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

No. 18-96

In the Supreme Court of the Anited 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 Circuit

BRIEF FOR ILLINOIS, ALABAMA, ARKANSAS,

COLORADO, CONNECTICUT, DELAWARE, THE

DISTRICT OF COLUMBIA, FLORIDA, GEORGIA,

IDAHO, INDIANA, IOWA, KANSAS, KENTUCKY,

LOUISIANA, MASSACHUSETTS, MICHIGAN,

MISSISSIPPI, MONTANA, NEBRASKA, NEW

YORK, NORTH CAROLINA, NORTH DAKOTA,

OHIO, OKLAHOMA, PENNSYLVANIA, RHODE

ISLAND, SOUTH CAROLINA, SOUTH DAKOTA,

TEXAS, UTAH, VERMONT, VIRGINIA, WASHING-

TON, WEST VIRGINIA AND WISCONSIN AS AMICI

CURIAE IN SUPPORT OF PETITIONER

DAVID L. FRANKLIN* LISA MADIGAN

Solicitor General Illinois Attorney General

BRETT E. LEGNER 100 West Randolph Street

Deputy Solicitor General Chicago, Illinois 60601

SARAH A. HUNGER (312) 814-5376

BRIDGET DIBATTISTA dfranklin@atg.state.il.us

BENJAMIN F. JACOBSON

Assistant Attorneys General *Counsel of Record

QUESTION PRESENTED

Whether the Twenty-first Amendment empowers

States, consistent with the dormant Commerce

Clause, to regulate liquor sales by granting retail or

wholesale licenses only to individuals or entities that

have resided in-state for a specified time.

il

TABLE OF CONTENTS

Page

QUESTION PRESENT ED.........00.ccccccccoccossccccsceccoccsseses i

pF Cg ty, ere iii

INTEREST OF AMICI CURIALE.........................cccceeeees 1

SUMMARY OF ARGUMENT ...................ccccceeeeeeeeeeeees 2

ST ican lcaiapiecelenietaila bnlnadenttahdiaibnitaaiiiineias 3

I. Durational residency requirements for

liquor retailers serve important state inter-

inthianiersznbianicsteitaptadsnnmmncnnnatiniacteintaddiseienccen 3

A. Durational residency requirements

serve the core state interest of main-

taining orderly liquor markets........................ 6

B. Durational residency requirements

promote the state interest in accounta-

bility, oversight, and control. .....................+++ 14

C. Durational residency requirements

serve the state interest in guaranteeing

that alcohol retailers have a stake in

the local community.......................ssssseeeeeeeeeees 20

Il. States have adopted a wide variety of retail

Ill. Regardless of the validity of durational

residency requirements, in-state presence

requirements do not offend the dormant

I es cteni geitbmiinoeneesaniipuminionenmiennie 27

Eee —_ 30

ill

TABLE OF AUTHORITIES

Page(s)

Cases:

Arnold’s Wines, Inc. v. Boyle,

571 F.3d 185 (2d Cir. 2009) .................00..0000e passim

Ass’n of Washington Spirits & Wine Distrib. v.

Washington State Liquor Control Bd.,

340 P.3d 849 (Wash. 2015) ..00.......ccccccccecceeeeeeeeeee 23

Bacchus Imports, Ltd. v. Dias,

SF Cs HE ee stertetienictntencecmesisinsctantnianian 3, 6

Bridenbaugh v. Freeman- Wilson,

227 F.3d 848 (7th Cir. 2000) ..................cccceeeeeeee 9, 28

Brown Distrib. Co., Inc. v. Oklahoma Alcoholic

Beverage Control Bd.,

597 P.2d 324 (Olkla. 1979) ................ssccccccsssseseseeees 21

California Beer Wholesalers Ass’n, Inc. v.

Alcohelic Bev.,

eo , 18

Capital Cities Cable, Inc. v. Crisp,

Ee Ce ee i ecincnsrcectincneteuisistsnicemetntetataiuindiiia 4

Clark Distilling Co. v. W. Maryland Ry. Co.,

EF Cre Ee CO Po cincnsentnsivvitssnicniencccssssineinsmaideids 10

Craig v. Boren,

ee Se cesccscncesasinineviiniesenisudnsmeniatadendial 19

Crowley v. Christensen,

BE Che Ce i iernsccccesccccsscntinsintibicisigneaiiaseinaiiiits 4,5

Dep’t of Revenue v. James B. Beam Distilling Co.,

DUG Cis Cee Cec cncsccnscsscetestnscveieuitipnsiiinbaiiemans 6

iV

TABLE OF AUTHORITIES—Continued

Page(s)

Dickerson v. Bailey,

336 F.3d 388 (Sth Cir. 2003) ....................ceccceceeeeees 13

Ex parte Townsend,

144 S.W. 628 (Tex. Crim. App. 1911) ...................... 3

Ps ‘sv. Fi ich,

30 A.2d 562 (Comm. 1943) ...............cccccccccsercccceereeees 19

Granholm v. Heald,

a passim

In re DLC Corp.,

Oe 3

In re Metz Bros. Brewing Co.,

BP Nees SIU GRUE, BIDE ED cccccccccecccceccscesccccsscscossesees 12

Leisy v. Hardin,

EL 8, 9, 21

Loretto Winery Ltd. v. Gazzara,

601 F. Supp. 850 (S.D.N.Y. 1985) .................... 10, 11

Maxwell’s Pic-Pac, Inc. v. Dehner,

739 F.3d 936 (6th Cir. 2014) ..................000000... 10, 13

Mette v. McGuckhin,

EEG MPI, BED cnccececesssscccosccccocccccsesoecsccoeses 8

Myers v. Holshouser,

214 S.E.2d 630 (N.C. Ct. App. 1975)...................... 15

Nat'l Distrib. Co., Inc. v. U.S. Treasury Dep’t,

Bureau of Alcohol, Tobacco & Firearms,

626 F.2d 987 (D.C. Cir. 1960).............................2... 11

TABLE OF AUTHORITIES—Continued

Page(s)

North Dakota v. United States,

Se ee te tetnctnesencnccsenecennesetncneinecenean passim

Pennsylvania State Police Bureau of Liquor

Control Enf't v. Progress Fire Co. Home Ass’n,

55 A.3d 1270 (Pa. Commw. Ct. 2012).................... 17

PR Pub. LLC v. Iowa Alcoholic Beverages Div.,

847 N.W.2d 613 (Iowa Ct. App. 2014) ................... 20

Retail Liquor Ass’n of Oklahoma v. Oklahoma

Alcoholic Beverage Laws Enf’'t Comm’n,

276 F. Supp. 3d 1230 (W.D. Okla. 2017) ............... 14

Rhodes v. Iowa,

Ee ee ee ene ae 10

Schwegmann Giant Super Markets v. Edwards,

552 So. 2d 1241 (La. Ct. App. 1989) ...................... 18

S. Wine & Spirits of Am., Inc. v. Div. of Alcohol &

Tobacco Control,

731 F.3d 799 (8th Cir. 2013) ............................ 19, 22

State v. Adams,

ee 7

State Bd. of Equalization of Cal. v. Young’s

Market Co., 299 U.S. 59 (1936) .............0.0..00. 6, 7,11

State ex rel. Nixon v. Beer Nuts, Lid.,

29 S.W.3d (Mo. Ct. App. 2000).................. 16, 17

Vance v. W.A. Vandercook Co.,

Se ania iciinirtenetinneneetiemenidintanemedanel 8

TABLE OF AUTHORITIES—Continued

Page(s)

Welsh v. State,

ee 8

Wine Country Gift Baskets.com v. Steen,

612 F.3d 809 (Sth Cir. 2010) ...............0...ccseseeceeeeee 28

Ziffrin, Inc. v. Reeves,

I i caine carrindcnmennsinnampanenisbestinieiete 13

Constitutional Authorities:

U.S. Const., amend. XXI, § 2 ...............ccccccceeeeeeee passim

Ss Ce A Bes CE rcireccccencennsnnnnininneanioncnenenienineitan 5

I 5, 26

Oe te inci nicsninseinsiensienninbndinnednameninnaneniani 5

NE A NE cerieenenscsemmesnedinennneieteenmseiiniatninininatin 5

Statutory Authorities:

