Did the U.S. Supreme Court mean what it said when it said “the 21st Amendment grants the states virtually complete control” over the liquor distribution system in a state? And if it did, does that “virtually complete control” allow a state to restrict liquor licenses to its residents?
That’s the issue before the U.S. Supreme Court in two cases that will be heard tomorrow (1/16) – ironically, the 100th anniversary of the passage of the 18th Amendment, which imposed Prohibition on the United States.
The first case involves a challenge by Total Wine & More to Tennessee’s statute that a person must have been a Tennessee resident for at least two years before obtaining a Tennessee liquor license. The same two-year requirement applies to all a corporation’s officers, directors and shareholders.
Total Wine says the residency requirement is really a 10-year requirement. To obtain a retail license, one must have lived in the state for two years. But to renew the one-year license, one must have lived in the state for 10 years.
The second case, being argued at the same time, says the residency requirement violates the Constitution’s privileges and immunities clause.
Clarifying Granholm
The decision will clarify the Supreme Court’s Granholm decision that allowed producers to ship wine directly to consumers in other states. Granholm acknowledged that the 21st Amendment “grants the States virtually complete control over whether to permit importation or sale of liquor, and how to structure the liquor distribution section.”
Granholm declared the three-tier distribution system “unquestionably legitimate” and added that “state policies that define the structure of a three-tier distribution system ‘are protected under the 21st Amendment when the treat liquor produced out of state the same as its domestic equivalent.'”
Durational-residency requirements, the Tennessee Wine & Spirits Retailers Association argues, “serve important state interests protecting the ‘health, safety and welfare’ of citizens. Durational residency requirement ensure alcohol retailers know their community and are invested in its welfare. In other words, ‘the only way to know a community is to live there.”
“Indeed,” the Tennessee Retailers argue, “that is presumably why Congress requires federal courts of appeals judges to live within their circuits, and district court judges to live within their districts.”
But, Total Wine responds, applicants aren’t required to have any ties to the community in which they open the store. It’s enough they live in Tennessee. “The notion that someone living in Memphis is more in touch with Nashville than someone living in Asheville, N.C., which is 250 miles closer, is silly,” the giant retailer says.
Plus, it notes, the store’s general manager and employees who will “actually check IDs and make point-of-sale decisions” will live in the community, Total Wine says.
Not only that: Tennessee doesn’t have similar residency requirements for bars, hotels and restaurants.
Products, Producers and Retailers
Granholm, the Tennessee Retailers argued in responding to Total Wine, “distinguished between discriminations against out of state products, and a state’s decisions about ‘how to structure the liquor distribution system’ within its borders, over which ‘the 21st Amendment grants the states virtually complete control, at least as long as the states provide equal treatment to liquor produced in and out of state.
The retailers note that the state legislature codified the reasons for the two-year requirement: “It is in the interest of this state to maintain a higher degree of oversight, control and accountability for individuals involved in the ownership, management and control of licensed retail premises” because the products to be sold “include the retail sale of liquor, spirits and high alcohol content beer which contain a higher alcohol content that those contained in wine or beer.” . . . “For these reasons it is in the best interest of the health, safety and welfare of this state to require all licensees to be residents of this state as provided herein.”
The Tennessee Retailers argue that the District Court, which ruled in favor of Total Wine, went beyond the Granholm case which limited dormant Commerce Clause scrutiny to laws that “discriminate in favor of local producers” (emphasis in original) to extend such scrutiny “to state laws governing local retailers.
‘Manifestly Protectionist’
For its part, Total Wine says Tennessee “effectively imposes a nine-year residency requirement on license applicants, and, for corporations, a requirement that 100% of their officers, directors and stockholders satisfy the nine year rule.
The requirement is “so manifestly protectionist” that the state hasn’t enforced it for six years, Total Wine argues, and has only filed a letter in the U.S. Supreme Court saying it agrees with the retailers.
The residency restriction does not “advance a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives,” the District Court held, ruling that Tennessee’s durational-residency requirements violate the dormant Commerce Clause.
Two circuits have held in-state residency is unconstitutional, while one circuit has upheld it. The Supreme Court is hearing the case to resolve the differences and establish one national standard. Two other circuits have upheld residency-related restrictions on retailers and wholesalers.
It’s an important question: At least 21 states impose durational-residency requirements on alcohol retailers or wholesalers. And, the Tennessee wholesalers note, other states impose residency related restrictions of retailers or wholesalers. For example, out-of-state retailers – but not in-state – are prohibited from shipping wine directly to consumers in Illinois, New York State. Likewise, California prohibits out-of-state wholesalers, but not in-state wholesalers, from selling liquor directly to California retailers.
A Privileges and Immunities Clause Violation?
The second party in the hearing, Doug and Mary Ketchum, argue the residency requirement also “discriminates against newly arrived residents of Tennessee itself” and in so doing violates the Constitution’s privileges and immunities clause.
The Ketchums left their home in Utah and moved to Memphis to buy a liquor store using their retirement savings after their doctors told them Utah’s weather was bad for their disabled daughter. They say they hoped that owning their own business would give them more flexibility to care for their daughter.
They note that the privileges and immunities clause, which bars a state from treating nonresidents differently than residents, was originally written to allow newly freed slaves to travel to find work and “be treated equally in their new state of residence.”
They urge the court to decide the case on this ground — even if the justices agree with the Tennessee Retailers on the dormant Clause and the 21st Amendment.
We will be in the courtroom tomorrow and will have a full report.