# 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 United States

TENNESSEE WINE AND SPIRITS RETAILERS
ASSOCIATION,
Petitioner,
v.
ZACKARY W. BLAIR, ET AL.,
Respondents.

ON WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
For THE SixTH CriRCUIT

BRIEF OF AMICUS CURIAE RETAIL
LITIGATION CENTER, INC. IN SUPPORT OF

RESPONDENTS
Deborah R. White Kelsi Brown Corkran
RETAIL LITIGATION Counsel of Record
CENTER, INC. ORRICK, HERRINGTON &
1700 N. Moore Street SUTCLIFFE LLP
Suite 2250 1152 15th Street NW
Arlington, VA 22209 Washington, DC 20005
(202) 339-8497
Zayn Siddique kcorkran@orrick.com
ORRICK, HERRINGTON & Randy J. Kozel
SUTCLIFFE LLP ORRICK, HERRINGTON &
51 West 52nd Street SUTCLIFFE LLP

New York, NY 10019 405 Howard Street
San Francisco, CA 94105

Counsel for Amicus Curiae

TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ................-ccsceseeseesseeeeees ii
INTEREST OF AMICUS CURIAE .......................... l
INTRODUCTION AND SUMMARY OF
ERSTE SA cr OCC 2
[EEE ESE CS ae ae 5
|. The Granholm Framework Determines
The Validity Of Alcohol Regulations
Under The Commerce Clause. ........................... 5
Step 1: Is there discrimination?......................... 7
Step 2: Is the law authorized by the
Twenty-first Amendment? ............................ 9
Step 3: Does the law advance a legitimate
goal that cannot be served by
nondiscriminatory alternatives? ................ 13
Il. Tennessee’s Durational Residency
Requirement Fails Under The Granholm
Fa iaic ies insteiaceentintiiclentininghbetieghidigtianditaiaiinbiegiiteenreees 14
nian 14
ARTS ALTE a eo SE 16
C. Nondiscriminatory Alternatives................. 19

ei titncasassnccnssiisatenavanceasennenntananguncenapaanenst 25

ii
TABLE OF AUTHORITIES
Page(s)

Cases

44 Liquormart, Inc. v. Rhode Island,
4, ECE 5, 19

Bacchus Imports, Ltd. v. Dias,
468 U.S. 263 (1984)............ 5, 7, 8, 9, 11, 12, 16, 17

Brown-Forman Distillers Corp. v. N.Y.
State Liquor Auth.,
6, 8, 10, 11

City of Philadelphia v. New Jersey,
gE 7,9

Cooper v. Tex. Alcoholic Beverage
Comm'n,
820 F.3d 730 (Sth Cir. 2016).................-cccecceeeeeees 12

Craig v. Boren,
TE EEN TRE 5, 19

Halliburton Oil Well Cementing Co. v.
Reily,
a ciatnl 8

ill

Healy v. Beer Inst.,

ee 5, 8, 10
Lewis v. BT Inv. Managers, Inc.,

re ee i itatrccnctsnstsnvcomeccsensancevesnseveninies 20
New Energy Co. of Indiana v. Limbach,

ne 6, 13
North Dakota v. United States,

in rreicsnasnncnssnsneerastoenioennionies 5, 6
Oregon Waste Sys., Inc. v. Dep't of

Envtl. Quality of Or.,

Be IT cncccccsccsstasitnssancsccsntpaasensnenssies 2,7
South Dakota v. Wayfair, Inc.,

LL ene 4
Wal-Mart Stores, Inc. v. Texas Alcoholic

Beverage Comm'n,

313 F. Supp. 3d 751 (W.D. Tex.

Fe ncecnintenctnvtsnssenscavemsscccsasecnceseceasvesesceensessntes 23, 24
Constitutional Authorities
OF passim
ise. FBS) F ) ee passim
Statutes
Ariz. Rev. Stat. Ann. § 4-243(A) ..............:ccccccceceeeees 18
Ark. Code Ann. § 3-2-1038 .................csscsccssercrssesessenee 21

ch. 235 Ill. Comp. Stat. Ann. § 5/6-1.5..................... 18

iv

ch. 235 Ill. Comp. Ill. Stat. § 5/6-4(a) .........0000.0......... 18
1989 Minn. Sess. Law Serv. 49...............cccccccceceeeeeees 24
Minn. Stat. Ann. § 340A.402 0.000.000.0000... ccccecceeeeeeeeeeeee 23
Minn. Stat. Ann. § 340A.412 .....000000.......0000000000e 21, 24
Minn. Stat. Ann. § 340A.414 000000000... cece ccc ceceeeeeeeeeeeees 24
Mont. Code Ann. § 16-4-1005 ...............ccccccscseeeeeeeees 22
N.D. Cent. Code Ann. § 5-02-11 ..0.........cccccccseceeeeeeeees 23
Be es I iiccnscosssccntenticnisensnadicnntenennnings 24
eis ey Cy Se EI El icctcrcerscseressuvetvecsessuesnrserveste 24
N.Y. Alco. Bev. Cont. Law § 101(1) .....................006 18
N.Y. Alco. Bev. Cont. Law App. § 81.1..................... 24
Neb. Rev. Stat. Ann. § 53-1,104.....0...............0..0c eee 23
Neb. Rev. Stat. Ann. § 53-169(1) .............000ccccccceees 18
Neb. Rev. Stat. Amn. § 53-171 .00..........:::ccccceceseeeeeeeeee 18
ee, BD. TERE, BRR. HGF BBG ccccrccocscnsecceconscvevsnscnceces 22
Tenn. Code Ann. § 57-3-204.0000.0........:0.ccccccceeeeeee 15, 20
Tenn. Code Ann. § 57-3-803...................cccccccccssesreeeees 21
Tenn. Code Ann. § 57-4-101 .0..........::ccccceeeeeceeeeees 18, 21

