Supreme Court Decision is a Victory for Alcohol Beverage Retailers
Alcohol beverage retailers won a significant victory before the U.S. Supreme Court this morning. The Court held in Tennessee Wine & Spirits Retailers Association v. Thomas that Tennessee’s two-year durational-residency requirement applicable to retail liquor store license applicants violates the Commerce Clause and is not saved by the Twenty-First Amendment. In doing so, the Court stated that the 2005 decision in Granholm vs. Heald, which prohibited discrimination against out of state alcohol beverage producers, applied with equal force to discrimination against retailers, settling a long dispute in the courts on the applicability of Granholm to retailers. The end result is that states must now defend any discriminatory or protectionist alcohol beverage laws without the luxury of relying on the Twenty-First Amendment, giving retailers wishing to ship across state lines a leg-up in future legal challenges. Today’s decision, however, does not mean that retailers can begin shipping across state boundaries legally. Additional court challenges or legislative changes are needed to fully open the door to retailer direct-to-consumer shipping.
The question of alcohol beverage retailer direct-to-consumer shipping was not directly at issue in the case. Instead, the case centered on the constitutionality of Tennessee’s residency requirements on state licensed alcohol beverage retailers. Petitioner, a Tennessee retail trade association, argued that the residency requirement must be upheld because the 21st Amendment grants states broad authority to regulate alcohol within their borders. The Court rejected that argument and concluded that:
“[Section 2 of the 21st Amendment] allows each State leeway to enact the measures that its citizens believe are appropriate to address the public health and safety effects of alcohol use and to serve other legitimate interests, but it does not license the States to adopt protectionist measures with no demonstrable connection to those interests.”
Leading up to today’s decision, many hoped the Court would issue a ruling that would not only address the residency requirement question, but also adopt a reading of the 21st Amendment that would open the door to retailer direct-to-consumer shipping. Given the Court’s reading and application of Granholm, they may have gotten their wish. States that allow in-state retailers to ship to consumers but prohibit out-of-state retailers from doing so will find such laws difficult to defend in the face of today’s decision. To avoid legal challenges, states may choose to adopt statutes that allow all retailers, regardless of where they are located, the right to ship directly to consumers, or prohibit retailers from doing so altogether.
Attention will now shift to other cases directly challenging laws that prohibit out-of-state retailers from shipping to in-state consumers, such as the appeal in Lebamoff Enterprises v. Snyder before the Sixth Circuit Court of Appeals. The federal district court in that case ruled that, under the precedent set in Granholm, a Michigan state law that permits in-state wine retailers to ship direct to consumers must also grant the same privilege to out-of-state retailers. Case No. 17-10191, (E.D. Mich. Sept. 28, 2018). The appeals court stayed the appeal pending the outcome of the Tennessee Wine & Spirits Retailers case. Retailers now will have significant support for their argument that such state laws are nothing more than protectionist measures that discriminate against out-of-state retailers. States, on the other hand, will need to defend those laws as necessary in order to protect the health and welfare of their citizens. However, given that today’s ruling strips states of any defense under the Twenty-First Amendment for any discriminatory or protectionist laws, retailers have gained a clear upper hand in the legal challenges to come.
The Court’s decision is available through the following link: https://www.supremecourt.gov/opinions/18pdf/18-96_5i36.pdf .