Webb-Kenyon Act, 27 U.S.C. § 122 .000.......cccccccccceeeeees 10

Wilson Act, B7 UBC. § 181 .........ccccccccoscccccccercccesees 8, 10

Be I ID eritatincensnisncessneenmassnsscinacimnnsinaiinn 15

Ariz. Rev. Stat. Ann. § 4-202(A) ...............ccccccceeeeeeeeeee 25

A i iietnsiinnctntcianensicnrnninnscsceaninaiii 25

Cal. Bus. & Prof. Code § 23961(C) ............cccccceceereeeeees 24

3 Colo. Stat. Ann., ch. 89, § 4(a) (1935) .................--.. 11

Conn. Gen. Stat. Ann. §§ 30-20, 30-36....................... 26

TT Ee a a 24

TABLE OF AUTHORITIES—Continued

Page(s)

Ga. Code. Ann. §$§ 3-5-40, 3-6-40. ..................0:cccceeeeees 26

Ill. Rev. Stat., ch. 43 § 120 (Smith-Hurd 1937)......... 11

SRE Ra RAP ESS TER Ra 25, 27

EERE SES ee ae HE a EE Se 25, 27

aia nate talninlinemiiaiaal 25

| TET SS eee ees 25, 27

Ind. Code § 7.1-3-1-1.5(@)—(D) ..........-.ccssceeeseeeseeeereensees 26

EE A een eet 16

Ind. Code. §§ 7.1-3-21-3, 7.1-3-21-5 ..0.........ccccccceeeeeeeee 24

es ee Be cerriensinnicinsnisissensicrarnnincinnnineiiiationminniinin 16

Ind. Stat. Ann. § 3730(c) (1934) ...........ccccceecceeneeeeenees 11

Iowa Code Ann. §§ 123.22, 123.24....0.........ccccccccseeeeees 23

Kan. Stat. Ann. § 41-311(b) -..00000.0... 0. ceccecceeeeeeeeees 24, 26

Ky. Rev. Stat. Ann. § 243.100(1)(P) ................ 24, 25, 27

Ky. Rev. Stat. Amn. § 243.230 ....00.........ccccccceeeeeees 25, 27

La. Stat. Ann. § 26:B0(A)(2)............ssssssssssssssseseresseees 24

4B Ann. Laws of Mass., ch. 138, §§ 18, 18A

rie isinchlinienbiientislieapnanciesisguiitinenieissiadtmemnnanenasmenannes 11

Mass. Gen. Laws Ann. ch. 135, § 15........................... 25

1 Md. Ann. Code, Art. 2B, § 13 (1939) .................0000 11

Md. Cade Alco. Bev. § 1-201................ccccssessesessssecesees 26

TABLE OF AUTHORITIES—Continued

Page(s)

Me. Rev. Stat. Ann. tit. 28-A § 1201(5)(B)................. 25

5 Comp. Laws Mich. § 9209-32 (Supp. 1935)............ 11

Miss. Code Ann. § 67-3-19(a) ...............cccccccceeeeeeeeeeeeeee 25

Be ss ED ccorriucictinivensntecnininsinnnnsinnaneniapianaia 14

i ls Is nici snsicceccecsesinsatinerenncsionnenen 25

1 Mo. Rev. Stat. § 4906 (1939)..................scccccsseseeeeees 11

Mont. Code Ann. § 16-1-101(3)..................0:c0.ecee 14, 24

Mont. Code Ann. §§ 16-1-106(2), 16-1-303(2) ........... 24

N.C. Code Ann. § 3411(103) (1%) (1939) ................... 12

N.C. Gen. Stat. Ann. § 18B-900.................cccseeccsesseees 25

1 N.D. Rev. Code § 5-0202 (1943)............cccccccceseeeseees 12

Neb. Comp. Stat., ch. 53, Art. 3, §§ 53-317, 53-328

(1929 and Cum. Supp. 1935) ...............:ccccccseeeeeseees 11

Neb. Rev. Stat. Ann. §§ 53-125(1), (3) .............ccccceees 25

Neb. Rev. Stat. Amm. § 53-1312) ............cccccccscceeseeeeees 21

1 Nev. Comp. Laws § 3690.05 (Supp. 1931-1941) ..... 11

nana 23

2 Rev. Stat. of N.J. § 33:1-25 (1937) ..............ccccceceeees 12

PU. Bam Tie, Girma, Bette 6 Bacecsscccncccccccnescnsesccsccscsvene 22

N.Y. Alco. Bev. Cont. Law § 64(6-a) ..............ccccceceeees 21

N.Y. Alco. Bev. Cont. Law § 101(1) ..............c:cccccccceeee 18

N.Y. Alco. Bev. Cont. Law § 106(13) .............::ccceeeees 18

TABLE OF AUTHORITIES—Continued

Page(s)

N.Y. Alco. Bev. Cont. Law § 110-b 20.0.0... ccccceeeeeseeeeees 21

N.Y. City Charter ch. 70 § 2800(a)...............:ccccecceeees 21

Ohio Code Ann. § 6064-17 (1936)................c:ccccccceeees 12

ns ARs Seis I ercnenectcenccsseccsenseccnssensosesunts 24

FF is Ss i I cctrcerenncccccepscsvesscevecsssemneniviin 24

47 Pa. Cons. Stat. § 4-403... cccceeeeeeeeees 24, 25, 27

2 8, ee 25, 27

R.I. Gen. Laws Ann. § 3-5-10(a)(1)............:cccccceeseeeeees 25

R.I. Gen. Laws Ann. § 3-5-11(@) .............cccccceceeseeeeeeees 26

R.I. Gen. Laws, ch. 123 § 2 (1909)...........ccccseseeeeeeeeees 10

R.I. Gen. Laws, ch. 163, § 4 (1938)..............ccccceceeeeees 12

i SN cchetccecintncesccnsencestevecsonsseconnonnti 24

S.C. Code Ann. §§ 61-6-130, 6-6-141. ......0.00..0........ 26

1 B.D. Code § 5.0204 (1938) .............csccccccecsserseseserreeee 1

Tenn. Code § 57-3-204(b)(2)(A) ..........cccccccceceseseersenees 24

Tenn. Code § 57-3-204(b)(4) ..........ccccecceeeeereereeeees 15, 16

Texas Liquor Control Act, ch. 467, § 18,

1935 Tex. Laws 2d Called Sess. 1814................... 12

Tex. Rev. Civ. Stat., art. 7446 (1911)........0......0000. 10

Utah Code Ann. §§ 32B-2-202, 32B-2-501 ................. 23

Va. Code Ann. §§ 4.1-119, 207-08 ..............ccccccceseeeeeee 23

Va. Code Ann. § 4.1-20B(A)............cccccccscssessseeeeeees 25, 27

TABLE OF AUTHORITIES—Continued

Page(s)

Va. Code Ann. § 4.1-222(B)...........:cccccseeeeeeseees 24, 25, 27

Vt. Rev. Stat., Tit. 28, ch. 271, § 6156 (1947)............ 12

Wash. Rev. Code Ann. § 66.24.010(2)(a)..................+. 24

8 Rev. Stat. Wash. §§ 7306-23G,

T30G-B7(Bupp. 1940) .........000..ccsesccccssssseressssorssecssoes 12

Wis. Stat. Ann. § 125.04(5)(a).............0:ccceeeees 24, 25, 27

Wis. Stat. § 176.05(9) (1937)..........cccccccceseeceeeeerreeeeenees 12

Wyo. Rev. Stat. Ann. § 59-104 (Supp. 1940).............. 12

Wyo. Stat. Ann. §§ 12-1-101(a), 12-4-103.................. 24

Other Authorities:

49 Cong. Rec. 699-700 (1912) ............cccccccceeceeeneeeeeenenes 9

SE Bs Pe Ce itrccrcccarecescessstccssecneescesenesvevee 10

H.R. Rep. No. 1542, 74th Cong.,

ee Ce iaricnnsicvencensitietesnesncesscmensnnsneerennsnte 11

90th Ill. Gen. Assem., House of Rep. Proceedings,

SII, TE TT cniicenrssieepsinibeniscinisinsitiantioninimmanibeieianimenees 16

95th Ill. Gen. Assem., Senate Proceedings,

Fe Se tecttrterincenneimienresinewinionminnnmecsne 15

Alcohol & Tobacco Tax & Trade Bureau, Alcohol

Dealer Registration Form.................ccccssseseeeeseneees 15

Centers for Disease Control and Prevention,

Excessive Alcohol Use: A Drain on the

I cciceceninincctniniveseitircinenasssseststnssseenes 4

xl

TABLE OF AUTHORITIES—Continued

Page(s)