Tenn. Code Ann. § 57-4-102.................cccccceceeseees 18, 21

v

Tenn. Code Ann. § 57-4-201
Tenn. Code Ann. § 57-5-103

PTeReTOC UOC Cee eee eee eee

l

INTEREST OF AMICUS CURIAE' ~

The Retail Litigation Center, Inc. (RLC) is a pub-
lic policy organization whose members include many
of the country’s largest and most innovative retailers.
They employ millions of workers throughout the
United States, furnish goods and services to tens of
millions of consumers, and account for tens of billions
of dollars in annual sales. The RLC seeks to provide
courts with retail-industry perspectives on important
legal issues impacting its members, and to highlight
the practical consequences of pending cases. Since its
founding in 2010, the RLC has participated as amicus
curiae in more than 100 cases.

The RLC and its members have a significant in-
terest in this case. Some RLC members sell liquor. As
interstate retailers, they would be barred by Tennes-
see’s durational residency law, and by others like it, if
it were enforceable. More generally, RLC members
have an interest in ensuring that the Commerce
Clause continues to serve its crucial role as a bulwark
against protectionism in all industries.

' The parties have consented to the filing of this amicus
brief. No counsel for a party authored the brief in whole or in
part. No party, counsel for a party, or any person other than ami-
cus and its counsel made a monetary contribution intended to
fund the preparation or submission of the brief.

2

INTRODUCTION AND SUMMARY OF
ARGUMENT

Tennessee’s durational residency law keeps inter-
state retailers out of the alcohol trade based simply
on where their owners, officers, directors, and stock-
holders live. The legislature could achieve every one
of its purported public policy objectives in a host of
nondiscriminatory ways. The real beneficiaries are
the local retailers the law protects from competition.

Petitioner's response is not so much to dispute
these points as to argue that they don’t matter. On
Petitioner's logic, the very act of asking whether pro-
tectionism is afoot goes too far: “A bar on protectionist
laws would amount to reasonableness review,” and
such review “is irreconcilable” with the Twenty-first
Amendment. Pet. Br. 43-44.

Petitioner is wrong. This Court has made clear
that economic protectionism violates an overarching
principle of constitutional law embodied in the Com-
merce Clause. Nondiscrimination is more than a frag-
ile aspiration that gives way any time someone pours
a drink. See Granholm v. Heald, 544 U.S. 460, 472
(2005) (“[S]tate laws violate the Commerce Clause if
they mandate ‘differential treatment of in-state and
out-of-state economic interests that benefits the for-
mer and burdens the latter.” (quoting Oregon Waste
Sys., Inc. v. Dep’t of Envtl. Quality of Or., 511 U.S. 93,
99 (1994)). Hence this Court’s repeated rejection of
claims that the Twenty-first Amendment renders con-
cerns about protectionism irrelevant. See id. at 486-
87 (holding that “the Twenty-first Amendment does

3

not supersede other provisions of the Constitution”
and collecting cases).

In filing this amicus brief, the RLC seeks first and
foremost to make a basic point: Petitioner’s proposed
approach to assessing the constitutionality of alcohol
regulations is not simply novel, but would upend the
framework the Court established in Granholm. That
three-step test asks first whether the regulation dis-
criminates; if so, whether that discrimination is pro-
tected by the Twenty-first Amendment; and finally,
whether the state could have pursued its goals in non-
discriminatory ways. See id. at 472, 476, 489. The
Court carefully tailored this framework to reflect the
Commerce Clause’s commitment to interstate compe-
tition free from discrimination as well as the Twenty-
first Amendment’s grant of regulatory authority to
the states.

The laws at issue in Granholm were discrimina-
tory under familiar Commerce Clause principles.
They were not saved by the Twenty-first Amendment,
and they pursued goals that could be advanced with-
out discriminating against out-of-state interests. The
same is true of Tennessee’s durational residency law,
as the Sixth Circuit properly concluded. See Pet. App.
33a.

Rather than taking Granholm’s framework on its
own terms—which is fatal to Tennessee’s residency
law—Petitioner posits that the Commerce Clause
simply has no application to retailers. See Pet. Br. 43-
44. There is no warrant for Petitioner's cramped view.
Like the cases that preceded it, Granholm harmo-
nized the Commerce Clause with the Twenty-first

4

Amendment as a general matter, yielding an analysis
that applies to discrimination against interstate com-
merce, not just interstate products. As this Court rec-
ognized last Term, Granholm reflects the importance
of nondiscrimination as an enduring constitutional
principle. See South Dakota v. Wayfair, Inc., 138 S.
Ct. 2080, 2091 (2018) (citing Granholm as supporting
the “virtually per se” rule for invalidating discrimina-
tory laws).

