The Tennessee Wine case has come and gone and the shock has now worn off. Now it is time to take account of what the decision means. On its surface it is clearly a resounding win for Total Wine and More and a resounding loss for the Tennessee Wine Retailers Association (Association).
However, we all know this case means more than that! The Supreme Court wrote a broadly worded opinion that extends the reach of Granholm beyond producers. Which will open the door for increased wine retailer shipping into many states. This decision is a game changer, but there are many crazy aspects of this decision that are not readily apparent on the surface.
The law at issue is the Tennessee durational residency requirements. One could only obtain a retail liquor license (on-premise) if they lived in Tennessee for 2 years before obtaining the license and live there for 10 years after.
Total Wine and More wanted to open a location in Tennessee and fought these requirements. The state dropped out of the lawsuit but the Tennessee Wine Retailers Association stepped in and fought to uphold the durational residency requirement as a way to keep Total Wine and More out.
The 6th Circuit found the durational residency law unconstitutional and the Association appealed to the Supreme Court which agreed to hear the case.
The role of §2 of the 21st Amendment
The Court provided an analysis of the powers and the perimeters of §2 of the 21st Amendment.
Under §2 of the 21st Amendment, 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”.
A broad reading of the powers granted under this section would allow the states unlimited power in restricting laws that conflicting with their liquor laws.
Justice Alito’s opinion did not buy into this theory. He indicated that a broad reading of §2 would allow the states carte blanche power to usurp rights afforded under other constitutional provisions. He indicated that “such a reading of §2 would mean that the provision would trump any irreconcilable provision of the original Constitution, the Bill of Rights, the Fourteenth Amendment, and every other constitutional provision predating ratification of the Twenty-first Amendment in 1933. This would mean, among other things, that a state law prohibiting the importation of alcohol for sale to persons of a particular race, religion, or sex would be immunized from challenge under the Equal Protection Clause. Similarly, if a state law prohibited the importation of alcohol for sale by proprietors who had expressed an unpopular point of view on an important public issue, the First Amendment would provide no protection.”
Justice Alito indicated that §2 must be “viewed as one part of a unified constitutional scheme”.
The opinion indicated that §2 grants the states latitude with respect to regulating alcohol, but it does not allow the States to violate the “nondiscrimination principle” of the Commerce Clause. The only way a law can be sustained that violates the “nondiscrimination principle” is if it is narrowly tailored to advance a legitimate local purpose.”
Under the Court’s view a law that protects the “public health, the public morals, or public safety, that has no real or substantial relation to those objects, or is a palpable invasion of rights secured by the fundamental law will not be constitutionally valid. Second, the Court recognized that “the Commerce Clause prevented States from passing facially neutral laws that placed an impermissible burden on interstate commerce.”
In summarizing, the Court agrees that §2 grants states great latitude in regulating alcohol, but that the Court has repeatedly, through its precedents in Granholm and Bacchus, declined to “read §2 as allowing states to violate the “nondiscrimination principle” ”.
The Granholm debate settled
The debate on whether Granholm extended to retailers or was limited to producers was settled in this case. As background, in Granholm the Supreme Court ruled that the States of Michigan and New York could not discriminate against out-of-state wineries that shipped to its residents. Both of these states allowed their resident wineries to ship to customers in their state but denied these privileges to out-of-state wineries. Since Granholm dealt with only wineries, the debate was whether its nondiscrimination principle extended to retailers.
The Court held that the Association’s reading of Granholm applying only to producers and out-of-state products was wrong. The Court stated that Granholm was limited to producers, because the decision’s facts were limited only to producers and that is why it did not apply to retailers. Justice Alito’s opinion noted that “And Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers. On the contrary, the Court stated that the Clause prohibits state discrimination against all “‘out-of-state economic interests , and noted that the direct-shipment laws in question “contradict[ed]” dormant Commerce Clause principles because they “deprive[d] citizens of their right to have access to the markets of other States on equal terms.”
What results from the Granholm reading?
With these words the Court settled a long debate festering for nearly 15 years, is Granholm limited to producers? Clearly the Court indicated that Granholm expands to all out-of-state economic interest, and that restricting all direct shipments whether from retailers or producers deprives “citizens of their right to have access to the markets of other States on equal terms.”