City of Chicago, Dep’t of Hous. & Econ. Dev.,

Landmark Designation Report, (Former) Schlitz

Brewery-Tied House at 11 (Feb. 3, 2011)........ 12, 13

Raymond B. Fosdick & Albert L. Scott, Toward

Liquor Control (The Center for Alcohol

PR GEE) COMED cccccecscsccscesssssecsececssncssece 12, 13, 23

Nat’! Alcohol Beverage Control Ass’n, Control

By GI BD cence cccscccecescccscccccoscsocsvcscvces 23

Megan Noe, New Law Cracking Down on

Modern-day Bootlegging, WQAD8,

a 17

Operation Swill: TGI Fridays Fined $500,000

for Switching Booze, The Post Standard

ee cenctentechisedisiidenendinecinsnnttpibiniseieinsesucees 17, 18

Lindsay Rogers, Interstate Commerce in

Intoxicating Liquors before the Webb-Kenyon Act,

i, Ee eT 9

Sidney J. Spaeth, The Twenty-first Amendment

and State Control over Intoxicating Liquor,

79 CALIF. L. REV. 161 (1991)..................ccccceesesees 3, 11

INTEREST OF AMICI CURIAE

Illinois, 34 States, and the District of Columbia

submit this brief in support of Petitioner to urge

reversal of the judgment of the court of appeals,

which held that Tennessee’s statutory durational

residency requirement for retail alcohol licensees

violated the dormant Commerce Clause.

All of the Amici States have enacted statutes that

regulate the manufacture, distribution, and sale of

alcohol within their borders. Some of them impose

durational residency requirements on alcohol retail-

ers, some do not impose residency requirements but

do require that retailers have a physical presence in

the State, and some assume monopolistic control over

the in-state liquor market. But all of the Amici States

recognize the need to exercise their Twenty-first

Amendment authority to regulate the liquor market.

These States realize that excessive alcohol consump-

tion poses great risks to local health and safety and

that the liquor market is uniquely susceptible to

infiltration by criminal elements. Therefore, it is vital

to the Amici States te have the authority to regulate

the manufacture, distribution, and sale of alcohol

within their borders, and the discretion to adapt their

regulatory regimes to their particular needs.

SUMMARY OF ARGUMENT

As explained in Petitioner’s opening brief, Tennes-

see’s durational residency requirement for retail

alcohol licenses does not violate the dormant Com-

merce Clause. This brief focuses on the important

interests that are served by States’ regulation of the

manufacture, distribution, and sale of alcohol within

their borders. States have long recognized the dan-

gers associated with the liquor market, and the text of

the Twenty-first Amendment guarantees them broad

authority to regulate “the delivery or use” of alcohol

to prevent those herms.

Contrary to the Sixth Circuit’s decision, the States’

need to regulate this market is not driven by econom-

ic protectionism. Instead, States have an interest in

ensuring an orderly liquor market to avoid the evils

that were brought about by the pre-Prohibition

practice of tied houses and the Prohibition-era infil-

tration of the liquor market by organized crime.

States also have an interest in enforcing their liquor

laws, inspecting premises and records, and holding

retailers accountable for violation of state laws that

are designed to protect the public health and safety.

And States have an interest in promoting a system in

which alcohol retailers have a connection to the local

communities they serve and an understanding of

those communities’ needs.

Durational residency requirements such as Tennes-

see’s serve all of these interests by preventing absen-

tee ownership of alcohol retail premises. Absentee

owners have a lesser investment in the community

than residents; States cannot effectively oversee

absentee owners to ensure compliance with state

laws; and absentee owners are less likely to be held

accountable for violating a State’s laws.

For the past 85 years, States have exercised their

Twenty-first Amendment power to adopt and adapt

regulatory regimes to control the retail liquor market

within their borders. The breadth and variety of state

responses to the risks endemic to the liquor market

illustrate the need for broad discretion to regulate the

retail sale of alcohol.

ARGUMENT

I. Durational residency requirements for

liquor retailers serve important state in-

terests.

States both before and after Prohibition have rec-

ognized the many ways in which alcohol presents a

“potential danger to the community’s safety and

general welfare.” In re DLC Corp., 712 A.2d 389, 392

(Vt. 1998); see also, e.g., Ex parte Townsend, 144 5.W.

628, 631 (Tex. Crim. App. 1911) (“[T]he use of intoxi-

cating liquors is well nigh universally acknowledged

to be injurious to the health, morals, and safety of the

people ....”). When the nation chose to repeal the

Eighteenth Amendment, it acknowledged that Prohi-

bition’s attempt to devise a one-size-fits-all federal

response to that danger had been a failure. See

Sidney J. Spaeth, The Twenty-first Amendment and

State Control over Intoxicating Liquor, 79 CALIF. L.

REV. 161, 162 (1991). In lieu of that flawed federal

response, the drafters and ratifiers of the Twenty-first

Amendment aimed to more effectively

“promote temperance,” Bacchus Imports, Lid. v. Dias,

468 U.S. 263, 276 (1984) (internal quotation marks

omitted), by returning to the States the authority to

control the sale and consumption of alcohol, U.S.

Const., amend. XXI, § 2.

The issue has always been one that the States are

best positioned to understand and address, for exces-

sive alcohol consumption occurs locally, and its

costs—including increased criminal enforcement

expenses, lost workplace productivity, and higher

healthcare spending—are borne in significant part by

state and local governments.’ And States are on the

front lines in combating the many ways in which the

liquer market has attracted criminal activity, from

impurities added to illegally distilled spirits to orga-

nized crime’s involvement in channels of distribution.

See Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185, 198

(2d Cir. 2009) (Calabresi, J., concurring).

For these reasons, the manufacture, distribution,

and sale of alcohol within a State are matters of

paramount local concern. Accordingly, for well over a

century, States have extensively regulated the provi-

sion of alcohol to their residents, first under their

inherent police power to protect the health, safety,

and morals of their citizens, and then under the

extended authority conferred on them by the Wilson

Act, the Webb-Kenyon Act, and section 2 of the Twen-

ty-first Amendment. See, e.g., Capital Cities Cable,

Inc. v. Crisp, 467 U.S. 691, 713 (1984) (recognizing

States’ core powers under the Twenty-first Amend-

ment “to regulate the sale and use of liquor within

[state] borders”); Crowley v. Christensen, 137 U.S. 86,

' Centers for Disease Control and Prevention, Excessive Alco-

hol Use: A Drain on the American Economy,

https://www.cdc.gov/alcohol/onlinemedia/infographics/excessive-

alcohol-economy.html.

91 (1890) (recognizing States have a long tradition of

regulating alcohol through police power). Indeed, the

concern is so great that some States expressly grant

their legislatures the power to regulate the liquor

market in their state constitutions. See, e.g., Mich.

Const. art. ITV, § 40; Ok. Const. art. XXVIII-A; Or.

Const. art. I, § 39; S.C. Const. art. VIII-A.

States have used these powers to craft solutions

tailored to their individual circumstances. Unsurpris-

ingly, those solutions vary significantly from State to

State, but there are patterns: since the end of Prohi-

bition, the States have generally adopted one of two

models. The so-called control States have assumed

monopolistic control over the distribution and retail

sale of alcohol. Other States have adopted a three-tier

system that separates the layers of the alcohol market

and places separate licensing requirements on manu-

facturers, distributors or wholesalers, and retailers.

See Granholm v. Heald, 544 U.S. 460, 489 (2005)

(quoting North Dakota v. United States, 495 U.S. 423,

432 (1990) (recognizing the three-tier system as

“unquestionably legitimate” )).

The retail tier at issue in this case is comprised of

both on-premises retail establishments, such as bars

or taverns, and off-premises retail establishments

where the alcohol is not consumed on-site, such as

traditional liquor stores. This tier is the final link in

the chain between the producer and the end consum-

er. As the remainder of this Section will show, regu-

lation of the retail tier is closely tied to the States’

interest in addressing the unique chalienges posed by

alcohol consumption.