The RLC’s second reason for submitting this brief
is to underscore an obvious reality, notwithstanding
Petitioner's suggestions to the contrary: State resi-
dency has nothing to do with whether a retailer is a
law-abiding member of, and valued contributor to, a
local community. Interstate retailers can and do work
hard to comply with drinking age laws. They can and
do keep careful records for calculating and submitting
taxes. They can and do invest in communities and
hire local employees to staff their stores. Yet in Ten-
nessee, none of that matters if their owners, officers,
directors, and stockholders have not lived inside the
state’s borders for a long enough time. This protection
of in-state sellers from interstate competition is not
subtle; it is evident on the face of Tennessee’s statute.
Such discrimination is a paradigmatic violation of the
Commerce Clause and in no way immunized by the
Twenty-first Amendment. The latter authorizes
states to regulate alcohol sales, not to prop up local
interests by keeping competitors at bay.

5

ARGUMENT

I. The Granholm Framework Determines The
Validity Of Alcohol Regulations Under The
Commerce Clause.

This Court has evaluated the constitutionality of
alcohol regulations on numerous cecasions and in a
range of contexts. See, e.g., 44 Liquormart, Inc. v.
Rhcde Island, 517 U.S. 484 (1996) (challenge under
the First Amendment); Craig v. Boren, 429 U.S. 190
(1976) (challenge under the Equal Protection Clause).
Included among those cases are several controversies
over the consistency of alcohol-related laws with the
Commerce Clause. See, e.g., North Dakota v. United
States, 495 U.S. 423 (1990); Healy v. Beer Inst., 491
U.S. 324 (1989); Bacchus Imports, Lid. v. Dias, 468
U.S. 263 (1984). The Court’s most recent discussion of
that intersection is also its most extensive: Granholm,
544 U.S. 460.

Granholm dealt with laws in Michigan and New
York that allowed in-state wineries to sell directly to
consumers while making it illegal or impractical for
out-of-state w'~eries to do so. The Court considered
the same issue .vhat animates this case: the relation-
ship between the nondiscrimination principle of the
Commerce Clause and state regulatory authority un-
der the Twenty-first Amendment. It concluded that
both interests could be served. Discriminatory laws
violate the Commerce Clause even in the field of alco-
hol regulation. See Granholm, 544 U.S. at 489. At the
same time, states possess extensive discretion to reg-
ulate the alcohol trade in nondiscriminatory ways, in-
cluding by establishing a tiered system that divides

6

the operations of producers, wholesalers, and retail-
ers. See id. As the Court has previously observed, the
three-tier system allows states to pursue goals such
as “promoting temperance, ensuring orderly market
conditions, and raising revenue.” North Dakota, 495
U.S. at 432.

Drawing on the body of Commerce Clause juris-
prudence as well as the history of the Twenty-first
Amendment, Granholm took a three-step approach to
evaluating the laws at issue. The first question is
whether a law discriminates against interstate com-
merce. See 544 U.S. at 472. If there is discrimination,
the Court moves on to consider whether the law is
saved by the Twenty-first Amendment. See id. at
476.2 Finally, if the Twenty-first Amendment does not
save the law, the Court asks whether the law never-
theless “advances a legitimate local purpose that can-
not be adequately served by reasonable
nondiscriminatory alternatives.” Jd. at 489 (quoting
New Energy Co. of Indiana v. Limbach, 486 U.S. 269,
278 (1988)).

Granholm’s three-step analysis applies in full
measure to cases like this one. The Court set forth a

2 Granholm did not have occasion to discuss the implica-
tions of finding that no discrimination is present, though this
Court has indicated that “[w]hen ... a statute has only indirect
effects on interstate commerce and regulates evenhandedly, we
have examined whether the State's interest is legitimate and
whether the burden on interstate commerce clearly exceeds lo-
cal ... benefits.” Brown-Forman Distillers Corp. v. N.Y. State
Liquor Auth., 476 U.S. 573, 579 (1986); see also Dep't of Revenue
of Ky. v. Davis, 553 U.S. 328, 353 (2008).

7

framework that safeguards interstate competition
and forecloses economic protectionism while preserv-
ing states’ discretion to regulate alcohol. Petitioner's
response is to advance a revisionist account of
Granholm based on snippets that mention out-of-
state products, even as it ignores the framework the
Court deliberately applied. In the sections that follow,
we describe the full scope of this Court’s controlling
constitutional analysis.

Step 1: Is there discrimination?

Granholm begins by asking whether the laws at
issue discriminated against out-of-state interests. See
544 U.S. at 472 (“Time and again this Court has held
that, in all but the narrowest circumstances, state
laws violate the Commerce Clause if they mandate
‘differential treatment of in-state and out-of-state eco-
nomic interests that benefits the former and burdens
the latter.” (quoting Oregon Waste, 511 U.S. at 99)).
This is the threshold step—with respect to alcohol as
well as other goods and services—-because discrimina-
tory laws “face ‘a virtually per se rule of invalidity.”
Id. at 476 (quoting City of Philadelphia v. New Jersey,
437 U.S. 617, 624 (1978)); see also Bacchus, 468 U.S.
at 268, °. 4-76. The path * the constitutional analysis
depends in the first instance on whether discrimina-
tion is afoot.

