Outside the Beltway

SCOTUS To Hear Case That Could Make It Easier To Buy Wine From Out Of State

Tomorrow the Supreme Court will hear oral argument in a case that could make it easier to order and ship wine from out-of-state retailers.

Doug Mataconis · Tuesday, January 15, 2019 · 11 comments

Later this week, the Supreme Court will hear oral argument in a case involving interstate shipment of wine that could go a long way toward making it easier for Americans to order wines not generally available in their part of the country and have them shipped to their homes:

With just a few clicks on my computer or phone, I can order a rare book from San Francisco, a country ham from Kentucky or a dazzling box of chocolates from Vermont. I can track the shipments to the door of my New York apartment building, where I will receive them, marveling at our effortless access to almost anything we desire.

That modern convenience, however, is denied to wine lovers who live in the 36 states that prohibit interstate shipping from retail wine shops. A consumer in a rural community, for example, with few good wine shops within easy reach, is forbidden to order wine from an out-of-state source with great bottles galore.

This may change in the not-too-distant future. A case to be argued before the United States Supreme Court on Wednesday may decide whether states can prohibit retail wine shops from shipping to consumers in another state. A ruling might even affect access to small-production beers and spirits, although it’s not clear whether it would extend beyond wine.

The case, Tennessee Wine and Spirits Retailers Association v. Blair, does not hinge directly on the issue of interstate retail sales. It instead is focused on the effort of Total Wine & More, a national retail chain of almost 200 stores, to open an outlet in Tennessee. A group of retailers in the state sued in an effort to block the move, arguing that Tennessee law required the retail owners to be residents of the state.

Yet the court’s decision, many believe, will have major implications for interstate wine sales. It could open a wellspring of opportunities to consumers, allowing wine lovers to scour the country for hard-to-find bottles and the best retail deals. Or it could put to rest any further effort to broaden access to fine wine.

“We’re about 90 percent sure it will affect interstate shipping,” said Daniel Posner, the managing partner of Grapes the Wine Company, in White Plains, N.Y.

Mr. Posner is the president of the National Association of Wine Retailers, an advocacy group, which has filed a brief with the court in Blair arguing that the right of wine producers to sell and ship bottles to out-of-state consumers, granted in a 2005 case, Granholm v. Heald, should be extended to retailers.

The Granholm case struck down state laws that permitted wine producers to ship bottles directly to consumers in that state and barred out-of-state producers from the same practice. In-state and out-of-state producers must play by the same set of rules, the court said.

But the Granholm ruling was vague about whether it applied to retailers as well.

Before the early years of this century, ordering wine from out-of-state merchants was a minor part of the business, and drew little attention. Only the most committed collectors, who sought access to out-of-state wine catalogs, would go through the inconvenience and expense of such transactions.

High-speed internet changed everything. With easy access to retail websites, consumers anywhere in the country could order from specialty wine shops, purchasing bottles that might otherwise be unavailable in their own states.

Given the irrational patchwork of regulations that governs wine distribution, every state essentially offers consumers a different selection of wines. For people who live in areas rich with fine-wine retailers, internet shopping was an added bonus. For those in areas with few retail options, it was a savior.

As consumers became accustomed to shopping on their computers, interstate sales became a more significant part of the business for retailers, enough so to draw the attention of wine-and-spirits wholesalers, who felt themselves bypassed by such interstate sales.

Urged on by the wholesalers, who lobbied and contributed heavily to state political campaigns, states began to crack down on interstate retail shipping, and carriers like FedEx and United Parcel Service specifically. Those companies have told retailers in recent years that they would no longer accept out-of-state shipments of alcoholic beverages unless they were bound for one of 14 states (along with Washington, D.C.) that explicitly permit such interstate commerce. Interstate wine shopping effectively ended for many people.

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The original ruling in the Blair case, by a federal district judge, was in favor of the Tennessee retailers association, which had defended the state residency requirement. But that was overturned in early 2018 by the United States Court of Appeals for the Sixth Circuit, which cited Granholm in ruling that in-state entities could not be favored over out-of-state entities.

The Tennessee retailers — who, unlike the national association, favor the residency requirement — argue that the Granholm decision applies only to wine producers, not to retailers. If the court accepts that argument, it will end immediate consumer hopes of regaining access to a wider selection of wines.

Richard L. Colbert, a lawyer for the Tennessee retailers, declined to comment on the case. But Mr. Clement, who served as United States solicitor general from 2005 through 2008, asserts that Granholm should logically extend to wine retailers.

“Your typical winery has a production function and a retail function, and Granholm’s focus was on the retail side,” Mr. Clement said. “The interstate activity protected by Granholm wasn’t production, it was sales.”

Amy Howe previewed this week’s oral argument for SCOTUSBlog:

The Constitution’s 21st Amendment gives states the power to regulate the distribution of alcohol into and within a state, while a doctrine known as the dormant commerce clause (derived from the Constitution’s commerce clause) bars states from discriminating against interstate commerce. Next week the Supreme Court will hear oral argument in a challenge to a Tennessee law that requires anyone who wants a retail license to sell alcohol in Tennessee to have lived there for at least two years. A federal appeals court ruled that the law violates the Constitution by discriminating against out-of-state residents. Defending the law, a trade association representing the state’s liquor retailers argues that the Constitution treats alcohol differently from other products, giving states broad powers to regulate it.

