (8th Cir. 2013) involved a

dormant Commerce Clause challenge to a Missouri

statute regulating wholesalers. 731 F.3d 799, 802

(8th Cir. 2013). The Missouri law embodied a

durational residency requirement for corporate

liquor wholesalers and their majority owners,

directors, and officers. See id. at 802-03. Southern

Wine and Spirits of America, Inc. was denied a

Missouri liquor wholesaler license on the basis that

it was a Florida-based corporation. See id. at 803.

The Eighth Circuit framed the central issue in the

case as follows: “whether the residency requirement

applicable to the wholesale tier of Missouri's liquor

distribution system, which is otherwise

jurisprudence, is authorized by [Section] 2 of the

Twenty-first Amendment.” Jd. at 807 (alteration in

Citing Granholm, the Eighth Circuit held that

“state policies that define the structure of the liquor

distribution system while giving equal treatment to

in-state and out-of-state liquor products and

producers are ‘protected under the Twenty-first

Amendment.” Id. at 809 (citing Granholm, 544 U.S.

at 489). The court rejected Southern Wine's

argument that only “integral” aspects of the three-

tier system were immune from Dormant Commerce

Clause challenge and that a residency requirement

was not such an integral component. See id. at 810.

In the court’s view, “[tj]here is no archetypal three

tier system,” and states are free under the Twenty-

first Amendment to structure that system as they

see fit. Id. Upholding the statute, writing for the

court, Judge Colloton articulated the public policy

underlying Missouri's residency requirement as

follows:

The legislature legitimately could

believe that a wholesaler governed

predominantly by Missouri residents is more

apt to be socially responsible and to promote

temperance, because the officers, directors,

and owners are residents of the community

and thus subject to negative externalities—

Id. at 811.

The challenged statute sets forth the

requirements that an applicant for a Tennessee

retail license must satisfy. It is a component of

Tennessee's liquor distribution system within the

state. As such, the statute falls within the state's

“core concerns” or “core powers” under the Twenty-

first Amendment and is free from the constraints

established by the dormant Commerce Clause

doctrine. See Granholm, 544 U.S. at 188-89 (quoting

Midcal Aluminum, Inc., 445 U.S. at 100).

As noted by Judge Colloton with respect to a

similar Missouri statute:

The residency requirement defines the

extent of in-state presence required to qualify

as a wholesaler in the three-tier system.... 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 officers, and a

super-majority of their shareholders.

Southern Wine, 731 F.3d at 810-11." The challenged

statute does not differentiate between in-state or out-

% The Fifth Circuit also adopted this interpretation of

Granholm. See Wine Country Gift Baskets.com vs. Steen, 612

F.3d 809, 821 (5th Cir. 2010) CGranholm prohibited

discrimination against out-of-state products or producers. Texas

has not tripped over that bar by allowing in-state retailer

deliveries.”), but see Cooper v. Texas Alcoholic Beverage

Commission, 820 ¥ 4d 730 (5th Cir. 2016). The Cooper decision

can perhaps be best understood as the attempt by one divided

panel of the Fifth Circuit to reconcile a 22-year-old precedent

and long-standing injunction with the evolving Twenty-first

of-state producers or products. It simply requires

corporate alcohol retailers and their majority owners,

directors, and officers to be residents of the state. As

such, the requirement is protected by the Twenty-

first Amendment and Respondents’ dormant

Commerce Clause challenge fails.

IV. State Liquor Laws Structuring the

Distribution System Within the State’s

Borders are Entitled to Extraordinary

Deference Under the Twenty-first

Amendment.

As noted by Judge Calabresi in his concurring

opinion in Arnold’ Wines, “{tlhe evolving

interpretation of the Twenty-First Amendment

raises im, ortant questions about the role of courts.”

Arnold’s Wines, Inc., 571 F.3d at 197. Judge

Calabresi warned against the dangers of judicial

interpretation designed to “update” what some view

as anachronistic laws, particularly when those laws

are embedded in the Constitution. See id. at 197

201.

It may permit courts, especially well-

meaning ones, to substitute their own notions

of modern needs for those of the majority.

Moreover, when a rereading results in the

erection of a constitutional barrier, it may

remove serious issues from the democratic

Additionally, this sort of updating presents

another problem, and one that is especially

apparent in the context of the Twenty-First

Amendment: It can leave state legislatures

and lower federal courts with no firm

understanding of what the law actually is.

