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06/26/2019

Sup Ct Tosses TN’s Residency Requirements Too: Unconstitutional, “Not Shielded by 21st Amendment”

The 21st Amendment “is not a license to impose all manner of protectionist restrictions on commerce” in alc bevs, Sup Ct Justice Alito wrote in his majority opinion (7-2) to toss Tennessee residency requirements for liquor retailers issued this morn.  Majority upheld US Dist Ct and 6th Circuit Ct of Appeals that Tenn law (requiring 2-yr residency to obtain retail liquor store license) violates Commerce Clause and thus “unconstitutional.”  The 21st Amendment does give states “leeway in choosing the alcohol-related public health and safety measures that its citizens find desirable,” majority acknowledged, but not if sole reason for laws is to protect in-state economic interests.  Laws must address public health/safety goals, they conclude. 

Justice Alito’s 36-page analysis repeats numerous times that 21st Amendment grant of states’ rights to regulate alc bevs was not intended to “give States a free hand to restrict the importation of alcohol for purely protectionist purposes.”   The Court has “repeatedly declined” to treat 21st Amendment as “allowing the States to violate the ‘nondiscrimination principle’ that was a central feature of the regulatory regime that the provision was meant to constitutionalize,” Alito points out.  TN residency laws discriminate on their face against out-of- state interests, he and 6 other Justices determined, noting that state had other ways far short of adopting residency requirements to regulate in-state liquor stores.     

Granholm Not Limited to Producers/Products, Majority Declares  What about the Tenn retailers’ argument (shared by wholesaler advocates) that Granholm decision barred discrimination solely against out-of-state producers and products, but a “different rule applies to state laws that regulate in-state alcohol distribution,” i.e. the wholesale and retail tier?  Alito: “There is no sound basis for this distinction.” Granholm focused on products and producers because that was the case at hand, the majority notes.  Granholm “never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products and producersOn the contrary, the Court stated that the Clause prohibits state discrimination against all ‘out of state economic interests.’”  Net-net: current thinking on the US Sup Ct (again, 7 Justices) is that 21st Amendment does give states’ “leeway” to enact laws that citizens believe “address the public health and safety effects of alcohol use and to serve other legitimate interests, but it does not license the States to adopt protectionist measures with no demonstrable connection to those interests.” 

Tenn retailers never provided evidence that TN laws had strong public health or safety intentions or results. (Recall, on-premise licensees were not required to be TN residents.)   Since Tenn retailers argued all along that law was “not subject to a Commerce Clause challenge,” majority points out, they never focused on the public safety/health argument.  Indeed, “record is devoid of any ‘concrete evidence’ that the 2-year residency requirement actually promotes public health or safety.” Nor did the retailers provide evidence that some nondiscriminatory alternatives would have been “insufficient” to further those interests.  Claim that retailers made at Sup Ct that in-state residents “more amenable” to regulation, is “implausible on its face,” Alito wrote. And in any case, same objective easily obtained by having in-state agents of the owner and/or agreeing to in-state jurisdiction. State can “thoroughly investigate” out-of-state applicants for their “fitness” to sell alc bevs, Alito adds, without requiring residency.  Nor is 2-year residency “needed to enable the State to maintain oversight over liquor store operators,” especially since the stores are located within the state. Majority also tosses notion that a resident-operator would “lead to responsible sales practices,” declaring “no evidence has been offered that durational residency-requirements actually foster such sales practices.” Among “obvious alternatives” to achieve responsible sales practices: limit the number of licenses and/or amount of alcohol that can be sold to an individual, mandate training, have state monitor actual sales practices. 

In the end, “predominant effect of the 2-year residency requirement is simply to protect the Association’s members from out-of-state competition.  That requirement violates Commerce Clause “and is not saved by the 21st Amendment.”  Majority opinion does not mention “the next case”: retailers who seek to ship across state lines.  (Dissent does, see below.) But the majority’s sweeping away of the notion that Granholm limited to producers and products likely gives those retailers and their advocates a stronger hand.  In any case, surely looks like those seeking to halt such shipments will have to make public health/safety arguments. 

Veteran alc bev atty Richard Blau shared his first impression: “While Granholm tipped the scales in favor of the dormant Commerce Clause doctrine relative to the 21st Amendment and state alcohol regulation, Tennessee Wine & Spirits Retailers Assn all but takes those scales off the table.  The majority decision declares the dormant Commerce Clause doctrine – a judicially-created concept limiting the legislative power of states that does not expressly appear in the Constitution – to be ‘its own force’ for restricting state protectionism....   The majority found the 21st Amendment’s efficacy limited to Section 2’s ‘core powers,’ and those will be relevant only in situations where local laws are found by competent, admissible evidence to be ‘appropriate to address the public health and safety effects of alcohol use and to serve other legitimate interests, but . . .  not license the States to adopt protectionist measures with no demonstrable connection to those interests.’  It’s a new, arguably higher standard of review, and defenders of state alcohol laws will have to do a better job of marshalling data and expert testimony in defense of their regulations, if they want to prevail in this brave new world.”  We’ll publish other industry attys’ responses going forward.

Minority Wonders “What’s Left” of 21st Amendment  Tho writing for a very small minority, Justice Gorsuch dissented from today’s decision with strongly worded support of the 21st Amendments as “the people...wrote and originally understood it.” Indeed, after today’s decision, “it’s hard not to wonder what’s left” of laws that led to the 21st Amendment and the amendment itself, Gorsuch writes. The majority “badly misreads” Granholm, in his view, joined by Justice Thomas (who wrote dissenting opinion in Granholm). By assuming the decision in that case “just happened to talk a lot about products,” the majority ignores that such focus was a crucial distinction. “It was precisely how Granholm sought to reconcile its result with the longstanding tradition of state residency requirements,” Gorsuch argues. To him, that decision’s much-recited “unquestionabl[e] legitima[cy]” of laws requiring in-state wholesalers proves that point. “I would have thought that restatement of the law more than enough to resolve today’s case,” he quips. But what should lower cts consider a “public health benefit” now, Gorsuch asks. “Does reducing competition in the liquor market, raising prices, and thus reducing demand still count?” And are laws requiring licensee “presence” the next to go?

Publishing Info

  • Year: 2019
  • Volume: 21
  • Issue #: 129
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