A. Durational residency requirements

serve the core state interest of

maintaining orderly liquor markets.

States have an interest in promoting orderly liquor

markets, see North Dakota, 495 U.S. at 432 (plurality

op.), so that they can track the flow of alcohol from

producer to consumer and facilitate the sale of lawful

and safe goods, free from the influence of organized

crime or other illegal interests.

The promotion of orderly liquor markets has long

been identified as a core purpose of section 2 of the

Twenty-first Amendment. Id. at 432, 440; Arnold’s

Wines, Inc., 571 F.3d at 188 (“The purpose of section

2 was to protect certain core interests of the states in

‘promoting temperance, ensuring orderly market

conditions, and raising revenue’ through regulation of

the production and distribution of alcoholic beverag-

es.” (quoting North Dakota, 495 U.S. at 432)). Core

interests under section 2 are treated “with particular

care” and granted additional deference. North Dako-

ta, 495 U.S. at 432, 440; see also Bacchus, 468 U.S. at

276 (“State laws that constitute mere economic

protectionism are therefore not entitled to the same

deference as laws enacted to combat the perceived

evils of an unrestricted traffic in liquor.”).

To facilitate orderly markets, many States have

established comprehensive three-tier regulatory

systems. North Dakota, 495 U.S. at 432. This type of

system “serve[s] to channelize the traffic in liquor and

thus to prevent diversion of that traffic into unau-

thorized channels.” Dep’t of Revenue v. James B.

Beam Distilling Co., 377 U.S. 341, 345 (1964); see also

State Bd. of Equalization of Cal. v. Young’s Market

Co., 299 U.S. 59, 63 (1936), abrogated on other

grounds by Granholm, 544 U.S. at 485 (retailer

licensing fees “serve as an aid in policing the liquor

traffic”). Within this system, the retail tier is crucial

because retailers “form the final link in the distribu-

tion chain.” Pet. App. 50a (Sutton, J., dissenting). As

the final link, retailers assure that the goods sold to

consumers are safe and legal, and that they have been

distributed from manufacturer to consumer in ac-

cordance with state law.

It is reasonable for States to conclude that absentee

ownership of alcohol retailers harms the interest in

maintaining orderly liquor markets. Durational

residency requirements aim to ensure that retailers

remain accountable to state or local interests by being

accessible to regulators and courts. Unlike residents,

absentee liquor retailers with no meaningful connec-

tion to the State may not share the State’s interest in

maintaining an orderly market. Nor are States and

local governments able to hold non-resident retailers

to account to the same extent as resident retailers, as

it is simply not possible for state regulators to trav-

erse the country inspecting retailers or speaking to

far-flung owners. Without effective State oversight of

retail sales, States cannot, for example, ensure that

organized crime or other unscrupulous interests are

kept out of the liquor markets.

Residency and presence requirements are not new;

requiring retailers to reside in-state or to maintain an

in-state presence is a practice that long predates

Prohibition. See, e.g., State v. Adams, 6 N.H. 532, 533

(N.H. 1834) (requiring “licensed houses” to obtain a

“license, in writing, from the selectmen of the town or

place where such person resides” or, if no selectmen

are available, from the court of Common Pleas “to

exercise the business of a taverner”). In the 1880s,

for example, Nebraska imposed a residency require-

ment on retailers, and Indiana followed suit soon

afterward. See Mette v. McGuckin, 25 N.W. 338 (Neb.

1885); Welsh v. State, 25 N.E. 883 (Ind. 1890).

These requirements were widely understood to be

constitutional at the time. As the Indiana Supreme

Court explained in a contemporaneous decision, “|i|t

is not an unreasonable requirement that a person who

desires to avail himself of a license to retail intoxicat-

ing liquor shall submit himself to the jurisdiction of

the state, by becoming an inhabitant thereof.” Welsh,

25 N.E. at 885; see also Vance v. W.A. Vandercook Co..,

170 U.S. 438, 451-52 (1898) (positing that a residency

requirement would be lawful so long as the resident

retailers did not “discriminate against the persons or

places from where or from whom they did not buy”).

Residency requirements were of limited utility in

ensuring orderly markets, however, until Congress

granted States the authority to regulate liquor that

had been shipped in interstate commerce. Without

the protections of the Twenty-first Amendment,

liquor was treated largely the same as any other good

in interstate commerce. See Leisy v. Hardin, 135 U.S.

100, 121-23 (1890), superseded by statute, Wilson Act,

27 U.S.C. § 121, as recognized in Granholm, 544 US.

at 478. Accordingly, the interstate distribution of

liquor in original packages could not be limited by the

States without express congressional authority. See

id. at 119 (“[Wjhere the subject is national in its

character, and admits and requires uniformity of

regulation, affecting alike all the states, such as

transportation between the states, including the

importation of goods from ore state into another,

congress can alone act upon it, and provide the need-

ed regulations.”).

In practical terms, this meant that States with du-

rational residency statutes could not prohibit or

regulate sales of liquor in its original package by non-

resident liquor retailers to their resident consumers.

See id. at 122-23; Bridenbaugh v. Freeman-Wilson,

227 F.3d 848, 852 (7th Cir. 2000) (“|T]o enforce these

laws states had to deal with liquor arriving from other

states and nations—and their ability to do so was

regularly defeated by decisions invoking the com-

merce clause.”). This state of affairs caused many

problems, as States were forced to allow out-of-state

liquor shipments to enter their territory, without any

ability to verify their provenance, ensure their safety,

or otherwise maintain an orderly market. See, e.z.,

Lindsay Rogers, Interstate Commerce in Intoxicating

Liquors before the Webb-Kenyon Act, 4 VA. L. REV. 353,

364 (1917). By 1912, it was estimated that approxi-

mately 20 million gallons of liquor were shipped in

interstate commerce to dry States. See 49 Cong. Rec.

699-700 (1912) (statement of Sen. Sanders). To take

one example, out-of-state retailers would ship jugs of

liquor to express offices in lowa with no deliverable

address. Rogers, Interstate Commerce in Intoxicaling

Liquors before the Webb-Kenyon Act, 4 VA. L. REV. at

364-65. Without a delivery address, the liquor would

remain in the express office until it was retailed “to

whomever would pay the case charges, the value of

the liquor, and the cost of transportation.” Jbid. As a

result of these “daily trainloads of liquors in bottles,

jugs, and other packages,” the express offices were

“converted into the most extensive and active whisky

10

shops, from which whisky |was| openly distributed in

great quantities.” 49 Cong. Rec. 761 (1912) (state-

ment of Sen. Kenyon).

The problems that arose during this period led to

the passage of the Wilson Act in 1890 and the Webb-

Kenyon Act in 1913, both of which were designed to

improve the States’ ability to control and regulate

their liquor markets. See 27 U.S.C. §§ 121-22. The

Wilson Act granted States the power to regulate “the

resale of imported liquor,” and the Webb-Kenyon Act

enabled States to “forbid shipments of alcohol to

consumers for personal use, provided that the States

treated in-state and out-of-state liquor on the same

terms.” Granholm, 544 U.S. at 480-81 (citing Rhodes

v. Iowa, 170 U.S. 412, 421 (1898); Clark Distilling Co.

v. W. Maryland Ry. Co., 242 U.S. 311 (1917)). As

their authority to regulate expanded, more States

implemented residency requirements. See, e.g., R.I.

Gen. Laws, ch. 123 § 2 (1909); Tex. Rev. Civ. Stat.,

art. 7446 (1911).

All of these state regulatory schemes were cast

aside during Prohibition, which “bred a new kind of

lawlessness” dominated by “a violent and unruly

organized crime industry.” Maxwell’s Pic-Pac, Inc. v.

Dehner, 739 F.3d 936, 938-39 (6th Cir. 2014). Worse

yet, this lawlessness remained largely unchecked,

because the Eighteenth Amendment “gave concurrent

enforcement powers to state and federal authorities,”

and “le|verybody’s business soon became nobody’s

responsibility.” Loretto Winery Lid. v. Gazzara, 601

F. Supp. 850, 856 (S.D.N.Y. 1985). “The state and

local officials had more important work to do than

enforce this unpopular law,” and the federal govern-

ment removed these “cases from the regular federal

1]

law enforcement agencies and entrusted the work to

special agents,” who were underpaid and easily cor-

rupted. Ibid.; see also Spaeth, Twenty-first Amend-

ment and State Control, 79 CALIF. L. REV. at 162.

