Outside the Beltway

Supreme Court Strikes Down Residency Requirement For Liquor Sales License

The Supreme Court issued a significant ruling on Monday that could make it easier to buy and sell alcoholic beverages across state lines.

Doug Mataconis · Thursday, June 27, 2019 · 7 comments

The Supreme Court issued an opinion earlier this week striking down a Tennessee law that set a two-year residency requirement before anyone could obtain a retail license to sell alcoholic beverages, a ruling that could also have an impact on the ability of states to bar out-of-state retailers from marketing and shipping their wine to residents of other states:

WASHINGTON — The Supreme Court on Wednesday struck down a Tennessee law that barred newcomers to the state from operating liquor stores. The majority rejected the argument that the 21st Amendment, which ended Prohibition in 1933, allowed the state to restrict liquor sales in many ways, including by imposing a two-year residency requirement for people seeking retail liquor licenses.

Justice Samuel A. Alito Jr., writing for the majority in the 7-to-2 decision, said that the amendment did not authorize states to discriminate against new residents. “Because Tennessee’s two-year residency requirement for retail license applicants blatantly favors the state’s residents and has little relationship to public health and safety,” he wrote, “it is unconstitutional.”

In dissent, Justice Neil M. Gorsuch wrote that the majority was replacing the amendment’s requirements with its own ideas about sound economic regulation.

“Like it or not, those who adopted the 21st Amendment took the view that reasonable people can disagree about the costs and benefits of free trade in alcohol,” Justice Gorsuch wrote. “Under the terms of the compromise they hammered out, the regulation of alcohol wasn’t left to the imagination of a committee of nine sitting in Washington, D.C., but to the judgment of the people themselves and their local elected representatives.”

The passage seemed to offend Justice Alito. “This is empty rhetoric,” he responded.

The law was challenged by 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, and by Total Wine, a large retailer. A federal appeals court struck down the two-year residency requirement, saying it violated the Constitution by discriminating against new residents.

The law’s defenders said it imposed reasonable restrictions, giving the state time to conduct background checks and investigations. They added that people with local roots were more likely to act responsibly.

The key question in the case, Tennessee Wine and Spirits Retailers Association v. Thomas, No. 18-96, was whether the 21st Amendment authorized the state law. (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.”)

In general, Justice Alito wrote, “removing state trade barriers was a principal reason for the adoption of the Constitution.” The 21st Amendment, he wrote, did not undercut that basic idea.

Justice Alito noted that the Tennessee law contained even more extreme provisions, including ones imposing a 10-year residency requirement of people seeking to renew liquor licenses and extending the residency requirements to all of a corporation’s officers, directors and owners. That last provision, he wrote, would mean that “no corporation whose stock is publicly traded may operate a liquor store in the state.”

Neither the trade association defending the two-year residency requirement in the Supreme Court nor state officials were willing to argue in favor of the more extreme provisions.

“If we viewed Tennessee’s durational-residency requirements as a package,” Justice Alito wrote, “it would be hard to avoid the conclusion that their overall purpose and effect is protectionist. Indeed, two of those requirements — the 10-year residency requirement for license renewal and the provision that shuts out all publicly traded corporations — are so plainly based on unalloyed protectionism that neither the association nor the state is willing to come to their defense.”

Even viewed in isolation, Justice Alito wrote, the two-year residency requirement “poorly serves the goal of enabling the state to ensure that only law-abiding and responsible applicants receive licenses.” Potential applicants need not signal their desire to obtain a license during the two-year period or become educated about liquor sales while they live in Tennessee, Justice Alito wrote.

Amy Howe analyzes the opinion at SCOTUSBlog:

At the Supreme Court, everyone seemed to agree that Tennessee would violate the Constitution if it imposed a similar residency requirement on retailers who wanted to sell something else, such as paint or milk, because it would be discriminating against out-of-state residents. The question before the justices really boiled down to whether the 21st Amendment “saves” laws like Tennessee’s: Today the justices concluded that it does not.

Writing for the court, Justice Samuel Alito explained that the 21st Amendment gives states some leeway to regulate alcohol for legitimate reasons like protecting the public health and safety, but it does not sanction regulations that don’t have any connection to health and safety and are instead intended to shield state residents from competition.

Tennessee’s two-year residency requirement, Alito concluded, “expressly discriminates against nonresidents and has at best a highly attenuated relationship to public health or safety.” The retailers had tried to defend the requirement by arguing that it guaranteed that retailers selling liquor in Tennessee could be sued in state court. But that can easily be achieved some other way, Alito posited – for example, by requiring a retailer who isn’t a state resident to agree to be sued there.

Alito was equally skeptical of some of the other justifications that the retailers cited. For example, he noted, although the retailers suggested that the residency requirement “would promote responsible alcohol consumption,” because a retailer with community ties might “counsel or cut off sales to patrons who are known to be abusing alcohol,” there is no evidence that it actually has that effect. Moreover, Alito added, the retailer is only required to live in the same state – not the same community where he sells liquor – which in Tennessee means that he could live 500 miles away. If the state really wanted to promote responsible alcohol consumption, Alito countered, there are better options that do not discriminate against out-of-state retailers, such as requiring better training for managers and employees. Instead, Alito determined, the primary effect of the residency requirement is to protect the retailers from out-of-state competition, in violation of the Constitution.

Justice Neil Gorsuch dissented, in an opinion that was joined by Justice Clarence Thomas. Gorsuch would have allowed the residency requirement to stay in place, citing “plenty of evidence” that the 21st Amendment was ratified so that the states would be “able to regulate the sale of liquor free of judicial meddling.” And he contended that although a “residency requirement may not be the only way to ensure retailers will be amenable to state regulatory oversight,” “it is surely one reasonable way of accomplishing that admittedly legitimate goal.” Similarly, Gorsuch acknowledged that the residency requirement would reduce “competition in the liquor market by excluding nonresidents or recent arrivals.” “But even that,” Gorsuch suggested, “might serve a legitimate state purpose by increasing the price of alcohol and thus moderating its use, an objective States have always remained free to pursue under the Twenty-First Amendment.”

Ordinarily, the idea that someone would need to establish legal residence over an extended period of time before opening a business in a state would be an easy question to answer from a Constitutional point of view. 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 out of state residents or companies from selling alcohol or any other product 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.

All of this is significant because of language in Justice Alito’s opinion that appears to address, without ruling on, the issue of state restrictions on the ability of out-of-state wineries to ship to some states depending on their regulations. Specifically, Alito indicated that the state would also bar states from discrimination against “all out-of-state economic interests” not merely producers and retailers. The clear implication of this is that states that allow retailers to ship wine to customers within the state could be barred from preventing sales from out-of-state retailers. Obviously, it is going to take someone filing a lawsuit raising this issue and willing to take it all the way to the Supreme Court to get a ruling on, but what this means is that this decision could go a long way toward giving consumers around the country greater access to wine, and possibly other alcoholic beverages, normally only available in certain parts of the country. Given the clear language of the Commerce Clause, there seems to me to be no other plausible outcome.

Here’s the opinion:

Tennnesse Wine and Spirits … by on Scribd