The laws in Granholm were plainly discrimina-
tory. In Michigan, only wineries within the state could
ship directly to consumers. See 544 U.S. at 473-74. As
for New York, in-state producers could ship directly
to consumers, while out-of-state producers needed to
open “a branch office and warehouse” within the

8

state. Id. at 474-75. That approach contravened the
Court's “admonition that States cannot require an
out-of-state firm ‘to become a resident in order to com-
pete on equal terms.” /d. (quoting Halliburton Oil
Well Cementing Co. v. Reily, 373 U.S. 64, 72 (1963)).

While Granholm took discrimination as its start-
ing point, Petitioner would have this Court ignore dis-
crimination altogether. On Petitioner's telling, the
“Twenty-first Amendment makes the dormant Com-
merce Clause inapplicable to most state laws regulat-
ing liquor distribution.” Pet. Br. 24. Petitioner's claim
is nothing more than old wine in new bottles.
Granholm rejected it, instead broadly embracing the
well-established premise that laws cannot “deprive
citizens of their right to have access to the markets of
other States on equal terms.” 544 U.S. at 473. The
Court affirmed that “state regulation of alcohol is lim-
ited by the nondiscrimination principle of the Com-
merce Clause,” 544 U.S. at 487, with cites to Bacchus
Imports, Lid. v. Dias, 468 U.S. 263, Brown-Forman
Distillers Corp., 476 U.S. 573, and Healy, 491 U.S.
324. It punctuated the point by quoting Brown-For-
man for the proposition that “[wjhen a state statute
directly regulates or discriminates against interstate
commerce, or when its effect is to favor in-state eco-
nomic interests over out-of-state interests, we have
generally struck down the statute without further in-
quiry.” 544 U.S. at 487 (quoting Brown-Forman, 476
U.S. at 579).

The discrimination inquiry comes first, because it
shapes the ensuing analysis of whether a law is au-
thorized by the Twenty-first Amendment. From the
standpoint of the Commerce Clause, protectionism is

9

no less of a concern in the alcohol industry than it is

in other domains.

Step 2: Is the law authorized by the Twenty-
first Amendment?

After concluding that the laws at issue discrimi-
nated against out-of-state interests—and thus trig-
gered the “virtually per se rule of invalidity” the
Granholm Court proceeded to consider whether they
were immunized by the Twenty-first Amendment.
544 U.S. at 476 (quoting City of Philadelphia, 437
U.S. at 624).

In conducting that analysis, the Court began with
history. It explained that the Twenty-first Amend-
ment “restored to the States the powers they had un-
der the Wilson and Webb-Kenyon Acts.” /d. at 484.
Those Acts expanded state regulatory authority over
the alcohol industry, but they did not endorse or au-
thorize protectionism. See id. at 483-84.

The Court also looked to its precedents, which em-
phasize the importance of vigilance against protec-
tionism even in the alcohol trade. In Bacchus, the
Court invalidated a tax that exempted certain locally
produced beverages in Hawaii. In doing so, it rejected
any suggestion that the Twenty-first Amendment
served to “empower States to favor local liquor indus-
tries by erecting barriers to competition.” 468 U.S. at
276. Likewise, the Court in Brown-Forman held that
a New York law violated the Commerce Clause by ef-
fectively preventing distillers from running certain
promotions outside of New York. This was itself a
form of protectionism, for “[wjhile a State may seek

10

lower prices for its consumers, it may not insist that
producers or consumers in other States surrender
whatever competitive advantages they may possess.”
476 U.S. at 580; see also id. (“Economic protectionism
is not limited to attempts to convey advantages on lo-
cal merchants; it may include attempts to give local
consumers an advantage over consumers in other
States.”).

A few years after Brown-Forman, Healy v. Beer
Institute struck down a Connecticut statute that re-
quired out-of-state beer shippers to affirm that their
prices in Connecticut were no higher than their prices
in neighboring states. See 491 U.S. at 326. The Court
reasoned that while Connecticut has significant regu-
latory discretion over alcohol distribution, it may not
“penaliz[e] Connecticut brewers if they seek border-
state markets and out-of-state shippers if they choose
to sell both in Connecticut and in a border State.” /d.
at 341. Punishing those who do business in other
states is antithetical to the Commerce Clause, what-
ever the industry.

Based on its historical and doctrinal analysis, the
Court in Granholm concluded that the discriminatory
laws before it were not saved by the Twenty-first
Amendment. That Amendment allows a state “which
chooses to ban the sale and consumption of alcohol al-
together” to “bar its importation.” 544 U.S. at 488-89.
It also allows states to “assume direct control of liquor
distribution through state-run outlets or funnel sales
through the three-tier system.” /d. at 489. Even so, it
is “well settled that the Twenty-first Amendment did
not entirely remove state regulation of alcohol from
the reach of the Commerce Clause.” Brown-Forman,

11

476 U.S. at 584. The laws in Michigan and New York
went too far by discriminating against out-of-state
competitors.

Granholm is not alone in highlighting the salience
of protectionism in cases involving alcohol. In Bac-
chus, the Court observed that “|s]tate laws that con-
stitute mere economic protectionism are ... not
entitled to the same deference as laws enacted to com-
bat the perceived evils of an unrestricted traffic in liq-

uor.” 468 U.S. at 276. The Sixth Circuit recognized
this principle in the decision below, noting that the
Commerce Clause “prevents ‘economic protection-
ism’—e.g., a state protecting in-state economic inter-
ests by burdening out-of-state economic interests.”
Pet. App. 28a. And Judge Sutton, who parted ways
with the majority over some aspects of Tennessee’s
system, agreed that discriminatory laws are invalid if
“they serve no purpose besides ‘economic protection-
ism.” Pet. App. 49a (quoting Bacchus, 468 U.S. at
276). That Petitioner will not accept even this funda-
mental point is both striking and indicative of the ex-
treme position it has staked out. See Pet. Br. 43.