In the wake of Prohibition’s failure, the States’

regulatory authority was reinstated and further

solidified by the ratification of the Twenty-first

Amendment, which was “adopted with ‘unexpected

speed.’” Nat'l Distrib. Co., Inc. v. U.S. Treasury

Dep’t, Bureau of Alcohol, Tobacco & Firearms, 626

F.2d 997, 1004 (D.C. Cir. 1980) (quoting H.R. Rep.

No. 1542, 74th Cong., Ist Sess. 3 (1935)). At the time

of ratification and shortly thereafter, both the States

and this Court understood the States’ ability to

regulate the distribution and sale of liquor to be

nearly limitless. Granholm, 544 U.S. at 485-86; see

also, e.g., Young’s Market Co., 299 U.S. at 62. Some

States banned liquor altogether, but the States that

allowed liquor sales either implemented a three-tier

system or opted to become control States. See

Granholm, 544 U.S. at 517 (Thomas, J., dissenting).

Of the three-tier States, at least 18 imposed a form of

residency requirements in the years following ratifica-

tion. See id. at 518 n.6 (Thomas, J., dissenting).’

* 3 Colo. Stat. Ann., ch. 89, § 4(a) (1935) (residency require-

ment); Ill. Rev. Stat., ch. 43 § 120 (Smith-Hurd 1937) (residency

requirement); Ind. Stat. Ann. § 3730(c) (1934) (residency

requirement); 1 Md. Ann. Code, Art. 2B, § 13 (1939) (residency

requirement); 4B Ann. Laws of Mass., ch. 138, §§ 18, 18A (1965)

(residency requirements); 5 Comp. Laws Mich. § 9209-32 (Supp.

1935) (residency requirement); 1 Mo. Rev. Stat. § 4906 (1939)

(citizenship requirement); Neb. Comp. Stat., ch. 53, Art. 3, $§ 53-

317, 53-328 (1929 and Cum. Supp. 1935) (residency and physical

presence requirement); 1 Nev. Comp. Laws § 3690.05 (Supp.

12

One primary reason that States chose to implement

residency requirements following the repeal of Prohi-

bition was the failed experiment of “tied houses” in

the late nineteenth century. See Raymond B. Fosdick

& Albert L. Scott, Toward Liquor Control, ch. 4 (The

Center for Alcohol Policy 2011) (1933); In re Metz

Bros. Brewing Co., 129 N.W. 443, 443-44 (Neb. 1911)

(describing 1907 law prohibiting manufacturers from

“becom|ing] interested directly or indirectly in any

retail license for the sale of intoxicating or malt

liquors”). Tied houses, which flourished in the late

1800s, were “establishments under contract to sell

exclusively the product of one manufacturer.”

Fosdick & Scott, Toward Liquor Control, ch. 4; see

also City of Chicago, Dep’t of Hous. & Econ. Dev.,

Landmark Designation Report, (Former) Schlitz

Brewery-Tied House at 11 (Feb. 3, 2011),

https://tinyurl.com/yaj5w3qs.

Although the tied house system was initially lauded

as an innovation, it later became clear that it revealed

1931-1941) (residency and physical presence requirements); 2

Rev. Stat. of N.J. § 33:1-25 (1937) (citizenship and residency

requirements); N.C. Code Ann. § 3411(103)(1'”) (1939) (residen-

cy requirement); 1 N.D. Rev. Code § 5-0202 (1943) (citizenship

and residency requirements); Ohio Code Ann. § 6064-17 (1936)

(residency and physical presence requirements); R.I. Gen. Laws,

ch. 163, § 4 (1938) (residency requirement); 1 S.D. Code § 5.0204

(1939) (residency requirement); Texas Liquor Control Act, ch.

467, § 18, 1935 Tex. Laws 2d Called Sess. 1814 (residency

requirement); Vt. Rev. Stat., Tit. 28, ch. 271, § 6156 (1947)

(residency requirement); 8 Rev. Stat. Wash. §§ 7306-23G, 7306-

27 (Supp. 1940) (physical presence, citizenship, and residency

requirement); Wis. Stat. § 176.05(9) (1957) (citizenship and

residency requirements); Wyo. Rev. Stat. Ann. § 59-104 (Supp.

1940) (citizenship and residency requirements).

13

“all the vices of absentee ownership.” Fosdick &

Scott, Toward Liquor Control, ch. 4. Manufacturers,

who largely resided out of state, “knew nothing and

cared nothing about the community,” and were also

“beyond local social influence.” JIbid.; see also Land-

mark Designation Report at 21 (out-of-state breweries

were nonresponsive to local complaints and were

“regarded as giant and soulless monopolies”). In

Chicago, for example, “the tied-house system created

multiple saloons” in locations where there had been a

single saloon before, with each new saloon “selling

only one brand of beer.” Landmark Designation

Report at 20. As a result, “the lack of job security and

increased competition between the ever-growing

number of saloons forced some saloon keepers to host

vice on their premises in exchange for kickbacks.”

Ibid.; Maxwell’s Pic-Pac, Inc., 739 F.3d at 938-39

(during this era, the “free market for alcohol in the

United States begot political corruption, prostitution,

gambling, crime, and poverty” as “|njational manu-

facturers built saloons near factories to attract work-

ers, saturating neighborhoods with alcohol suppli-

ers”).

The tied system was further “believed to enable

organized crime to dominate the industry.” Arnold’s

Wines, Inc., 571 F.3d at 187. Preventing “organized

crime from (re)gaining control of the alcohol indus-

try” was a “core concern” of section 2 of the Twenty-

first Amendment. Dickerson v. Bailey, 336 F.3d 388,

404 (5th Cir. 2003); see North Dakota, 495 U.S. at 426

(describing the “interest in preventing the diversion

of liquor”); Ziffrin, Inc. v. Reeves, 308 U.S. 132, 139

(1939), abrogated by Granholm, 544 U.S. at 485

(describing a statute that “declare[d|] whiskey re-

14

moved from permitted channels contraband subject to

immediate seizure,” to address the problem of unlaw-

ful manufacture and illicit distribution, among oth-

ers). The tied house experience, in short, shows that

state efforts to combat absentee ownership were

grounded in history and lived experience, not econom-

ic protectionism.

But while the interest in an orderly liquor market

is rooted in the lessons of history, it is not merely a

historical relic. Oklahoma, for example, overhauled

its alcohol laws in a popular referendum in 2016,

which retained and adjusted a durational residency

requirement for spirits retailers. See Retail Liquor

Ass’n of Oklahoma v. Oklahoma Alcoholic Beverage

Laws Enft Comm’n, 276 F. Supp. 3d 1230, 1233-34

(W.D. Okla. 2017); see also, eg., Mo. Rev. Stat.

§ 311.015 (purpose clause enacted in 2007 asserts that

“|t|he provisions of this chapter establish vital state

regulation of the sale and distribution of alcohol

beverages in order to . . . achieve other important

state policy goals such as maintaining an orderly

marketplace composed of state-licensed alcohol pro-

ducers, importers, distributors, and retailers”); Mont.

Code Ann. § 16-1-101(3) (declaration of policy amend-

ed in 2009 to state that “[t|he overall purposes . . . are

to promote temperance, create orderly markets, and

aid in the collection of taxes”).

B. Durational residency requirements

promote the _ state interest’ in

accountability, oversight, and control.

Reinforcing their broad interest in structuring or-

derly liquor markets, States also have an acute practi-

cal interest in maintaining accountability, oversight,

15

and control over the retail sale of alcohol. See Tenn.

Code § 57-3-204(b)(4) (“[I]t 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.”); Myers v. Holshouser, 214 S.E.2d 630, 634

(N.C. Ct. App. 1975) (“There is a peculiar need for an

administrative body to provide close surveillance and

regulation of the liquor industry because of the nu-

merous and complex problems that arise... .”).

The States’ ability to monitor retail sales is critical

because, unlike for producers and manufacturers, see

Granholm, 544 U.S. at 490, there is no meaningful

federal regulatory backstop at the retailer tier. See,

e.g., 95th Ill. Gen. Assem., Senate Proceedings, Aug.

