Setting a major precedent against “state protectionism,” the U.S. Supreme Court on Wednesday ruled 7 to 2 that Tennessee’s residency requirements for liquor store owners violated the Constitution’s “dormant” Commerce Clause. Writing for the majority in Tennessee Wine and Spirits Retailers Association v. Thomas, Justice Samuel Alito held that Tennessee’s law “blatantly favors the state’s residents and has little relationship to public health and safety.”
In Tennessee, only residents who had lived in the state for at least two years could obtain a retail liquor license. Renewals were even stricter, with Tennessee mandating 10 years of residency to renew a liquor license. (By contrast, running for Governor of Tennessee merely requires living in the state for seven years.) And another provision banned corporations from becoming licensed liquor retailers unless all of their stockholders, owners, and directors lived in Tennessee.
With this decision, the court sets a landmark ruling that clarifies the scope of the Twenty-first Amendment. While the Amendment’s first section famously repealed Prohibition in 1933, its second section gave states broad powers to regulate alcohol: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”
Ever since, regulators and bottleneckers alike have cited the Twenty-first Amendment to defend alcohol-related laws, no matter how self-serving or ridiculous. But with Tennessee Wine, the Supreme Court declared “where the predominant effect of a law is protectionism, not the protection of public health or safety, it is not shielded by” the Twenty-first Amendment.
Mary and Doug Ketchum are joined by their daughter, Stacie, inside of their Memphis liquor store, ... [+]
The court’s decision could have wide ramifications throughout the alcohol industry. Similar residency requirements for retail liquor licenses are on the books in about a dozen other states, ranging from 30 days in South Carolina to five years in Indiana and Oklahoma; presumably, these would be some of the first to go in light of Tennessee Wine.
In his dissent, Justice Neil Gorsuch asked, “if residency requirements are problematic, what about simple physical presence laws?” Laws that require applicants to “have a brick-and-mortar store in the state” could soon be uncorked. This would set a precedent for the “Amazon of liquor,” as Gorsuch phrased it at oral argument in January. And with the Twenty-first Amendment emphatically limited, Gorsuch further wondered, “How much public health and safety benefit must there be to overcome this Court’s worries about protectionism ‘predominat[ing]’?” After all, many state alcohol regulations mainly protect established businesses, not the public.
In fact, the National Association of Wine Retailers (which filed its own amicus in the case) predicted that the 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” as states “come into compliance with the non-discrimination and anti-protectionist principles laid out” in Tennessee Wine.
“Today’s ruling makes plain that all Americans have a right to earn an honest living and that government cannot deny someone that right simply because of where they live or used to live. No state may discriminate against out-of-staters or newcomers to protect established, in-state interests from competition,” said Michael Bindas, a senior attorney at the Institute for Justice, which litigated the case on behalf of Doug and Mary Ketchum, two of the respondents in the case.
The Ketchums own Kimbrough Wines & Spirits in Memphis, a historic liquor store that provides them with both the income and flexibility they need to care for their daughter Stacie, a quadriplegic with cerebral palsy. Before they moved to Memphis in 2016, the Ketchums lived in Utah, but a temperature inversion there triggered one of Stacie’s lungs to collapse. Tennessee offered the family a better climate—both literally and economically.
Doug and Mary Ketchum are joined by their daughter, Stacie, outside of their Memphis liquor store, ... [+]
But the state’s residency requirement would have prevented Doug and Mary from running their small business. Joining them in their fight against economic protectionism was Total Wine, the nation’s largest independent wine retailer with almost 200 outlets in 23 states, which was looking to enter the Tennessee market around the same time the Ketchums became liquor store owners.
To defend their regulatory bottleneck, the Tennessee Wine and Spirits Retailers Association, a trade group representing more than 500 liquor store owners, threatened to sue the state if it granted the licenses to the Ketchums and Total Wine. A court battle ensued with the Association losing in both the federal district court and at the Sixth Circuit Court of Appeals. That shouldn’t have been too surprising for the bottleneckers: The Tennessee Attorney General twice concluded that the state’s residency requirements were unconstitutional under the Commerce Clause.
