If you work in the beverage-alcohol industry, you probably have heard someone at some point refer to the 2005 Granholm decision. In the Granholm case, to put simply, there were states that allowed in-state wineries to direct ship their wine to consumers in the same state, but prohibited out-of-state wineries from direct shipping to those consumers. Not surprisingly, the out-of-state wineries saw this as unfair, so they sued the states, arguing that the states’ laws prohibiting out-of-state wineries from direct shipments while allowing in-state wineries to directly ship to consumers violated the dormant Commerce Clause – and was merely a form of economic protectionism. The U.S. Supreme Court found that the states’ laws did violate the dormant Commerce Clause. From Granholm, we know that a state could not treat in-state suppliers different from out-of-state suppliers without being able to show a really good, justifiable reason for doing so, despite the powers granted to the states under the 21st Amendment. But the question remained as to whether the principles outlined in Granholm applied equally to retailers, particularly in light of the 21st Amendment.
This is where the case of Tennessee Wine and Spirits Retailers Association comes into play. The syllabus preceding the Court’s opinion provides a helpful and concise summary:
Tennessee law imposes durational-residency requirements on persons and companies wishing to operate retail liquor stores, requiring applicants for an initial license to have resided in the State for the prior two years; requiring an applicant for renewal of a license to reside in the State for 10 consecutive years; and providing that a corporation cannot obtain a license unless all of its stockholders are residents. Following the state attorney general’s opinion that the residency requirements discriminated against out-of-state economic interests in violation of the Commerce Clause, the Tennessee Alcoholic Beverage Commission (TABC) declined to enforce the requirements.
Two businesses that did not meet the residency requirements (both respondents here) applied for licenses to own and operate liquor stores in Tennessee. Petitioner Tennessee Wine and Spirits Retailers Association (Association)—a trade association of in-state liquor stores—threatened to sue the TABC if it granted the licenses, so the TABC’s executive director (also a respondent) filed a declaratory judgment action in state court to settle the question of the residency requirements’ constitutionality. The case was removed to Federal District Court, which found the requirements unconstitutional. The State declined to appeal, but the Association took the case to the Sixth Circuit. It affirmed, concluding that the provisions violated the Commerce Clause. The Association petitioned for certiorari only with respect to the Sixth Circuit’s decision to invalidate the 2-year residency requirement applicable to initial liquor store license applicants.
Held: Tennessee’s 2-year durational-residency requirement applicable to retail liquor store license applicants violates the Commerce Clause and is not saved by the Twenty-first Amendment.
Note: The case did not decide the legitimacy of an in-state presence requirement.
How does this decision impact the industry? Well, for starters, it answers the question left open by Granholm as to whether the dormant Commerce Clause principles applied to producers in that case extend to the wholesale retail tier – that answer is yes, at least to an extent.
Moreover, “‘mere speculation’ or ‘unsupported assertions’ are insufficient to sustain a law that would otherwise violate the Commerce Clause,” and the Court apparently requires “concrete evidence” to show that a measure promotes public health and safety. Lastly, the Court requires “evidence that nondiscriminatory alternatives would be insufficient to further [public health and safety] interests.”
But the questions remain open of what constitutes “concrete evidence” or what evidence is sufficient to show that nondiscriminatory alternatives were unavailable.