Outside the Beltway

Justices Appear Skeptical Of Residency Requirements In Alcohol Sales Laws

On Wednesday, the Supreme Court heard oral argument in a case that could make it easier for consumers to buy and ship wine and other adult beverages across state lines.

Doug Mataconis · Saturday, January 19, 2019 · 10 comments

On Wednesday, the Supreme Court held oral argument in a case involving residency restrictions on liquor sales in a case where the result that could make it easier for consumers to purchase wine and other alcohol from out-of-state retailers:

WASHINGTON — One hundred years to the day after the ratification of the 18th Amendment, leading to the nation’s 14-year experiment with Prohibition, the Supreme Court considered on Wednesday whether Tennessee may impose significant restriction on liquor sales.

Several justices were deeply skeptical about the law at issue in the case, which says people who want to operate liquor stores in the state must first live there for two years. The law, they said, seemed to have no purpose beyond protecting local business interests from outside competition.

Shay Dvoretzky, a lawyer for a trade association representing the state’s liquor retailers, said there were good reasons for the law.

“Duration facilitates background checks,” he said. “It facilitates investigation and enforcement of the law because somebody who’s been there for a while is more likely to have substantial assets that can be seized, and is less likely to flee at the first sign of trouble.”

In any event, Mr. Dvoretzky said, the 21st Amendment, which ended prohibition in 1933, nonetheless gave states vast power to regulate alcohol. (The amendment says that “the transportation or importation into any state, territory or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”)

“I don’t think,” he said, “that there is an economic protectionism exception to 21st Amendment.”

The law was challenged by Total Wine, a large retailer, and a Utah couple, Doug and Mary Ketchum, who moved to Memphis in the hope that the weather there would be better for their disabled daughter. A federal appeals court struck down the two-year residency requirement, saying it violated the Constitution by discriminating against newcomers to the state.

Justice Samuel A. Alito Jr. asked Mr. Dvoretzky a series of questions probing just how far states could go in discriminating against people from elsewhere.

“Can a state enact a 10-year residency requirement?” he asked. The question was not hypothetical. Another part of the Tennessee law, also struck down by the appeals court but not defended before the Supreme Court by the trade association, imposed a 10-year residency requirement on license renewals.

Justice Alito also asked about a more fanciful law, one that said that “you can’t get a liquor license in Tennessee unless your grandparents were Tennessee residents.”

What about a law, Justice Alito continued, that said in so many words that its only purpose was “economic protectionism”?

Mr. Dvoretzky responded that none of those laws would be barred by the Constitution’s commerce clause, which has been interpreted to prohibit states from discriminating against interstate commerce. He said that other provisions of the Constitution might bar extreme restrictions, but that the 21st Amendment granted states all but unlimited power to regulate sales of alcohol within their borders.

Justice Brett M. Kavanaugh said the text of the amendment did not seem to support Mr. Dvoretzky’s interpretation of it. “Why isn’t that most naturally read to allow states to remain dry and, therefore, ban transportation or importation but not to otherwise impose discriminatory or, as Justice Alito says, protectionist regulations?” Justice Kavanaugh asked.

David L. Franklin, the solicitor general of Illinois, representing 35 states, urged the justices to uphold Tennessee’s law. “The 21st Amendment,” he said, “gives states virtually complete control over how to structure their domestic liquor distribution systems.”

Carter G. Phillips, representing the challengers, said the Tennessee law was plainly unconstitutional. “This statute has no purpose except to be protectionist of the local industries,” he said.

Some justices worried that striking down the law at issue in the case, Tennessee Wine and Spirits Retailers Association v. Blair, No. 18-96, could lead to deregulation of all aspects of interstate liquor sales.

“Why isn’t this just the camel’s nose under the tent?” Justice Neil M. Gorsuch asked. “Isn’t the next business model just to try and operate as the Amazon of liquor?

Amy Howe analyzed the oral argument for SCOTUSBlog:

Representing the retailers defending the residency requirement, attorney Shay Dvoretzky told the justices that it does. The 21st Amendment, Dvoretzky argued, was intended to give back the powers that the states had had before Prohibition under two federal laws – the Wilson Act and the Webb-Kenyon Act – that gave them “near complete” power to regulate the distribution of liquor. States can do almost anything, Dvoretzky stressed, as long as they treat in-state and out-of-state products the same, which the residency requirement does.