Id. at 200 (citations omitted).™

Justice Frankfurter, in Carter v. Virginia, 321

U.S. 131, 142 (1944) warned of similar dangers:

“It is now suggested that a State must keep

within “the limits of reasonable necessity,”

™ There have been over 1,700 amendments to state liquor laws

in just the past six years. State-Level Alcohol Laws Face A

Patera Chattonge & Ge Susans Chart, Lassie Sits Aenies

and that this Court must judge whether or not

Virginia has adopted “regulations reasonably

necessary to enforce its local liquor laws."

Such canons of adjudication open wide the

door of conflict and confusion which have in

the past characterized the liquor controversies

in this Court and in no small measure formed

part of the unedifying history which led first to

the Eighteenth and then to the Twenty-first

Amendment... Less than six years ago this

Court rejected the impossible task of deciding,

instead of leaving it for legislatures to decide,

what constitutes a “reasonable regulation" of

the power to legislate as she did from the

Twenty-first Amendment, the Commerce

Clause does not come into play.”

%® Multiple circuit courts likewise recognize the dangers of a

federal court acting as a state legislature on alcohol issues. As

Judge O'Scanniain has identified,“the district courts

suggestion that the State should serve its interest in some other

way disparages the policy choices that Section 2 of the Twenty

Firet Amendment commits to the states.” Costco v. Hoen, 522

F.3d 874, 903, n. 25 (9th Cir. 2008). In a well-crafted concurring

consumption in the state.” Lebamoff Enterprises, Inc. v. Huskey,

666 F.3d 455, 462 (7thCir. 2012) (J. Hamilton

concurring). Judge Southwick has articulated that “regulating

alcoholic beverage retailing is largely a States

prerogative.” Wine Country, 612 F.3d at 820. Judge Colloton

The intersection of the Twenty-first

Amendment and dormant Commerce Clause doctrine

may lure courts too far down the road of

policymaking under the guise of judicial review. The

need for caution in the exercise of judicial review is

for two reasons.

First, by its nature, all alcohol regulation

fundamentally represents a balance between

unfettered competition and availability, on the one

hand, and strict control, on the other. Competition

implicates federal interests under the Commerce

Clause. Control implicates State interests under the

Twenty-first Amendment. State Legislatures,

according to local norms and standards, must

determine how that balance should be achieved and

where the appropriate balance point should be fixed.

versions of the three-tier system|.|" Southern Wine, 731 F.3d at

810.

That subjective judgment, forged within the give and

take of the political arena, by the community’s local,

elected representatives, should not be lightly set

aside. Lehnhausen v. Lake Shore Auto Parts Co., 410

U.S. 356, 364 (1973) (equal protection challenge).

Second, these particular legislative judgments enjoy

a special status by virtue of the Twenty-first

Amendment and, accordingly, are entitled to the

greatest deference by any reviewing Court.

The tumultuous history of liquor regulation

should serve as a warning to courts against traveling

too far down the road of policymaking under the

guise of judicial review. Incrementally invalidating

key provisions of a state’s liquor regulatory scheme

can lead to unintended consequences by pulling a

thread that threatens to sacs the entire

regulatory fabric. It can also undermine or perhaps

even cripple the ability of the state to effectively

regulate the industry.

The judgment of the Tennessee Legislature to

require durational residency for a retail license falls

within its Twenty-first Amendment authority. While

other policymakers might draw that line differently,

NBWA suggests that the courts should allow

different legislatures to construct or deconstruct

liquor regulations in their states on an incremental

basis as each sees fit.

CONCLUSION

For the foregoing reasons, NBWA respectfully

requests that the Court reverse the Sixth Circuit

decision and uphold the constitutionality of the

challenged statute.

Respectfully Submitted,

Dated: November 20, 2018

Michael D. Madigan

Counsel of Record

Brandt Erwin

Madigan, Dahl & Harlan, P.A.

222 South Ninth Street

Suite 3150

Minneapolis, Minnesota 55415

612-604-2000

madigan@mdh-law.com

erwin@mdh-law.com

Paul E. Pisano

National Beer Wholesalers

' ‘ati

1101 King Street, Suite 600

Alexandria, Virginia 22314

703-683-4300

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.