SCOTUS to Take Up Rare 21st Amendment Case

When they return to the bench in January, the justices of the U.S. Supreme Court will consider their first case involving the 21^st Amendment in more than a decade. Tennessee Wine and Spirits Retailers Association v. Clayton Byrdinvolves the constitutionality of a Tennessee law that mandates retail or wholesale licenses can only be granted to individuals or entities that have resided in-state for at least two years.

Legal Background

The relevant provision of the 21^st Amendment provides: “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.”

Accordingly, states have the exclusive authority to determine how to structure their liquor distribution systems. They may, however, violate the Dormant Commerce Clause, which generally prevents States from “discriminat[ing] against interstate commerce” or “favor[ing] in-state economic interests over out-of- state interests,” if they fail to similarly address out-of-state and domestic products.

In Granholm v. Heald, the Supreme Court previously held that “[s]tate policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.” The Court further explained that “when a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry.” The only exception is when a state can demonstrate that its policy “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.”

Facts of the Case

The State of Tennessee imposes durational-residency requirements for retail liquor licenses. It specifically requires individuals to reside in Tennessee for two years before they are eligible for a license to sell liquor to consumers; the same requirements apply to the directors, officers, and capital stockholders of corporate applicants.

Respondents Tennessee Fine Wines and Spirits, LLC (Fine Wines) and Affluere Investments, Inc. (Affluere) applied for Tennessee retail licenses in November 2016. Neither entity satisfies the durational-residency requirements for these licenses. Petitioner Tennessee Wine and Spirits Retailers Association (the “Association”) represents the interests of licensed Tennessee retailers. The Association learned that the Tennessee Alcoholic Beverage Commission (TABC) was considering granting Fine Wines’s and Affluere’s retail-license applications despite their failure to satisfy the durational-residency requirements and threatened to file suit. Meanwhile, Fine Wines and Affluere told the TABC that they would sue to challenge the constitutionality of the durational-residency requirements if the TABC denied their applications.

In response to the threatened litigation, the TABC’s Executive Director, Clayton Byrd, filed a declaratory-judgment action in Tennessee state court seeking clarification about the constitutionality of the durational-residency requirements, so that the TABC could “lawfully fulfill its duties . . . and correctly determine whether nonresident Defendants [Fine Wines and Affluere] may be issued a retail liquor license.” The District Court held that Tennessee’s durational-residency requirements violate the dormant Commerce Clause and enjoined their enforcement.

Sixth Circuit’s Decision

A divided Sixth Circuit Court of Appeals held that Tennessee’s durational-residency requirements violate the dormant Commerce Clause. As the majority acknowledged, its decision is at odds with the Second and Fourth Circuits, which have upheld other kinds of residency-related restrictions on alcohol retailers and wholesalers. Those federal courts of Appeal have interpreted Granholm to mean that the dormant Commerce Clause applies only to state laws that regulate alcohol producers or products. The Sixth Circuit followed the Fifth Circuit Court of Appeals, which has extended Granholm to retail regulation and held that durational- residency requirements fail dormant Commerce Clause scrutiny.

Issues before the Court

The justices have agreed to address the circuit split. The Court will specifically consider the following question:

Whether the Twenty-first Amendment empowers States, consistent with the dormant Commerce Clause, to regulate liquor sales by granting retail or wholesale licenses only to individuals or entities that have resided in-state for a specified time.

Oral arguments are scheduled for January 16, 2019.