This expansive power, Dvoretzky made clear in responding to a question from Justice Sonia Sotomayor, means that laws like Tennessee’s residency requirement do not violate the Constitution even if they are intended to protect in-state retailers from competition. There is no “economic protectionism” exception to the 21st Amendment, Dvoretzky emphasized.

Dvoretzky later repeated this idea in response to a question from Justice Samuel Alito, who asked him whether the state could impose a requirement that the grandparents of an applicant for a liquor license have lived in Tennessee. Dvoretzky responded that such a requirement “would not create a dormant Commerce Clause problem.” Before Prohibition, Dvoretzky said, the states’ powers included the power to discriminate against out-of-state interests.

Justice Brett Kavanaugh was skeptical. The problem I’m having, Kavanaugh said to Dvoretzky, is that nothing in the text of the 21st Amendment – which bars the “transportation or importation” of liquor into a state in violation of that state’s laws – gives the states complete authority over the distribution of liquor. All that the 21st Amendment was intended to do, Kavanaugh suggested, was let states remain “dry” if they opted to do so; it wasn’t intended to allow states to pass laws that discriminate against out-of-state interests.

(…)

Justice Elena Kagan appeared unconvinced that states have complete latitude to regulate those questions, observing that Tennessee’s residency requirement seems to be an outlier. “Is there anything in your argument,” she asked Franklin, “that would give us a way to say that” these kinds of extreme examples are “clearly protectionist” and must be struck down, even if more reasonable residency requirements might survive?

Franklin pushed back, responding that although Tennessee’s residency requirements could potentially violate other parts of the Constitution, they do not violate the dormant commerce clause. That prompted Kagan to ask whether a better option for the court would be for it to rule that the dormant commerce clause does apply to the residency requirement, at which point the state could come back and demonstrate that it has “real health and safety concerns” that justify the laws.

Franklin resisted, telling Kagan that such an approach would “still embroil the courts in the kind of line drawing that the 21st Amendment was designed to relieve them of” and would “be at odds with the broad regulatory discretion” that the 21st Amendment gives the states. The argument that Total Wine and the Ketchums are making, Franklin emphasized, would strip all meaning from the 21st Amendment by treating alcohol the same as any other commodity. “But it’s not,” Franklin concluded.

Appearing on behalf of Total Wine and the Ketchums, lawyer Carter Phillips reiterated Kavanaugh’s suggestion (later echoed by Alito) that the 21st Amendment does not give states broad authority to regulate alcohol but instead was intended to allow states that had decided to remain “dry” to stop the importation of alcohol from other states.

Justice Stephen Breyer countered that the Supreme Court’s earlier cases had already recognized that the 21st Amendment gives states “virtually complete control” over how they want to structure their liquor-distribution systems. What’s more, Breyer added, most states have long had some sort of residency requirement. “The history favors the other side,” Breyer told Phillips, even if it doesn’t necessarily make sense.

Kagan and Justice Neil Gorsuch fretted aloud about the prospect that a ruling for Total Wine and the Ketchums would open the doors to new challenges – for example, to other state laws regulating the sale and distribution of liquor. If we rule for you, Gorsuch told Phillips, the next case will argue that the current system discriminates against out-of-state residents by requiring retailers to have a physical presence in the state. Isn’t the next business model, Gorsuch continued, just to operate as the Amazon of liquor?

Phillips demurred, noting that Total Wine is a brick-and-mortar retailer. In any event, he responded, if such cases come to fruition, the states can make different arguments about why liquor retailers need to have an in-state presence. But in this case, he emphasized, Tennessee has never tried to explain why its residency requirements are necessary.

As I’ve said repeatedly in the past it’s a mistake to judge the outcome of a case based on the reports of what happened at oral argument. Quite often, Justices will ask a question and take positions designed to test an argument that is likely to come up during the conference where the Justices will have their initial discussion and vote on the case, which took place as scheduled on Friday. In that respect, the questions may be intended to try to steer the conversation toward certain aspects of the case and to downplay others. Additionally, it’s not uncommon for a Judge or Justice to play “devil’s advocate” during oral argument either for their own purposes or to subtlely point out to a fellow Justice where their argument may be wrong or may lead to unintended consequences.

