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The Supreme Court Is Set to Rule on a Retailer Direct Shipping Case! Well, Not So Fast…

Since the repeal of Prohibition in 1933, U.S. Supreme Court cases addressing the way alcohol is sold in the United States are not common. Most recently, the Court’s 2005 decision in Granholm v. Heald held that a state could not permit in-state wineries to sell and ship wine directly to consumers if the state precluded out-of-state wineries from enjoying the same right. In light of the ruling, many states revised their laws to allow direct-to-consumer sales and shipments from out-of-state wineries as well as in-state wineries. Retailers on the other hand, were more or less unaffected by the Granholm ruling and remain subject to various state prohibitions against out-of-state retailers shipping alcohol directly to in-state consumers.

In January, the Supreme Court heard oral argument on a new alcohol law case that will further delineate the states’ powers to regulate alcohol. Tennessee Wine and Spirits Retailers Association v. Blair, No. 18-96, (“Tennessee Retailers”) asks whether the 21st Amendment, which gives states broad discretion to govern alcohol, empowers Tennessee to regulate the sale of alcohol through strict residency requirements for alcohol retail license applicants. Or, whether the imposition of those residency requirements and the effect on out-of-state license applicants violates the Dormant Commerce Clause, which prohibits states from discriminating against interstate commerce. The Petitioner in Tennessee Retailers, Tennessee Wine and Spirits Retailers Association (“TWSRA”), contends that the 21st Amendment permits states to regulate the sale of alcohol within their own borders, so Tennessee may require alcohol retail license applicants to reside in the state for two years before a retail license may be granted. The Respondents, Total Wine and Doug and Mary Ketchum, claim that Tennessee’s residency requirements violate the Dormant Commerce Clause because they discriminate against non-residents. The case originated when the Tennessee Alcoholic Beverage Commission (“TABC “) asked a court to determine the legality of the subject restrictions. The district court and the Sixth Circuit held that Tennessee’s residency requirement is unconstitutional, as the law is facially discriminatory and there was no evidence that alternative non-discriminatory regulations could not achieve the same purpose of protecting the health and safety of Tennessee residents. TWSRA appealed the Sixth Circuit decision to the Supreme Court. The case is now fully-briefed, oral argument is over (the transcript from oral argument can be found here), and the parties await the Court’s opinion.

The Supreme Court has previously ruled that the Dormant Commerce Clause applies to prohibit states from discriminating against out-of-state alcohol products or producers, despite the 21st Amendment. The Tennessee Retailers case asks the Court to weigh the balance of the 21st Amendment and the Dormant Commerce Clause in the context of laws governing the issuance of in-state retail alcohol licenses. Advocates of retailer direct-to-consumer alcohol shipping hope that the Court will issue a broad ruling that holds that the Dormant Commerce Clause applies to limit states’ 21st Amendment powers to regulate alcohol retailers generally. The hope is that a broad ruling that applies the non-discrimination requirements of the Dormant Commerce Clause to alcohol retailers would require states to treat in-state and out-of-state retailers equally with respect to direct-to-consumer shipping privileges. However, even if the Court finds that the Dormant Commerce Clause limitsstates’ powers under the 21st Amendment with respect to the regulation of alcohol retailers, that would not automatically open up out-of-state retailer direct-to-consumer shipping. Under the Dormant Commerce Clause, a state is still permitted to enact discriminatory laws if the law advances a legitimate state purpose that cannot be adequately served by other reasonable nondiscriminatory alternatives. The Supreme Court has previously held that the three-tier system is “unquestionably legitimate,” and thus a state could still pass discriminatory laws that support the three-tier system, unless there are other reasonable nondiscriminatory alternatives.

We will have to wait to see whether the Court will rule broadly or narrowly. Regardless of how the Court rules, the case will have an impact on the regulation of alcohol by individual states. The Court could issue its opinion soon, and Strike & Techel will update the Alcohol.law Digest with further information when that happens.

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