7, 2007, at 4 (statement of Sen. Silverstein) (noting

that in addition to purchasing from wholesalers that

are not licensed in Illinois, out-of-state retailers “are

not subject to federal regulation”). Although the

Federal Alcohol Administration Act of 1935 requires

permits for importers, wholesalers, and producers, it

does not require them for retailers. See 27 U.S.C.

§ 203(b), (c) (governing production of wine, distilling

of spirits, and wholesaling). The previous special tax

for retailers was repealed a decade ago, and retailers

now are only required to register with the Alcohol and

Tobacco Trade and Tax Bureau. See Alcohol & To-

bacco Tax & Trade Bureau, Alcohol Dealer Registra-

tion Form, https://tinyurl.com/ycrtwyac. The federal

government has thus ceded this regulatory responsi-

bility to the States, which are in any event better

positioned to oversee the final link in the distribution

chain and the actual sale of liquor to their residents.

16

States’ comprehensive regulation of the retail sale

of liquor takes several forms. First, and most funda-

mental, States regulate and monitor how sales are

made to consumers. See Arnold’s Wines, 571 F.3d at

188. Under their respective state schemes, retailers

may sell only to individuals who are qualified to

purchase alcohol, during the time allotted, and in the

manner dictated by statute. Preventing the sale of

alcoholic beverages to underage persons, for example,

is a time-consuming but imperative endeavor for state

regulators. See State ex rel. Nixon v. Beer Nuts, Lid..,

29 S.W.3d 828, 838 (Mo. Ct. App. 2000); 90th Ill. Gen.

Assem., House of Rep. Proceedings, Mar. 25, 1998, at

143 (statement of Rep. Hoffman) (States seek to

“have some kind of control over |the retailer] to

ensure that [it] is actually selling it to a person who is

21 years of age or older”). Retailers must also restrict

their sales to the hours allowed for dispensation, see,

e.g., Ind. Code § 7.1-3-1-14, and to those who are not

already intoxicated, see id. § 7.1-5-10-15.

Second, States inspect retailers’ premises, books,

and records to ensure compliance with their laws. See

Arnold’s Wines, 571 F.3d at 188; Tenn. Code § 57-3-

204(b)(4) (legislative statement of intent that “the

commission is authorized and instructed to prescribe

such inspection, reporting, and educational programs

as it shall deem necessary or appropriate to ensure

the laws, rules, and regulations governing such li-

censes are observed”). In New York, for example, the

“State Liquor Authority may inspect any premises

where alcoholic beverages are manufactured, stored,

or sold, as well as the books and records kept on such

premises.” Arnold’s Wines, 571 F.3d at 188. And in

Missouri, inspections may include not only books and

17

records, but also the alcohol being sold to the retail-

er’s consumers. When an out-of-state retailer at-

tempted to sell products to Missouri residents, a

Missouri court upheld the fine and injunction against

it, explaining that “|a] primary purpose of Missouri’s

licensing requirements for those who sell alcoholic

beverages is to provide the Division with a concrete

method for inspecting, testing and approving beers

before they are offered for sale in Missouri” to ensure

that they are safe and sold only to those who are of

age. Beer Nuts, Lid., 29 S.W.3d at 838; see also Penn-

sylvania State Police Bureau of Liquor Control Enf't v.

Progress Fire Co. Home Ass’n, 55 A.3d 1270, 1274

(Pa. Commw. Ct. 2012) (state agency authwrized to

“enter a licensed premises without a warrant to

conduct a full routine inspection” and then to “issue

citations for any violations” of “any laws of this

Commonwealth relating to liquor”).

Similarly, Illinois recently increased the penalties

for retailers seeking to bypass the three-tier system

by purchasing alcohol from neighboring States. See

Megan Noe, New Law Cracking Down on Modern-day

Bootlegging, WQAD8 (Dec. 13, 2016, 7:58 PM),

https://wqad.com/2016/12/13/new-law-cracking-down-

on-modern-day-bootlegging/. The ability to inspect

retailers’ premises is essential for enforcement of

these rules. And the ability to test the alcohol served

at on-premises retailers was critical to the success of a

2013 operation by New Jersey’s liquor regulators

dubbed “Operation Swill.” See Operation Swill: TGI

Fridays Fined $500,000 for Switching Booze, The Post

Standard (Jul. 31, 2013), https://tinyurl.com/yap82vzt.

Operation Swill uncovered that more than two dozen

establishments were passing off and serving cheap

18

alcohol, rubbing alcohol, or dirty water to customers

as premium liquor brands. Ibid.

Third, States oversee the financial relationships

among the various levels of the three-tier system. See

Arnold’s Wines, 571 F.3d at 188; California Beer

Wholesalers Ass’n, Inc. v. Alcoholic Bev., 487 P. 2d

745, 748 (Cal. 1971). As discussed supra Section I.A.,

many States implemented three-tier systems after

ratification of the Twenty-first Amendment to better

regulate liquor distribution. Those States must be

able to oversee the financial relationships among the

tiers, with an eye toward preventing vertical integra-

tion and the re-emergence of a tied house arrange-

ment. See Schwegmann Giant Super Markets v.

Edwards, 552 So. 2d 1241, 1246-47 (La. Ct. App.

1989) (describing how the “evils” of the tied house

system could come to pass again if, for example, one of

the monopolistic breweries sought to “use credit and

other anticompetitive tools to exclude competitors

from retail outlets”). Accordingly, New York’s laws,

for instance, explicitly prohibit return to a tied house

system by preventing vertical integration and other-

wise regulating the gifts or services that may be

exchanged between the tiers. See N.Y. Alco. Bev.

Cont. Law §§ 101(1)(a), (c), 106(13). State oversight

of these relationships also benefits smaller retailers

by alleviating any improper “pressures exerted by

larger manufacturing or wholesale interests” attempt-

ing to “dominate local markets through vertical and

horizontal integration and the excessive sales of

alcoholic beverages produced by the overly aggressive

marketing techniques.” California Beer Wholesalers

Ass’n, Inc., 487 P. 2d at 748 (internal citation omit-

ted).

19

When actual or threatened violations occur on any

of these matters, States must be able to engage in

effective enforcement, which is far easier when the

owners live in the State. See Granholm, 544 U.S. at

523 (Thomas, J., dissenting) (“presence ensures

accountability”) (internal quotation marks and altera-

tions omitted); S. Wine & Spirits of Am., Inc. v. Div.

of Alcohol & Tobacco Control, 731 F.3d 799, 811 (8th

Cir. 2013) (“The legislature logically could conclude

that in-state residency facilitates law enforcement

against wholesalers, because it is easier to pursue in-

state owners, directors, and officers than to enforce

against their out-of-state counterparts.”). This con-

nection between residency and the state interest in

effective oversight has been recognized since the early

days of the three-tier system. See, e.g., Francis v.

Fitzpatrick, 30 A.2d 552, 555 (Conn. 1943) (“The

beneficial effect of the statute as related to the re-

quirements concerningresidence. . . is likewise

apparent, in view of the probable aid to supervision

and control afforded thereby.”).

These same principles apply equally to pre-

enforcement matters, where a simple conversation

between the regulator and an in-state resident could

prevent violations from arising. And nowhere is

prompt and vigorous enforcement more important

than at the retail tier, which is responsible for the

safe and orderly dispensation of alcohol to consumers.

See Craig v. Boren, 429 U.S. 190, 215 (1976) (Stewart,

J., concurring) (noting a State’s undisputed “broad

power under the Twenty-first Amendment to control

the dispensation of alcoholic beverages within its

borders”).

20

C. Durational residency requirements

serve the state interest in guarantee-

ing that alcohol retailers have a stake

in the local community.

States also have an interest in ensuring that alco-

hol purveyors are known by the community and have

a demonstrated stake in that community’s well-being.

See Pet. App. 50a—5la (Sutton, J., dissenting). This

interest is related to the core state interest of promot-

ing temperance, an interest that is best addressed at

the state and local level. See Arnold’s Wines, Inc., 571

F.3d at 188. It is owners who make the important

managerial decisions that have the potential to affect

the public health, and it is owners who must be

eventually held liable if those decisions go wrong. An

absentee owner without a relationship to the local

community is less likely to be invested in the commu-

nity’s well-being. As Judge Sutton put it, “[t/he only

way to know a community is to live there.” Pet. App.