That being said, it seems clear from the reports about the oral argument that the Justices are skeptical of the expansive interpretation of the 21st Amendment that the state of Tennessee is proposing. That Amendment, of course, ended nationwide prohibition but nonetheless provided that “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” By virtue of this section, the Amendment effectively returned the right to regulate alcohol to the states, where it had resided prior to the adoption of the 18th Amendment. The purpose of this section of this section of the Amendment seems clearly be primarily aimed at allowing the states to create their own regulatory schemes with regard to alcohol, in including the option of being completely “dry” or allowing specific areas such as counties to be “dry,” something that can be found in some counties across the country and most prominently in the south. On its face, it appears to give the states near-exclusive authority to regulate alcohol as they see fit, and this is effectively the interpretation that the attorney for Tennessee argues in favor of, although as the summary above made clear his position frequently caused him to be forced to take absurd positions that seem to be inherently unreasonable.

Despite Tennessee’s argument, though, and notwithstanding the seemingly broad language of the 21st Amendment, there have been some areas where the courts have limited the authority of the states under the Amendment as I noted in my preview post on the case:

Notwithstanding the language of the 21st Amendment, though, there has been some legal pushback against overly restrictive state regulation, especially when it comes to provisions barring the interstate sale and shipment of wine and some other alcohol to individual consumers. In Granholm v. Heald 544 U.S. 460 (2005), for example, the Supreme Court struck down a Michigan law that permitted in-state wineries to ship to in-state customers but barred out-of-state wineries from doing so in a decision that relied on the Commerce Clause to rule that, notwithstanding the authority granted by the 21st Amendment, the Dormant Commerce Clause prohibited states from discriminating against out-of-state wineries. One result of this has been a vast expansion of the interstate market available to wineries around the country, although the decision did not have a universal impact because the court did not rule that all states must allow wineries to sell and ship wine to customers in their states, but instead provided that states could not discriminate against out-of-state wineries. This means that it is still illegal for wineries in California to ship to states where the law provides that no winery can ship directly to consumers. Another case, Lebamoff v. Rauner, which was handed down just last year by the 7th Circuit Court of Appeals rejected the argument that Granholm’s precedent should not equally apply to retailers such as wine retailers. However, the actual impact of that decision will depend significantly on how the Supreme Court decides the Tennessee case that will be heard tomorrow.

Depending on the outcome of this case, and how the Court interprets the authority that the 21st Amendment gives to state in regulating sales and purchases from out of state, the Court’s decision here could allow for significant changes in the way wine and other alcohol is sold in the United States. While Justice Gorsuch’s seeming warning about a decision that would allow for the rise of an “Amazon for alcohol,” although I’m not sure what would be wrong with that, may be premature, it’s likely that a ruling against Tennessee would result in an outcome largely favorable to consumers since it would expand choices and availability for alcoholic beverages such as wine for people out of state and, of course, favorable to retailers for whom this could open a whole new consumer base.

Based on the oral argument, it’s hard to know what exactly to expect in this case, in part because it appears from the questioning to not exactly fall into the traditional left-right political division that people expect from the case. In the Granholm case, for example, the Supreme Court split 5-4 but it was most decidedly not on ideological grounds. The majority opinion was written by Justice Kennedy, and he was joined by Justice Scalia, Justice Souter, Justice Ginsburg, and Justice Breyer. The primary dissent in the case was authored by Justice Thomas, who was joined by Justices Stevens and O’Connor along with Chief Justice Rehnquist. Of the nine members of the Court for that case only three — Thomas, Breyer, and Ginsburg — remain and its entirely unclear where the Justices who have taken the bench since then will come down on the issue and how broad any opinion might be. We’ll get some clues about that after Wednesday oral argument, of course, but we won’t know for sure until the decision itself is handed down. In the meantime, you can learn more about the case at the SCOTUSBlog information page. Beyond that we’ll just have to wait until the decision is handed down.

Here’s the transcript:

Tennessee Wine and Spirits … by on Scribd