The Supreme Court agreed. “The predominant effect of the 2-year residency requirement is simply to protect the Association’s members from out-of-state competition,” Alito wrote. As for the other residency requirements, they were “so plainly based on unalloyed protectionism that neither the Association nor the State is willing to come to their defense,” he added.
(Unusually, the State of Tennessee didn’t even file a brief to support its own law. Instead, the Volunteer State let the Association and the Illinois Solicitor General defend Tennessee’s residency requirements before the Supreme Court at oral argument in January.)
Though not explicitly in the Constitution, the dormant Commerce Clause theory has been firmly established in American law since the latter part of the 19th Century, with the Supreme Court regularly striking down state laws that imposed barriers to interstate trade.
Since “removing state trade barriers was a principal reason for the adoption of the Constitution,” while “fostering free trade among the states was prominently cited as a reason for ratification,” Alito argued that “without the dormant Commerce Clause, we would be left with a constitutional scheme that those who framed and ratified the Constitution would surely find surprising.”
Associate Justice Samuel Alito Jr., nominated by President George W. Bush, sits with fellow Supreme ... [+]
But the Association argued that the Twenty-first Amendment effectively created an alcohol exception to the dormant Commerce Clause, and shields in-state restrictions from scrutiny. Echoing this argument in his dissent, Justice Gorsuch, joined by Justice Clarence Thomas, asserted that “in this area, at least, we should not be in the business of imposing our own judge-made ‘dormant Commerce Clause’ limitations on state powers.”
In his opinion, Alito methodically rebutted their argument, concluding the Twenty-first Amendment “does not confer limitless authority to regulate the alcohol trade.” Interpreting the Twenty-first Amendment as banning “the transportation or importation of alcoholic beverages in violation of any state law would lead to absurd results” that would “trump” any other “constitutional provision predating ratification of the Twenty-first Amendment in 1933.”
Yet the Supreme Court has previously ruled that the Twenty-first Amendment must comply with the First Amendment’s Free Speech Clause and Establishment Clause as well as the Fourteenth Amendment’s Due Process Clause and Equal Protection Clause; so too for the Commerce Clause.
Dismissing Gorsuch’s dissent as “empty rhetoric,” Alito further countered that without some limitations imposed by the Commerce Clause, the Twenty-first Amendment would “give the states carte blanche to engage in protectionism.” In fact, prior to Prohibition, the Supreme Court regularly ruled that “the Commerce Clause by its own force restricts state regulation of interstate commerce,” preventing states from imposing “protectionist measures clothed as police-power regulations.” “Nor have states historically enjoyed absolute authority to police alcohol within their borders,” Alito wrote.
Instead, “the Court’s police-power precedents required an examination of the actual purpose and effect of a challenged law.” So while the Twenty-first Amendment does give “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,” remarked Alito, “it does not license the states to adopt protectionist measures with no demonstrable connection to those interests.”
United States Supreme Court Building in Washington, DC
In an attempt to salvage the law on policy grounds, the Association claimed that Tennessee’s residency requirement did in fact serve other interests (besides their own). The Association argued Tennessee’s law lets the state screen applicants against “undesirable nonresidents,” as well as promote temperance, since in-state residents would supposedly be more familiar with their local community, which in turn would prevent alcohol abuse.
But Alito dismissed their argument as “implausible on its face.” “The record is devoid of any ‘concrete evidence’” that the requirement “actually promotes public health or safety,” or that “nondiscriminatory alternatives would be insufficient to further those interests.” Tennessee regulators can investigate applicants for any red flags without forcing them to live in the state, while state law already requires background checks. Moreover, the residency requirement only applies to license holders, not to liquor store cashiers or bar owners.
And the law requires living in the state, as opposed to a specific community. “The Association cannot explain why a proprietor who lives in Bristol, Virginia, will be less knowledgeable about the needs of his neighbors right across the border in Bristol, Tennessee, than someone who lives 500 miles away in Memphis,” Alito deadpanned. Simply put, Tennessee’s residency requirement is “very poorly designed” and “ill suited” to accomplish any of the state’s purported policy goals.
“This has been three years of nail-biting, waiting for this final opinion,” Doug Ketchum said. “This decision now means no more looking over our shoulder and worrying if they’re going to take away our license. Now we can get on with growing our business and earning the resources we need to care for our daughter over the long haul and provide for our retirement someday.”