Petitioner thus takes upon itself the unenviable
task of defending the power of states to enact protec-
tionist laws. Any other approach, Petitioner main-
tains, would amount to “reasonableness review” that
is inconsistent with the Twenty-first Amendment.
Pet. Br. 43-44. This argument not only ignores the
Court’s long history of applying the nondiscrimina-
tion principle in a clear and rigorous fashion, but re-
markably portrays economic protectionism as none of
the judiciary’s concern. See Pet. Br. 44 (contending
that scrutinizing protectionist laws “would bog down

12

the courts in policy disputes and leave the states with
little certainty as to the validity of their liquor laws”).
That depiction, as explained above, is impossible to
square with cases like Granholm and Bacchus.

Petitioner's response is to reimagine those cases.
See Pet. Br. 43. Because Granholm and Bacchus in-
volved “products,” Petitioner concludes that the Court
implicitly endorsed discrimination against out-of-
state retailers. See Pet. Br. 41-44. But Petitioner has
distilled the wrong lesson from this Court’s cases.
Granholm and Bacchus found discrimination against
out-of-state interests to be unlawful, and they af-
firmed the significance of nondiscrimination as a con-
stitutional principle. See Granholm, 544 U.S. at 472;
Bacchus, 468 U.S. at 276. Nothing in those decisions
supports Petitioner's claim that states have free rein
to discriminate so long as they pick the right targets.

Further, Granholm expressly rejected an invita-
tion to overrule Bacchus or limit the case to its facts.
544 U.S. at 488; see also Cooper v. Tex. Alcoholic Bev-
erage Comm'n, 820 F.3d 730, 743 (5th Cir. 2016)
(Cooper IT) (“State regulations of the producer tier ‘are
protected under the Twenty-first Amendment when
they treat liquor produced out of state the same as its
domestic equivalent.’ ... But state regulations of the
retailer and wholesaler tiers are not immune from
Commerce Clause scrutiny just because they do not
discriminate against out-of-state liquor.” (quoting
Granholm, 544 U.S. at 489)). In effect, Petitioner asks
this Court to do what it has already refused in
Granholm.

13

Step 3: Does the law advance a legitimate
goal that cannot be served by
nondiscriminatory alternatives?

Having determined that the discriminatory Mich-
igan and New York laws were not excused by the
Twenty-first Amendment, the Granholm Court
turned finally to “whether either state regime ‘ad-
vances a legitimate local purpose that cannot be ade-
quately served by reasonable nondiscriminatory
alternatives.” 544 U.S. at 489 (quoting New Energy
Co. of Ind., 486 U.S. at 278).

The main justifications offered by the states were
“keeping alcohol out of the hands of minors and facil-
itating tax collection.” /d. Neither withstood scrutiny.
The argument about use by minors was undermined
by the lack of evidence implicating direct shipments
of wine. See id. at 490. There was also a problem of
underinclusiveness: even with the laws in place, mi-
nors could order wine directly from in-state produc-
ers. See id. As for the tax-collection rationale, it had
no purchase in Michigan, which already taxed out-of-
state wineries for shipments made to in-state whole-
salers and could extend that practice to direct ship-
ments. See id. at 491. Similarly, New York could
require out-of-state direct shippers to apply for a per-
mit and submit sales data, which would facilitate or-
derly taxation. See id.

Ultimately, Michigan and New York fell short of
the “exacting standard” they needed to satisfy in
order to show that “nondiscriminatory alternatives
will prove unworkable.” /d. at 493.

14

Again placing itself in opposition to Granholm,
Petitioner disputes the relevance of this inquiry into
nondiscriminatory alternatives. It begrudgingly
mentions the presence of nonprotectionist
justifications “[tjo the extent it matters.” Pet. Br. 47.
Of course, as Granholm holds, it matters greatly. And
as explained below, the absence of any such
justifications for Tennessee’s law confirms its
invalidity.

Il. Tennessee’s Durational Residency
Requirement Fails Under The Granholm
Analysis.

A straightforward application of the Granholm
framework demonstrates that Tennessee’s durationa!
residency requirement is invalid. Like every state,
Tennessee possesses broad authority to regulate the
distribution of alcohol, including through its imple-
mentation of the three-tier system. It has numerous
avenues within that system to ensure that retailers
doing business within its borders are complying with
all applicable laws. But that is not a license to dis-
criminate against interstate retailers or out-of-state
interests, especially when the retail practices de-
scribed below demonstrate that interstate retailers,
operating in nondiscriminatory regulatory environ-
ments, are just as able to serve the reasonable objec-
tives of alcohol oversight as their single-state

counterparts.
A. Discrimination.

