It’s always dangerous to predict how the U.S. Supreme Court will rule in any case. But we left this morning’s argument in a case involving Tennessee’s residency law with a firm conviction the court will strike down Tennessee‘s statute that requires two years’ residence to get a one-year liquor license – and 10 years’ residency to renew it.
That’s not to say the Court is going to say states can’t require any residency requirement for a license. Rather, we think the court is going to do what the late Justice Hugo Black said was its job – to say, “You can’t do that, that way” repeatedly until one day it says, “You finally got it right.”
The reason we think the current Tennessee statute will be struck down is explained in an old Wall Street adage – “Bulls make money, bears make money, but hogs get slaughtered.”
What seemed to especially bother the justices was the 10-year residency requirement to renew a liquor license.
Here’s a sample, from Justice Sonia Sotomayor, within the first two minutes of the argument, addressing the attorney for the Tennessee Wine & Spirits Retailers Association:
“You can’t look at legislation piecemeal. You have to look at it as a whole. It was written as a whole. It’s one paragraph that says two years, plus 10. So it’s really 12 years – and (Judge Douglas dissenting in a lower court) said there’s no economic justification for a 10-year residence requirement.
“So what you have to look at is not whether it’s two years, but whether there’s any reason for a 12-year residency requirement. I mean, if he said no to 10, then it’s no to 12.”
Justice Samuel Alito asked directly: “Can a state enact a 10-year residency requirement, and if not, why not?”
The Retailers’ attorney responded: “There would not be a dormant Commerce Clause problem with a 10-year residency requirement . . . as long as it treated in-state and out-of-state products the same.” That’s true, he added, even if the state required the licensee’s grandparents to have lived in Tennessee.
The “whole point of the 21st Amendment was to constitutionalize the pre-Prohibition powers, which included the power to discriminate against out of state interests. . . . States, pre-Prohibition, were free to structure the in-state liquor distribution systems free from Commerce Clause scrutiny as long as they treated in-state and out-of-state products the same.”
“We understand,” Sotomayor said, “that having someone there who’s responsible to the community is necessary. That was inherent in the three-tier system. But why is it inherent in the three-tier system to have someone who’s only a local do it?” she asked.
“Courts aren’t supposed to impose that kind of scrutiny,” the Retailers’ attorney said. “States get to decide what kind of distribution system works in their state. There’s no one size solution,” he said, adding:
“Everybody agrees a residency requirement of some sort is constitutional.” A durational residency requirement allows the state “to actually observe the person and to observe the person’s character and give the state a better ability to decide whether to issue a license and conduct the background check,” he argued.
Illinois Attorney General David L. Franklin sought to bolster the Retailers’ argument as a friend of the court. Residency requirements, he said, have always been part of a state’s power to regulate alcohol. He noted that an 1898 case, said it was so “self-evidently valid” that a state could require a person to be a resident.
But, Franklin said, “it’s hard to see a rational basis” for the 10-year renewal residency requirement. He conceded that “at some point down the line, there could be a failure of minimal rationality, “but that’s certainly not the case with respect to the two-year residency requirement.”
The 21st Amendment was meant to address the question of who can sell to whom and one what terms, Franklin said, to protect “the state’s ability to structure the intrastate sale of its products,” Franklin said.
“Wouldn’t it be a better idea if we said the dormant Commerce Clause does apply,” asked Justice Elena Kagan, “and then let the state come back and say we can meet that test? We have real health and safety concerns here, and our law is well tailored to address those concerns.” Franklin didn’t respond.
Instead, he argued, “Respondents are asking this court to treat alcohol like any other article of commerce.”
Alito noted that “the 21st Amendment is about the transportation or importation of alcohol into a state. But, he asked, “how to you get from there to a durational residency requirement on the owner of a retail outlet in the state?
Under the Bacchus case, “if a statute has no purpose–and this statute has no purpose except to be protectionist of the local industries– it’s unconstitutional,” said Carter G. Phllips representing both retail giant Total Wine and Doug and Mary Ketchum, who moved to Tennessee to buy a liquor store after a doctor told them Utah’s weather was bad for their disabled daughter.
Phillips noted that the Tennessee Alcoholic Beverage Commission “didn’t file a single affidavit. It didn’t put forward any kind of a witness. It didn’t put on any defense whatsoever. And the reason is pretty clear: The sole purpose of this statute was … to be exclusively protectionist.”
When Gorsuch expressed concern that the next lawsuit might involve out-of-state retailers arguing that the three-tier system is, in fact, discriminatory by requiring some sort of physical presence in state, Phillips replied “it is fundamentally at odds with Total Wine’s business model to be looking to undo the three-tier system.
Total Wine isn’t seeking to be the Amazon of liquor, he said. “No, my client operates on a brick-and-mortar business model that says we’re perfectly comfortable operating within the sphere of regulation that the state imposes on every in-state operator. All we are seeking is not to be discriminated against.”
“That’s totally rational to me,” replied Breyer.
“Brick-and-mortar is totally consistent with the three-tier system,” Phillips reiterated.
Justice Neil Gorsuch appeared not to buy that argument. “The state can achieve all the regulatory interests it wants to achieve dealing with virtual sellers from out of state, just as easily as it can with the physical presence sellers in state. Surely, that’s tomorrow’s argument, isn’t it?”
If that case came up, Phillips said, the state would sure explain why it can’t regulate effectively, why it won’t have an orderly market, why it needs to prohibit virtual retailers from selling alcohol.
“But what Tennessee has never done here is ever tried to explain why a durational residency requirement of 10, 12, and why you need all stockholders to be in the town, and all the directors, etc.,” Phillips said, adding:
“That seems to me so clearly beyond what the 21st Amendment was designed to achieve that the Court should simply declare it unconstitutional.”