50a (Sutton, J., dissenting).

States have employed many techniques in recogni-

tion of the importance of a connection between liquor

retailers and the local community. As one example,

they sometimes require a local liquor permit licensing

body to examine the reputation or character of the

license applicant. See, e.g., PR Pub. LLC v. Iowa

Alcoholic Beverages Div., 847 N.W.2d 613 (lowa Ct.

App. 2014) (discussing lowa’s licensure regime).

These requirements promote the States’ interest in

evaluating the moral character of those permitted to

sell a product that poses significant risks to the public

health. See Brown Distrib. Co., Inc. v. Oklahoma

Alcoholic Beverage Control Bd., 597 P.2d 324, 327

(Okla. 1979).

21

Other States, like New York, consider local charac-

teristics before granting an on-premises license, see

N.Y. Alco. Bev. Cont. Law § 64(6-a), and have estab-

lished a mechanism by which municipalities may

“express an opinion for or against the granting of |an|

application” for a liquor license, id. § 110-b(5). In

New York City, a community board established pur-

suant to the city charter reviews these applications.

Id. § 110-b(2)(b); N.Y. City Charter ch. 70 § 2800(a).

In the rest of the State, the clerk of the village, town,

or city receives notification and may provide his or

her opinion on every application submitted for its

locality. N.Y. Alco. Bev. Cont. Law §§ 110-b(2)(a), (5);

see also Neb. Rev. Stat. Ann. § 53-131(2) (local gov-

erning body may submit recommendations for licen-

sure).

These systems reflect the reality that the effects of

excessive alcohol consumption, crime associated with

the liquor market, and the dangers of illegally manu-

factured alcohol are felt first and most strongly in the

local community. See, e.g., Leisy, 135 US. at 123

(recognizing “the fact, within the knowledge of all,

that the public health, the public morals, and the

public safety may be endangered by the general use of

intoxicating drinks”) (internal quotation marks

omitted). As Judge Calabresi has explained, when the

Twenty-first Amendment was ratified “the prevailing

view of alcohol was that it was a unique product that

posed unusual dangers, both directly as an intoxicant,

and indirectly, as a stream of commerce that generat-

ed corruption and crime. It was therefore left to

individual states to decide, in light of their own local

values, needs, and experiences, how to contend with

22

that product.” Arnold’s Wines, 571 F.3d at 198

(Calabresi, J., concurring).

The need to foster a sense of responsibility for local

conditions is especially acute when it comes to alcohol

retailers, whether liquor store owners or tavern

operators, for they are the final step in the path from

the manufacturer to the consumer. See Pet. App. 50a

(Sutton, J., dissenting) (“Because they form the final

link in the distribution chain, retailers are closest to

the local risks that come with selling alcohol, such as

drunk driving, domestic abuse, and underage drink-

ing.”) (internal quotation marks and alterations

omitted): S. Wine & Spirits, 731 F.3d at 811 (referring

to the local risks of drunk driving, domestic abuse,

and underage drinking). As Judge Sutton reasoned,

“|rjequiring individual retailers to reside in one place

for a sustained, two-year period ensures that they will

be knowledgeable about the community’s needs and

committed to its welfare.” Pet. App. 50a (Sutton, J.,

ll. States have adopted a wide variety of

retail licensing systems, nearly all of which

require residency.

With these interests in mind, the States have estab-

lished comprehensive regulatory systems for the

importation and distribution of alcohol to their resi-

dents. These systems, though built on the shared

principles articulated above, are tailored to suit the

particular needs of each State, whether large or small,

rural or urban, alcohol-exporting or ailcohol-

importing. See N.Y. Alco. Bev. Cont. Law § 2 (States

are best able to determine “whether public conven-

ience and advantage will be promoted by the issuance

23

of licenses to traffic in alcoholic beverages,” and on

what terms); Fosdick & Scott, Toward Liquor Control,

ch. 1 (lesson of Prohibition was that “it was a mistake

to regard the United States as a single community in

which a uniform policy of liquor control could be

enforced”).

The vast majority of States have enacted some form

of a control or three-tier system, both of which typi-

cally impose residency or in-state presence require-

ments on retailers. For control States, the retailer is

either a state agency or an agent of the State, and

thus necessarily resides in-state and maintains its

operations there. See Nat’! Alcohol Beverage Control

Ass’n, Control State Directory and _ Info,

https://tinyurl.com/y8mjvg8j; see also, e.g., N.H. Rev.

Stat. Ann. §§ 177:1, 177:9, 177:16; Utah Code Ann. §§

32B-2-202(1), 32B-2-501.

Although it was common for States to fully control

the distribution chain in the years immediately fol-

lowing Prohibition, many control States have since

determined that their needs are better served in other

ways and have transitioned to a partial control sys-

tem, in which they control only certain aspects of the

distribution chain. See, e.g., Ass’n of Washington

Spirits & Wine Distrib. v. Washington Siate Liquor

Control Bd., 340 P.3d 849, 851 (Wash. 2015) (partial

control following 2011 voter referendum). In Virgin-

ia, for example, state stores remain the sole retailers

of spirits, but beer and wine may be sold by private

retailers that have resided in Virginia for at least a

year. See Va. Code Ann. §$§ 4.1-119, 207, 208, 222(B);

see also lowa Code Ann. §§ 123.22, 123.24 (modified

control State); Mont. Code Ann. §§ 16-1-103, 16-1-

106(2), 16-1-303(2) (modified control system over

24

wholesalers and retailers); 47 Pa. Cons. Stat. §§ 3-301,

4-403 (state-run liquor and beer retailers, but limited

retail allowed at some licensed restaurants, hotels,

and grocery and convenience stores).

Likewise, a significant number of States operating

a three-tier system have chosen to require retailers to

reside in-state, and often for a period of time prior to

application. See, eg., Cal.Bus. & Prof. Code

§ 23961(c); Ga. Code Ann. § 3-4-23(a); Ind. Code.

§§ 7.1-3-21-3, 7.1-3-21-5; Kan. Stat. Ann. §41-

311(b)(2); Ky. Rev. Stat. Ann. § 243.100(1)(f; La

Stat. Ann. § 26:80(A)(2); Md. Code Alco. Bev. § 4-109;

Okla. Stat. tit. 37A, § 2-146; 47 Pa. Cons. Stat. § 4-

403(b); Tenn. Code § 57-3-204(b)(2)(A); Va. Code Ann.

§ 4.1-222(B); Wis. Stat. Ann. § 125.04(5)(a)(2); Wyo.

Stat. Ann. §§ 12-1-101(a), 12-4-103. The amount of

time sufficient to obtain a license varies significantly

among the States. Some, like South Carolina, are

satisfied with 30 days of residency, see S.C. Code Ann.

§ 61-2-90; Wash. Rev. Code Ann. § 66.24.010(2)(a),

while others require a period of several years, see Ind.

Code. § 7.1-3-21-3 (five-year residency requirement);

Okla. Stat. tit. 37A, § 2-146 (five-year residency

requirement). These States, like Tennessee, have

made the determination that long-term residents of

the community should be the only ones dispensing

liquor to their residents. See Tenn. Code Ann. § 5’7-3-

204(b)(2)(A).

Other States have instead chosen to focus only on

the present and future residency of the owners,

disposing with the durational aspect of the require-

ment. In those systems, so long as the owner current-

ly resides in the State, he or she may obtain a license.

See, e.g., Ariz. Rev. Stat. Ann. § 4-202(A); Ark. Code

25

Ann. § 3-5-215; 235 LLCS 5/6-2(1); Mass. Gen. Laws

Ann. ch. 135, § 15; Me. Rev. Stat. Ann. tit. 28-A

§ 1201(5)(B); Miss. Code Ann. § 67-3-19(a); Mo. Rev.

Stat. § 311.060(1); N.C. Gen. Stat. Ann. § 18B-900;

Neb. Rev. Stat. Ann. §§ 53-125(1), (3); R.I. Gen. Laws

Ann. § 3-5-10(a)(1).

Another variation on these regulations is an in-

state presence requirement for retail operations.