The Michigan laws at issue in Granholm allowed
in-state wineries to ship directly to consumers while

15

foreclosing out-of-state wineries from doing the samie.
Discrimination was easy to discern. See 544 U.S. at
473-74. New York did not strictly bar out-of-state win-
eries from direct shipments; rather, it required them
to set up an in-state distribution apparatus that in-
state wineries could skip. See id. at 474. This, too, was
discriminatory. See id.

Tennessee’s residency requirement comes from
the same mold. Under Tennessee law, it is not enough
to set up a brick-and-mortar retail outlet within the
state. To obtain the requisite liquor license, a would-
be retailer must have lived within Tennessee for what
the legislature deems to be a sufficient amount of
time. Tenn. Code Ann. § 57-3-204(b)(2)(A) (establish-
ing a two-year residency requirement for any individ-
ual seeking a retail liquor license). That residency
period is even longer for a retailer seeking to renew
its license. Jd. (requiring ten years of residency prior
to issuing a renewal). A corporate retailer must go still
further, ensuring that all its officers, directors, and
capital stockholders have lived in Tennessee for the
requisite amount of time. /d. § 57-3-204(b)(3)(A)-(B),
(D) (establishing a two-year residency requirement
for any officer, director, or stockholder of a corpora-
tion seeking a retail liquor license).*

‘ Petitioner has not defended the stockholder residency re-
quirement or the extended residency requirement for renewals
before this Court. See Pet. Cert. Reply 2. Nevertheless, those pro-
visions are notable in illustrating the dramatic and onerous im-
plications of Tennessee's regulatory approach for would-be
entrants to its market.

16

The upshot of Tennessee’s law is that if the own-
ers, directors, officers, and stockholders of your organ-
ization have lived in Tennessee for a long enough
time, you can establish a retail outlet there. If they
haven't, you can’t. As the Sixth Circuit explained, the
law “prevents out-of-state residents from obtaining
retail licenses and protects in-state residents who are
retailers.” Pet. App. 31a. That is the essence of dis-
crimination.‘

B. Immunity.

The next question is whether Tennessee’s dis-
criminatory law is saved by the Twenty-first Amend-

ment. See Granholm, 544 U.S. at 476. Petitioner's
position is that regulations governing retailers are

‘ Aside from its discriminatory effect, there is also evidence
that Tennessee's durational residency requirement was enacted
with a discriminatory purpose. Cf. Bacchus, 468 U.S. at 270
(holding that “either discriminatory purpose ... or discrimina-
tory effect” provide a basis for finding “economic protectionism’
(citation omitted)). The Attorney General of Tennessee, for in-
stance, suggested such a conclusion when he opined that the leg-
islative history of a precursor provision “reveals no legitimate
public policy ... and indeed provides some evidence that the leg-
islative intent ... was to deter the sale of alcoholic beverages from
outside Tennessee.” Opp. App. 1 la. In reaching that determina-
tion, the Attorney General pointed to evidence such as a floor
debate in which a Tennessee legislator remarked that the Ten-
nessee House had just voted “to kill interstate banking” and “al!
[the durational residency requirement] does is kill interstate
whiskey.” Opp. App. 9a. Given the procedural posture of this
case, the Court of Appeals had no occasion to rule on discrimina-
tory purpose. If this Court were inclined to reverse the discrim-
natory effect finding, however, it should remand to permit the
lowers courts to develop the factual record as to discriminatory
purpose.

17

somehow exempt from nondiscrimination principles,
such that legislatures have carte blanche. See Pet. Br.
43-44. That theory runs headlong into Granholm,
which set forth a framework for accommodating the
Commerce Clause and the Twenty-first Amendment
without any suggestion that retailing plays by an en-
tirely different set of rules. See supra at 9-12.

The Sixth Circuit followed this Court’s lead by
considering the relationship between Tennessee’s law
and the scope of states’ regulatory discretion over the
alcohol industry. See Pet. App. 24a (citing Bacchus,
478 U.S. at 275-76). It concluded that the protection-
ist residency requirement is not immunized by the
Twenty-first Amendment. The three-tier system of al-
cohol regulation might permissibly require that alco-
hol retailers have a physical presence within the
state, the Sixth Circuit observed, but that is no war-
rant for durational residency requirements based on
where owners, directors, officers, and stockholders
live. Pet. App. 27a.

The Sixth Circuit’s analysis coheres with this
Court’s recognition in Bacchus that “one thing is cer-
tain” when it comes to the Twenty-first Amendment:
“The central purpose of the provision was not to em-
power States to favor local liquor industries by erect-
ing barriers to competition.” Bacchus, 468 U.S. at 276.
It is likewise consistent with Granholm, which con-
firmed the validity of the three-tier system but drew
the line at efforts to favor in-state interests. See 544
U.S. at 489.

