Despite being the 32nd largest private company in the U.S. according to Forbes Magazine and operating in almost a dozen states, Southern Wine and Spirits of America continues to have trouble entering the Missouri market.  Last week, the U.S. Court of Appeals for the Eighth Circuit denied Southern’s appeal challenging the constitutionality of Missouri’s alcohol beverage wholesaler residency requirement.  The opinion can be found here.  

Under Missouri law, only “resident corporation[s]” may hold an alcohol beverage wholesaler license.  Resident corporations must not only be incorporated under Missouri law, but all of its officers and directors must be “qualified legal voters and taxpaying citizens of the county … in which they reside” and have been “bona fide residents” of Missouri for at least three years. 

Southern filed suit in 2011, claiming that the residency requirement violated the Commerce Clause and Equal Protection Clause of the Fourteenth Amendment by discriminating against out of state wholesalers in favor of in-state wholesalers. 

Despite acknowledging that residency requirements are “impermissible under Commerce Clause jurisprudence,” the Eight Circuit upheld Missouri’s residency requirement for the wholesale tier of Missouri’s three-tier system. 

In reaching its conclusion, the court relied heavily on dicta from the Supreme Court’s opinion in Granholm v. Heald – the case that struck down discriminatory state laws that prohibited out-of-state wineries from exercising the same direct-to-consumer shipping privileges enjoyed by in-state wineries.  Specifically, the Eight Circuit relied on a passage in which the Supreme Court stated that it had previously recognized the three-tier system was “unquestionably legitimate” and that “State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.”

The Eight Circuit interpreted this language to mean that so long as the wholesaler residency requirement did not discriminate against out-of-state producers, it is immune to a constitutional challenge.  In other words, according to the Eight Circuit’s opinion, states are free to discriminate against out-of-state wholesalers or retailers under Granholm(a case that presented no questions regarding the wholesale or retail tier) so long as there is no discrimination against out of state products.

Southern was represented in its appeal by Neal Katyal, a noted constitutional scholar who has argued before the Supreme Court on multiple occasions, including in Hamdan v. Rumsfeld in which Katyal successfully argued that President George W. Bush did not have authority to establish military commissions to try detainees held at Guantanamo Bay.  According to this news report, Southern has not stated whether or not it will appeal the Circuit Court’s ruling.

For more information contact, John Trinidad ([email protected]).

Copyright Dickenson Peatman & Fogarty at www.lexvini.com