US Supreme Court Strikes Down Tennessee Residency Requirement

Six months after hearing oral arguments in a constitutional challenge to Tennessee’s two-year residency requirement for obtaining a retail liquor license, the United States Supreme Court yesterday struck down a controversial stipulation that had prevented out of state retailers from setting up shop in the Volunteer State.

The Supreme Court — considering the scope of the 21st Amendment, which repealed Prohibition in December 1933 and gave states the authority to institute alcohol regulations — affirmed by a 7-2 vote a lower court decision from February 2018.

In that case, chain alcohol retailer Total Wine, along with Doug and Mary Ketchum, who bought a mom-and-pop liquor store in 2016 after moving to Memphis from Utah, challenged the two-year residency requirement, which they said amounted to economic protectionism.

Beyond the two-year residency requirement, Tennessee had mandated a decade of residency for the renewal of liquor licenses, which expire after one year. The state also said all of a corporation’s stockholders must reside in the state, meaning publicly traded corporations could not operate liquor stores in Tennessee.

The United States Court of Appeals for the Sixth Circuit 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.

In July 2018, the Tennessee Wine & Spirits Retailers Association petitioned the Supreme Court to hear the case (Tennessee Wine & Spirits Retailers Association v. Thomas), which the high court did in January 2019.

In writing his majority opinion, issued yesterday, Supreme Court Justice Samuel Alito deemed Tennessee’s two-year residency requirement for retail license applicants unconstitutional because it “blatantly favors the state’s residents and has little relationship to public health and safety.”

“The provision expressly discriminates against nonresidents and has at best a highly attenuated relationship to public health and safety,” Alito wrote.

In the majority opinion, Alito also picked apart Tennessee Wine & Spirits Retailers Association’s arguments that the 21st Amendment justified the two-year residency requirement. The trade group had argued that its residency requirement promoted responsible consumption, allowed it to better vet license applicants and promoted public health and safety. Alito wrote that the residency requirement functions “simply to protect the Association’s members from out-of-state competition.”

The high court added that the 10-year residency requirement for license renewals and a provision blocking publicly traded corporations from operating liquor stores in the state “are so plainly based on unalloyed protectionism that neither the Association nor the state is willing to come to their defense.”

Additionally, Alito wrote that even though Section 2 of the 21st Amendment allows states to “enact measures to address the public health and safety effects of alcohol use and other legitimate interests,” they are not given license “to adopt protectionist measures with no demonstrable connection to those interests.”

Justices Neil Gorsuch and Clarence Thomas dissented. In their opinion, Gorsuch wrote: “Today and for the first time, the court claims to have discovered a duty and power to strike down laws like these as unconstitutional. Respectfully, I do not see it.”

Speaking to Brewbound, Art DeCelle, counsel for law firm McDermott Will & Emery, said additional challenges could be coming in state’s with similar laws. According to CNN, about 20 states have similar residency requirements on the books.

“What it assures is that there will be more cases coming up through the system in the future because people are going to want to see how far they can push this line of reasoning and strike down other alcoholic beverage laws that they don’t like,” he said.

DeCelle said multistate retailers will likely consider expanding into states that had previously blocked them. He added that the high court made “a very strong statement” that laws discriminating against interstate commerce cannot survive commerce clause scrutiny.

“Today’s opinion puts that to rest,” he said.

An effort to change similar laws in other states could come from the National Association of Wine Retailers (NAWR). In a statement, NAWR executive director Tom Wark called the decision “a historic win for both free trade and wine consumers across the country.”

“With this decision, the effort to modernize and bring fairness to the distribution and wine shipping laws of the states begins in earnest,” he said. “While we expect the opponents of free trade and supporters of protectionism to fight this evolution in the American marketplace, we are equally confident that this Supreme Court decision will lead to greater access to the hundreds of thousands of wines many consumers do not currently have access to due to protectionist wine shipping laws.”

In a separate statement, National Beer Wholesalers Association (NBWA) president and CEO Craig Purser said his trade group is “confident,” based on the Supreme Court’s ruling, “that effective state alcohol laws will continue to withstand legal scrutiny.”

“It reaffirms that the basic model and essential features of the three-tier system are legitimate,” he said. “It recognizes that requiring industry participants to be physically present in the states where they operate – something NBWA believes to be essential to the three-tier system – is legitimate as well. More broadly, today’s decision establishes a framework for state regulators and responsible industry participants to advance and support legitimate state laws that are essential to an orderly alcohol marketplace.”

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