The corollary is that invalidating Tennessee's dis-
criminatory residency law would in no way challenge

18

the legitimacy of the three-tier system of regulation.
States like Tennessee can still insist that producers
sell to wholesalers, who sell to retailers, who sell to
customers. See Granholm, 544 U.S. at 489 (“States
may ... assume direct control of liquor distribution
through state-run outlets or funnel sales through the
three-tier system.”). And they can establish separate
licensing requirements at each stage. Numerous
states maintain such a system without any residency
requirements. See, e.g., Neb. Rev. Stat. Ann. §§ 53-
169(1), 53-171; Ariz. Rev. Stat. Ann. § 4-243(A); ch.
235 Ill. Comp. Stat. §§ 5/6-1.5, 5/6-4(a); N.Y. Alco.
Bev. Cont. Law § 101(1). Indeed, Tennessee itself im-
poses no residency requirement whatsoever for per-
mits to sell liquor by the drink in bars and
restaurants for consumption on the premises. See
Tenn. Code Ann. §§ 57-4-101, 102, 201. Other states
allow businesses to satisfy their residency require-
ments by “incorporating or registering to do business
in the State.” Resp. Total Wine Br. 4-5 n.2; see also id.
(noting that “[a]ffiliates of Total Wine are currently
operating licensed retail package stores in many of
the States that are claimed to have residency require-
ments, including Arizona, California, Georgia, Ken-
tucky, Massachusetts, Missouri, North Carolina,
South Carolina, Virginia, Washington, and Wiscon-
sin”).

What a state cannot do is condition eligibility to
operate a retail shop on where owners, directors, of-
ficers, and stockholders live. The Twenty-first
Amendment provides states with regulatory author-
ity over the structure and operation of the alcohol
trade. But it does not grant them permission to disre-

19

gard constitutional imperatives. Regulatory discre-
tion does not excuse deprivations of free speech. See
44 Liquormart, 517 U.S. at 516 (“[T]he Twenty-first
Amendment does not qualify the constitutional prohi-
bition against laws abridging the freedom of speech
embodied in the First Amendment.”). It does not ex-
cuse denials of equal protection. See Craig v. Boren,
429 U.S. at 209 (“[T]he Twenty-first Amendment does
not alter the application of equal protection standards
that otherwise govern this case.”). And it does not ex-
cuse economic discrimination against people who live
in other states. See Granholm, 544 U.S. at 487 (“[T]he
Court has held that state regulation of alcohol is lim-
ited by the nondiscrimination principle of the Com-
merce Clause.”). The Sixth Circuit put the point well:
Tennessee “is not merely regulating the distribution
of alcohol within its borders— it is dictating who can
and cannot engage in its economy” based on where
people live. Pet. App. 17a n.5.

C. Nondiscriminatory Alternatives.

The final question is whether, notwithstanding
its discriminatory character, Tennessee’s residency
requirement serves a legitimate local purpose that
cannot be advanced through nondiscriminatory
means. See Granholm, 544 U.S. at 489.

The jumping-off point is Tennessee’s own
(belated) description of its objectives,® which stresses
the importance of “oversight, control, and

© As Respondent Total Wine notes, the legislative statement
of intent was added two decades after Tennessee enacted a du-
rational residency requirement. See Resp. Total Wine Br. 8.

20

accountability.” Tenn. Code Ann. § 57-3-204(b)(4).
The residency requirement, the argument runs,
fosters these goals because “those who better know a
community better serve it,” Pet. Br. 49, and because
resident retailers are easier to regulate, Pet. Br. 48.
Yet the Sixth Circuit had no trouble generating a list
of nondiscriminatory paths to the same ends: for
example, “requiring (1) a retailer's general manager
to be a resident of the state, (2) both in-state and out-
of-state retailers to post a substantial bond to receive
a license, and (3) public meetings regarding the
issuance of a license.” Pet. App. 32a. Mechanisms like
these ensure local familiarity and facilitate oversight
without indulging in protectionism. Petitioner depicts
Tennessee’s discriminatory law as the product of
“experimentiing] with the best ways of regulating
alcohol sales,” Pet. Br. 47, but the bounds of
permissible experimentation do not encompass “local
parochialism.” Lewis v. BT Inv. Managers, Inc., 447
U.S. 27, 43-44 (1980) (striking down state residency
requirement for investment advisory businesses).

The practical realities of interstate retailing
confirm that laws like Tennessee’s cannot be justified
by interests in oversight, control, and accountability.

First, as mentioned above, numerous states
accomp'‘sh the same regulatory objectives as
Tennessee without imposing any durational
residency requirement. Consider the brief of thirty-
five states and the District of Columbia, which is
nominally filed in support of Petitioner but which
notes on its first page that some of the signatory
states “do not impose residency requirements but do

21

require that retailers have a physical presence in the
State.” Ill. et al. Amicus Br. 1. Likewise, Tennessee
itself imposes no residency requirements on retailers
selling beer and wine for off-premises consumption,
see Tenn. Code Ann. §§ 57-5-103 (beer), 57-3-803
(wine), or, as noted above, those selling any alcoholic
beverages—beer, wine, and liquor—for on-premises
consumption in bars and restaurants, id. §§ 57-4-101,
102, 201.

Nor is there any reason to believe that single-
state retailers are better equipped or more committed
to lawful and orderly behavior than their interstate
counterparts. Like single-state sellers, interstate
retailers hire and train local employees to staff their
stores and operate their cash registers. Those
employees do not become any more or less familiar
with their communities depending on whether their
employers officers, directors, and stockholders
happen to live in Tennessee rather than Kentucky or
North Carolina.