But the big question is whether the principles of Granholm extends to wholesalers. The Court’s own words state that “the Clause prohibits state discrimination against all “‘out-of-state economic interests.” So, it begs the question, can a state shut off its market to an out-of-state wholesaler that wants to sell to in-state retailers and is merely asking for market access?
It seems the Court would say no that economic discrimination pertains to all out-of-state interest. If this is the case, we should expect that this decision will impact the whole liquor distribution chain.
Public Health Justification
The Court analyzed whether Tennessee’s residency requirements could be valid based on public health or safety justifications or for some other legitimate nonprotectionist reason.
The Court took issue with the Association’s health and safety justification for upholding the law, because there was no strong evidence provided for its stance. Specifically, there was no concrete evidence “showing that the 2-year residency requirement actually promotes public health or safety; nor is there evidence that nondiscriminatory alternatives would be insufficient to further those interests.”
The Association defended the 2-year residency requirement based on public health and safety grounds, yet it could not provide evidence of this, and it could not provide evidence on why it couldn’t use less restrictive means.
For example, the Association claims the 2-year durational residency requirement is necessary for background checks and security. The Court could not understand why it took 2 years to achieve this purpose, clearly there were more less restrictive means to the ends.
The Court also questioned the Association’s justification that someone being a resident for two years will be more responsible for limiting sales to intoxicated customers. Again, the Association provided no evidence for its premises. In fact, many of the license owners would not be serving the alcohol, so whether the license holder is a 2-year resident often times has no bearing on this issue. Further, the durational residency requirement did not apply to on-premise retailers where over-serving customers is often a problem.
Finally, the Court indicated that the durational residency requirement required residency of state and not a community. In the Court’s view, who would be more likely to care about the health and safety of the Bristol, Tennessee community? Someone right next door from Bristol, Virginia or someone 500 miles away in Memphis?
The Court demanded that there be less restrictive ways to promote the health and safety of Tennessee residents. And because the law does not utilize these less restrictive ways, it fails the less restrictive means test of the court.
What does this all means now?
Legal Limbo is the new normal
Here is the present state of things, we have a Supreme Court decision which states that laws against wine shipping are unconstitutional based on Granholm applying to retailers. Presently, we have states that have laws that allow their retailers to ship wine to their residents, but do not afford out-of-state wine retailers the same privilege. And then we have out-of-state retailers that want access to these markets. We have unconstitutional state laws that can’t be enforced versus out-of-state retailer knocking on the door to get in!
But we may not have the legal compliance scheme or permitting system setup for these retailers to comply. Yes, we are in the wild west of the liquor world.
So the question becomes, how do we get order?
Do the states work with all the parties involved to come to a solution? Or do they keep litigating cases they are sure to lose?
Finally, what do the common carriers do, do the FedExs of the world start shipping based on the precedent of this case or are they going to wait until the state issues permits? If the latter is the case, an argument could be made that common carriers are denying access to a retailer’s constitutional right to access the market.
Data geeks become king
When I was on a panel on temperance issues at the NCSLA conference, I brought up the fact that the Missouri Broadcasters Association v. Taylor case determined that to prove temperance the state must provide evidence for its position. And that temperance was dead because it would be hard to prove it with concrete evidence.
Justice Alito ripped into the Association by remarking that they lacked evidence for its legal justifications. Missouri Broadcasters and Tennessee Wine stand for the proposition that if state liquor laws restrict another Constitutional right that the state must provide evidence why the restriction is necessary.
Without this evidence, courts are going to see the state as a “tiger with no teeth”!
With modern technology and the advent of big data, it would seem that if a state thinks their theory is sound, there will need to be concrete data to back it up.
The days of making theoretical arguments that sounded good with great rationales for restrictions are gone. Theory based arguments without evidence will become a loser every time.
What we will now see is the battle of data analysis. Sure, the state will make their theoretical arguments, but their data analysts will provide the evidence to win the day.
So yes, Justice Alito changed the game for the liquor world. And yes, Granholm extending beyond producers is huge, but let us not forget the data geeks. They will be the ones putting on the knight’s armor and deciding who wins the fight! The next big liquor case may not be decided by lawyers but by data analytics types. Yes, they changed baseball and they may change liquor law too!