US Supreme Court Hears Arguments in Tennessee Residency Requirement Dispute

A century after the ratification of Prohibition, the United States Supreme Court heard oral arguments in a case that could have wide-ranging effects on the three-tier system.

On Wednesday, the court heard arguments in Tennessee Wine & Spirits Retailers Association vs. Blair. At issue in the case is the constitutionality of the state of Tennessee’s two-year residency requirement for obtaining a liquor license. Additionally, the state requires a decade of residency for the renewal of liquor licenses, which expire after one year.

Chain alcohol retailer Total Wine, along with Doug and Mary Ketchum, who moved to Memphis from Utah and bought a mom-and-pop liquor store in 2016, challenged the law and argued that it amounted to economic protectionism.

Previously, a lower court sided with Total Wine and the Ketchums, ruling that the residency requirement violated the Constitution and the 21st Amendment’s dormant Commerce Clause, which was established to prevent states from engaging in economic protectionism.

However, the case could have bigger implications should the residency requirement be overturned. Justice Neil Gorsuch wondered if ruling in favor of Total Wine and the Ketchums would welcome new challenges from out-of-state retailers, such as Amazon, who would argue that the current three-tier system discriminates against out-of-state residents by requiring them to operate physical spaces in the state.

“But isn’t the next business model just to try and operate as the Amazon of liquor?” he asked.

Carter Phillips, representing Total Wine, argued that his client operates brick-and-mortar stores within the three-tier regulatory environment.

“All we are seeking to have is not to be discriminated against,” he said.

Justice Elena Kagan also questioned Phillips on the potential fallout of a decision in favor of Total Wine and the Ketchums. Phillips suggested allowing potential challenges to play out.

“We’re leaving a lot of things for another day, but they all seem to be demanded by the principles that you’re asking us to adopt,” Kagan said.

Shay Dvoretzky, representing the trade group the Tennessee Wine & Spirits Retailers Association, argued that the 21st Amendment — which repealed Prohibition in 1933 — granted states broad authority to regulate liquor sales as they see fit, as long as in-state and out-of-state products were treated equally.

“I don’t think that there is an economic protectionism exception to 21st Amendment,” he told the court, according to a transcript.

However, recently appointed Justice Brett Kavanaugh, a noted beer lover, told Dvoretzky that as written, the text of the 21st Amendment does not support the retailers’ reading that the amendment grants “virtually complete authority” to regulate alcohol sales. Instead, he argued that the amendment was intended to allow states that wanted to remain “dry” to do so.

“Why isn’t that most naturally read to allow states to remain dry and, therefore, ban transportation or importation but not to otherwise impose discriminatory or, as Justice Alito says, protectionist regulations?” he asked.

Meanwhile, Illinois solicitor general David Franklin, who appeared as a “friend of the court” in support of the retailers, argued a ruling in favor of Total Wine and Ketchums would lead to alcohol being treated like any other product.

“But it’s not,” Franklin told the court.

The National Beer Wholesalers Association (NBWA) was one of 14 groups to file an amicus brief in support of Tennessee Retailers. In a statement, NBWA president and CEO Craig Purser said that “the 21st Amendment explicitly gives states the specific authority to regulate alcohol within their borders.”

“Eroding this time-tested system could not only limit consumer choice, but it would also harm Main Street businesses rooted in their communities – businesses that have worked hard and played by the rules,” Purser said, in the release.

According to SCOTUSblog, which tracks the Supreme Court, the outcome of the case is difficult to “handicap” due to the absence of Justice Ruth Bader Ginsburg, the relative quietness of Chief Justice John Roberts and Clarence Thomas, and the state of Tennessee’s “half-hearted attempt to defend the residency requirements.”

The New York Times reported that several justices were “deeply skeptical” of the residency requirement, which they saw as enacted to protect local businesses from outside competition. And The Washington Post noted that the justices indicated that the residency requirement has “more to do with protecting in-state economic interests than guarding against the evils of alcohol. But they also wondered how far they could go, since the Constitution gives states an especially pivotal role in regulating booze.”

Marc Sorini, head of McDermott Will & Emery’s alcohol regulatory and distribution group, told Brewbound that a ruling in favor of the retailers would likely mean more of the “status quo” and possibly “a revival residency requirements at the wholesale and retail tier.”

“It’s a way to insulate the local business from out-of-state competition,” he said.

However, if the court sides with Total Wine and the Ketchums, the fallout could reach beyond the end of residency requirements and lead to challenges of whether requiring a physical presence in the state “is protectionism and unconstitutional.”

“I think that causes them some pause,” he said of the justices. “I think they have very grave concerns with the state’s position, which were ‘our laws in this area are untouchable.’ But I think they also had concerns with the idea that the state would have no power to require a physical presence in the state to sell to in-state consumers.”

Sorini added that he doesn’t believe the justices want a broad ruling due to the “physical presence” question.

“A very broad ruling would create almost a national market for alcohol,” he said. “I don’t think the justices are very comfortable with that notion.”

The court is expected to issue a ruling in the case this summer.

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