Unlike the residency requirement, which ties the

liquor license to the individual, the in-state presence

requirement ties the license to the premises where the

alcohol is sold. See, e.g., 235 ILCS 5/5-1(d), 5/6-

2(a)(10a). In Illinois, for example, a corporate retail-

er, though not required to be a resident of the State,

must have a retail storefront in the State. Id. 5/7-14.

These requirements are not mutually exclusive, and

some States have opted for both presence and resi-

dency requirements. See also Ky. Rev. Stat. Ann.

§ 243.100(1)(, 243.230; 47 Pa. Cons. Stat. §§ 4-

403(b), 5-511; Va. Code. Ann. §§ 4.1-203(A), 222(B);

Wis. Stat. Ann. §§ 125.04(5)(a)(2), (9). In those

States, licenses are tied both to the person and to the

premises.

In addition to residency and presence require-

ments, States have found other ways to tailor their

regulatory systems to their specific needs. Some

States, for example, impose dual licensing schemes

whereby a retailer needs a municipal and a state

license to operate. In Illinois, for example, a retailer

must first obtain a license from the “city, village, or

county” where the retail premises are located as a

prerequisite to state licensure. See 235 ILCS 5/7-1(6);

see also Md. Code Alcoholic Bev. § 1-201. And in

Georgia, wine and malt-beverage retailers must have

26

a county or municipal license. Ga. Code. Ann. §§ 3-5-

40, 3-6-40.

Yet another approach is for States to pair these

residency or in-state presence requirements with

corporate-form requirements, or a limitation on the

number of licenses a person, corporation, or house-

hold may collect. The Oklahoma state constitution,

for example, prohibits corporations and business

trusts from holding retail package store licenses.

Okla. Const. art. XXVIII-A, § 4; see also Kan. Stat.

Ann. § 41-311(b)(6) (corporations ineligible for retail-

er licenses). In South Carolina, only one member of a

household can hold a license, and there is a limit of

three retail licenses per person. See S.C. Code Ann.

§§ 61-6-130, 6-6-141. Rhode Island, for its part, will

not issue certain licenses to a “chain store organiza-

tion.” R.I. Gen. Laws Ann. § 3-5-11(a).

Finally, certain States impose varying restrictions

on the retail sale of different types of alcohol. Indi-

ana, for instance, prohibits grocery stores, conven-

ience stores, and drug stores from selling cold beer for

carryout. See Ind. Code § 7.1-3-1-1.5(a)b); see also,

e.g., Conn. Gen. Stat. Ann. §§ 30-20, 30-36 (grocery

stores may sell beer, whereas package stores and

druggists may sell liquor and beer). Each of these

systems, while differing in its details, is designed to

ensure that retailers are selling safe liquor, distribut-

ed in a regulated market, to consumers. The systems,

unlike the direct shipment bans invalidated in

Granholm, do not discriminate against out-of-state

alcohol or burden its interstate distribution; they

focus instead on ensuring that liquor retailers are part

of an orderly market, subject to control and oversight,

and invested in the communities where they do

business. And the diversity of these systems did not

come about by accident—it is the intended result of

the second section of the Twenty-first Amendment’s

express grant of authority to the States.

Ill. Regardless of the validity of durational

residency requirements, in-state presence

requirements do not offend the dormant

Commerce Clause.

For the reasons given above, durational residency

requirements serve important state interests and fit

comfortably within the power reserved to the States

by the Twenty-first Amendment. But even if Tennes-

see’s durational residency requirement were held

invalid, state regimes mandating in-state presence

would remain permissible. These presence require-

ments take a variety of different forms, see supra pp.

25-26, but each ties the availability of a retail license

to the premises where alcohol is sold. Under Illinois

law, for instance, each retail license covers only one

location within the State where alcoholic liquor is to

be offered for sale at retail, but Illinois does not

regulate the residency of the applicant corporation or

partnership. See 235 ILCS 5/5-1(d), 5/6-2(a)(10a), 5/7-

14; see also Ky. Rev. Stat. Ann. §§ 243.100(1)(f),

243.230; 47 Pa. Cons. Stat. §§ 4-403(b), 5-511; Va.

Code. Ann. §§ 4.1-203(A), 222(B); Wis. Stat. Ann.

§§ 125.04(5)(a)(2), (9).

These state regulations requiring that retailers

maintain an in-state presence do not run afoul of the

dormant Commerce Clause. The focus of in-state

presence requirements is the in-state distribution of

alcohol, which is undoubtedly a core interest under

the Twenty-first Amendment. See North Dakota, 495

28

U.S. at 423. When retailers sell to consumers from an

in-state location, States can oversee and verify that

the alcohol has travelled through the proper chan-

nels—from the manufacturer, to the distributor’s in-

state warehouse, to the in-state retailer who sells to

the consumer. See Wine Country Gift Baskets.com v.

Steen, 612 F.3d 809, 819, 821 (5th Cir. 2010).

Unlike the direct-shipping limitations at issue in

Granholm that effectively precluded out-of-state

products from entering those state markets, the in-

state presence requirement does not discriminate

against out-of-state producers or otherwise prevent

them from participating in the state liquor market.

544 U.S. at 489. To the contrary, it permits the sale

of all legal alcohol, so long as it is imported and dis-

tributed through authorized channels overseen by the

State. See Bridenbaugh, 227 F.3d at 854 (“Wine

originating in California, France, Australia, or Indi-

ana passes through the same three tiers and is sub-

jected to the same taxes. Where’s the functional

discrimination?” ).

Even the panel majority below recognized that

these differences are important. According to the

Byrd court, “requiring wholesalers and retailers to be

in the state is permissible” because the “Twenty-first

Amendment gives a state the power to oversee the

alcoholic-beverages business,” which includes regulat-

ing the distribution of alcoholic beverages in the

State. Pet. App. 26a n.8, 27a.

In-state presence requirements promote the State

interest in accountability and oversight discussed

supra Section I.B, because “[s]tate officials can better

enforce their regulations by inspecting the premises

29

and attaching the property of in-state entities.”

Granholm, 544 U.S. at 523 (Thomas, J., dissenting).

As a practical! matter, a State cannot inspect the

premises of retailers that operate out of state with

anything like the effectiveness of its inspections of in-

state retailers. States simply do not have the re-

sources to send regulators to the premises of every

out-of-state retailer selling liquor to their consumers,

either prophylactically or after a complaint arises.

In light of the distinction between presence re-

quirements and durational-residency requirements,

even if this Court finds that durational residency

requirements are invalid, it should reaffirm the

viability of presence requirements for liquor retailers.

30

CONCLUSION

The judgment of the court of appeals should be

reversed.

Respectfully submitted,

LISA MADIGAN

Attorney General

State of Illinois

DAVID L. FRANKLIN*

Solicitor General

BRETT E. LEGNER

Deputy Solicitor General

SARAH A. HUNGER

BRIDGET DIBATTISTA

BENJAMIN F.. JACOBSON

Assistant Attorneys General

100 West Randolph Street

Chicago, [Illinois 60601

(312) 814-5376

dfranklin@atg.state.il.us

* Counsel of Record

STEVE MARSHALL

Attorney General of

Alabama

501 Washington Avenue

Montgomery, AL 36130

CYNTHIA H. COFFMAN

Attorney General of

Colorado

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Attorney General of

Delaware

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PAMELA JO BONDI

Attorney General of

Florida

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Tallahassee, FL 32399

LAWRENCE G. WASDEN

Attorney General of

Idaho

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TOM MILLER

Attorney General of

lowa

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31

LESLIE RUTLEDGE

Attorney General of

Arkansas

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GEORGE JEPSEN

Attorney General of

Connecticut

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KARL A. RACINE

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District of Columbia

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Nebraska

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Attorney General of

North Carolina

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MICHAEL DEWINE

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Ohio

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JEFF LANDRY

Attorney General of

Louisiana

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BILL SCHUETTE

Attorney General of

Michigan

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TIM Fox

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Montana

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BARBARA D. UNDERWOOD

Attorney General of New

York

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WAYNE STENEHJEM

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North Dakota

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Attorney General of

Oklahoma

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JOSH SHAPIRO

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Pennsylvania

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Washington

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PETER F.. KILMARTIN

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Utah

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MARK R. HERRING

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Virgini

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PATRICK MORRISEY

Attorney General of West

Virgin

State Capitol Complex,

Bldg. 1, Room E-26

Charleston, WV 25305