When deciding whom to hire, interstate retailers,
like their single-state counterparts, must comply with
state background check requirements for those who
seek to sell alcohol at retail. See, e.g., Ark. Code Ann.
§ 3-2-103 (authorizing background checks for retail
license applicants) Minn. Stat. Ann. § 340A.412
(same). These requirements are both perfectly
sensible and entirely unrelated to where a company’s
top executives live.

Once hired, interstate retailers engage in
extensive and ongoing training to allow their

22

employees to comply with drinking-age laws by,
among other things, requiring the presentation of
valid identification ari recognizing forgeries. In some
cases, this training is . 2sponsive to state law. See, e.g.,
Mont. Code Ann. § 16-4-1005 (requiring all licensees
to ensure training); Or. Rev. Stat. Ann. § 471.341
(requiring employees found to have sold alcohol to
minors to undergo training). In other cases, training
may be intended to respond to the needs of local
communities. Some interstate retailers that operate
in university communities, for example, have
designed targeted trainings to combat the higher
prevalence of fake identification cards that may be
expected in such environments.

In addition to their training programs, interstate
retailers’ experience operating within multiple
regulatory environments may lead to the adoption of
compliance mechanisms that draw on best practices
from across jurisdictions. For instance, interstate
retailers may post a single set of extensive warnings
regarding the minimum age to purchase alcohol and
the attendant legal penalties in order to ensure
compliance with all state and local signage and
posting requirements; such warnings will necessarily
exceed the requirements in some jurisdictions.
Interstate retailers may deploy point-of-sale locking
mechanisms that require cashiers to enter an
individual’s date of birth prior to permitting the sale
of alcohol. And many invest in cutting-edge
technologies, such as advanced identification card
scanners, to further target unlawful behavior.

23

When it comes to accountability, single-state and
interstate retailers alike face the prospect of fines and
license revocations for violations. See, e.g., Neb. Rev.
Stat. Ann. §53-1,104 (authorizing “suspension,
cancellation, or revocation” of license for repeated
unauthorized sales); N.D. Cent. Code Ann. § 5-02-11
(authorizing revocation of license). Notwithstanding
Petitioner's insinuations to the contrary, see Pet. Br.
48, a retailer's effectiveness at complying with
drinking-age laws has nothing to do with where its
directors, officers, or stockholders live, see, e.g., Wal-
Mart Stores, Inc. v. Texas Alcoholic Beverage Comm'n,
313 F. Supp. 3d 751, 765 (W.D. Tex. 2018), appeal
docketed, No. 18-50299 (5th Cir. Apr. 16, 2018)
(finding that the ten largest retailers in a class of
alcohol permittees that included out-of-state
corporations had fewer alcohol violations per store
than did the ten largest retailers in a class of
permittees that included only in-state companies).

If anything, interstate retailers are more able to
pursue extensive internal accountability
mechanisms. For instance, some interstate retailers
deploy “secret shoppers” to audit whether employees
are lawfully selling alcohol. Where violations are
detected, they have required not just the offending
employee but the entire team to undergo additional
training. Interstate retailers may also utilize internal
monitoring systems to track legal infractions and
detect problem retail outlets.

What is more, interstate retailers with brick-and-
mortar outlets in Tennessee are easy to find, inspect,
and tax. See, e.g., Minn. Stat. Ann. §§ 340A.402,

24

340A.414 (omitting residency ffrom _iicense
requirements but requiring “establishment|s] holding
a permit under this section [be] open for inspection”);
N.J. Stat. Ann. §§ 33:1-25, 33:1-35 (adopting a similar
approach). Their assets and investments in the state
give retailers even greater incentives to ensure lawful
and orderly operations. See Wal-Mart Stores, 313 F.
Supp. 3d at 765 (finding that “the literature indicates
public corporations tend to be very concerned with
compliance and reputation”). And, to the extent a
state deems it necessary, it can require retailers to
post bonds. Compare N.Y. Alco. Bev. Cont. Law App.
§ 81.1 (requiring bonds for all license classes) with
Liquor—Licenses, Sales, Samples, Bonding
Requirements, 1989 Minn. Sess. Law Serv. 49
(repealing bond requirements for retail licenses
previously codified at Minn. Stat. Ann. § 340A.412).

Oversight of the alcohol industry is an important
objective, and reasonable regulatory minds can differ
about the optimal approach. But that is not what is
happening in Tennessee. The state has adopted a
protectionist regime that shields local sellers from
out-of-state competition. The Twenty-first
Amendment puts an array of regulatory tools on the
table. But the Commerce Clause makes clear that
protectionism is not one of them.

25

CONCLUSION

This Court should affirm the judgment of the

court of appeals.

Deborah R. White

RETAIL LITIGATION
CENTER, INC.

1700 N. Moore Street

Suite 2250

Arlington, VA 22209

Zayn Siddique

ORRICK, HERRINGTON &
SUTCLIFFE LLP

51 West 52nd Street

New York, NY 10019

December 20, 2018

Respectfully submitted,

Kelsi Brown Corkran
Counsel of Record

ORRICK, HERRINGTON &
SUTCLIFFE LLP

1152 15th Street N.W.

Washington, D.C. 20005

(202) 339-8497

kcorkran@orrick.com

Randy J. Kozel

ORRICK, HERRINGTON &
SUTCLIFFE LLP

405 Howard Street

San Francisco, CA 94105

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0849%3A27. Public record. Not legal advice.