The case now before the Supreme Court arose when Total Wine – whose website describes it as “the country’s largest independent retailer of fine wine,” committed to both offering “the nation’s best wine selection” and “having the lowest prices” – applied for a license to run a store in Nashville, but couldn’t satisfy the residency requirement because its owners are residents of Maryland

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In their brief in the Supreme Court, the retailers emphasize that the 21st Amendment gives states “broad latitude” to regulate retail sales of alcohol without violating the dormant commerce clause. They add that the amendment was also intended to give back the powers that states had before Prohibition, including to allow the “states to pursue policies that best fit local values and conditions, and to experiment with different approaches to the difficult problems inherent in regulating the distribution and use of alcohol.”

The retailers argue that the Supreme Court has distinguished between “core” state powers, which are protected by the 21st Amendment against suggestions that they violate the dormant commerce clause, and “non-core” powers, which are not protected. “Core” powers, the retailers explain, include the power to directly regulate sale or use of liquor within the state, while “non-core” powers try to regulate activity outside the state – for example, a ban on alcohol-related TV ads that are broadcast into the state from another state or laws that regulate prices in the state by comparison to prices at which alcohol is sold in other states.

The two-year residency requirement at issue in this case, the retailers stress, is a core power: It directly regulates the sale of liquor within Tennessee, treating out-of-state liquor the same as domestic liquor.

As a practical matter, the retailers continue, the requirement makes sense in several different ways. First, it gives state and local officials enough time to determine whether an applicant has the right character to have a liquor license. Second, it makes it more likely that the applicant will understand the needs of the community in which he plans to sell liquor. “The long-time resident who attends football games on Fridays is less likely to be duped by the drum major’s fake ID on Saturdays,” the retailers suggest. And more broadly, the retailers add, rules that make it harder to open a liquor store are generally good, because less liquor may help to reduce alcohol abuse.

In its brief on the merits, Total Wine begins by stressing that Tennessee effectively has a 10-year residency requirement for people who want to own a liquor store in Tennessee: A first-time applicant must have lived in Tennessee for at least two years, but the one-year license “cannot be renewed unless the individual has been a Tennessee resident for ten years.” Total Wine takes it as a given that the residency requirement violates the dormant commerce clause: As Tennessee itself has acknowledged, the residency requirement prevents out-of-state residents from getting liquor licenses to protect Tennessee sellers from competition. The requirement, Total Wine says, is “so manifestly protectionist” that the state hasn’t enforced it for six years and has only filed a letter in the Supreme Court agreeing with the retailers. Instead, Total Wine observes, the group that is actively defending the residency requirement in the Supreme Court is the retailers themselves, who acknowledge that their right to sue comes from their interest in not having to compete with Total Wine and the Ketchums.

Total Wine questions the rationales that the retailers have offered in defense of the residency requirement. Applicants are not actually required to have any local ties to the community where they will open a store, Total Wine observes; it is enough that they live in Tennessee. “The notion that someone living in Memphis is more in touch with Knoxville than someone living in Asheville, North Carolina, which is 250 miles closer, is silly,” Total Wine posits. And in any event, 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 emphasizes.

Total Wine also points out that Tennessee does not have a similar residency requirement for bars, hotels and restaurants – which, it argues, “forecloses any argument that Tennessee is genuinely concerned about nonresidents’ suitability to own retail alcohol businesses.”

Total Wine and the Ketchums argue that the 21st Amendment doesn’t make the residency requirement constitutional. A primary goal of the dormant commerce clause, they say, is to prevent the states from protecting their own citizens and businesses at the expense of others, and the Supreme Court “has made clear that the Twenty-first Amendment was not intended to save laws that have no purpose other than protecting in-state businesses.”

Ordinarily, the idea that out-of-state retailers can be blocked from shipping to certain states would be an easy question to answer. This, after all, seems to be a clear example of the kind of transaction that the Interstate Commerce Clause was placed in the Constitution to prevent. In the years before the Constitution was ratified, it wasn’t uncommon for states to place restrictions and tariffs on goods originating in other states, something that made commerce between and among the individual states difficult and caused difficulties for any kind of national government under the Articles of Confederation. This is why Congress was given exclusive control over interstate commerce and the courts, acting under what has since come to be called the Dormant Commerce Clause, have interpreted the clause to include a bar against state legislation regulating interstate or international commerce. If this were the only provision of the law involved, then state laws barring the interstate sale, purchase, or shipment of alcohol would obviously be unconstitutional.

What makes this case different, though is the 21st Amendment, which repealed the 18th Amendment that authorized national legislation banning alcohol. The impact of the Amendment, though, was to return to the states the question of how to regulate alcohol, specifically via Section Two of the Amendment which bars “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.” It’s because of this provision of the 21st Amendment that we have the patchwork of alcohol laws that we do where states regulate the sale of alcoholic beverages inside their own borders, with some states being far more restrictive than other and, indeed, in some cases where we have localities where the sale of alcohol is banned completely. All of that is made possible by Section Two of the 21st Amendment.

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.

As things stand, it’s hard to say exactly what to expect from the Court in this case because it defies the typical left-right political division that most people pay attention to with respect to the Court. 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 and, of course, there will be coverage of the oral argument later this week.