How Far Will the Supreme Court Go in Tennessee Wine Retailer Case?

Scholars and court watchers believe Tennessee's strict rules on wine store licenses are in trouble, but are less sure about broader bans on wine shipping
How Far Will the Supreme Court Go in Tennessee Wine Retailer Case?
The Supreme Court justices will need to decide how much power states have over alcohol sales. (istockphotos)
Feb 6, 2019

Supreme Court rulings are difficult to predict, especially when the justices are considering arguments that don't fall neatly into conservative or liberal ideologies. That is the case with Tennessee Wine and Spirits Retailers Association v. Zackary Blair, which asks whether a Tennessee durational residency requirement for wine and spirits retailers is constitutional. The justices heard oral arguments Jan. 16 and are expected to reach a decision by summer.

The Tennessee law under challenge mandates a two-year residency to obtain an initial liquor retail license, and a 10-year residency for a renewal (even though the license expires after one year). Additionally, 100 percent of owners, directors and officers have to satisfy these criteria. Two lower courts ruled that this violates the Commerce Clause of the Constitution by discriminating against out-of-state businesses—and they cited Granholm v. Heald, the 2005 case that struck down bans on direct shipping by out-of-state wineries in states that allowed shipping by in-state wineries, as a precedent.

We asked leading constitutional scholars and court watchers what they expect the court to do, based on the case and oral arguments. Will Tennessee's law survive? And will the highest court in the land rule broadly and strike down other restrictions on wine sales?

Read our report on the Jan. 16 oral arguments
Learn more about the case with our comprehensive background report
Find out your state's wine-shipping laws

Will Tennessee's law be upheld?

Scholars and lawyers who have been watching the case agree on one thing: Most justices did not seem sympathetic to Tennessee's durational residency requirement. The attorney defending the law, Shay Dvoretsky, who represented the petitioner, Tennessee Wine & Spirits Retailers Association (TWSRA), was peppered with questions that conveyed skepticism for the utility and constitutionality of Tennessee's law.

From the oral arguments, court scholars believe there's a strong chance justices will strike down the 10-year requirement for renewing a liquor license, and may eliminate the two-year initial waiting period too. "Best-case scenario [for the TWSRA: the justices] could sever that statute and cut out the 10-year and potentially leave the two," said Alva Mather, partner at DLA Piper. The lone dissenting judge in the Sixth District Court of Appeals decision in the case argued for that option.

The TWSRA made the argument that the 21st Amendment, which gives states broad authority to structure their liquor laws, always trumps the Commerce Clause, which prohibits discrimination against out-of-state business interests. In other words, it doesn't matter if it discriminates, because it's alcohol. That argument didn't appear to succeed.

"The justices were very focused on the concern that, if they subscribed to the argument that was being offered, that would allow complete rampant economic protectionism," said Mather.

Marc Sorini, partner at McDermott Will & Emery, agreed, saying that "all of [the justices] seem to reject the idea that something that was blatantly protectionist would be upheld."

However, Sorini adds that the justices were more receptive to the notion that public health and safety concerns should be taken into consideration when evaluating liquor laws that mandate residency. Jerry Ellig, an economist and research professor at George Washington University, agrees. "They would need to do what the states failed to do in Granholm, which is provide some evidence that there's actually a legitimate state reason for this requirement," he said. Whether the petitioner convinced the justices that the state's law serves a legitimate public health and safety concern is up for debate.

The struggle between public health and commerce frames the main tension of this case: How have the 21st Amendment and the Commerce Clause interacted historically, and how should they in the future? The petitioner tried to make a historical appeal, arguing that states should have the same powers to regulate their liquor laws as they did before Prohibition, and that restoring those powers was the goal of section 2 of the 21st Amendment.

A few justices, notably Justices Sonia Sotomayor and Stephen Breyer, were not sympathetic to the historical argument, saying that back then, racial and gender discrimination were also considered valid. Justice Brett Kavanaugh said he viewed the amendment as aiming to protect states that wished to remain dry after Prohibition. "But it didn't empower them to then come up with protectionist laws within the state," said Ellig, recounting Kavanaugh's argument.

If the past is behind us, then the future should frame how we can "treat alcohol as a different commodity but also as a commodity," said Mather. There has to be a middle ground, she said, because she doesn't think that the justices will see one statute—the 21st Amendment or the Commerce Clause—as trumping the other completely. Figuring out what that middle ground should be is what they are tasked with in this case.

Looking at the bigger picture

"[The justices had] a fairly expansive series of questions that went beyond durational residency requirements [like Tennessee's] and onto physical presence requirements that are currently there under the three-tier system," said Tracy Genesen, general counsel for the Wine Institute, a winery trade group. She believes that, while this was not the argument of the respondents, who were merely challenging Tennessee's residency law, the justices could weigh in on laws requiring wine and liquor retail stores to have a physical presence in a state, and whether or not that requirement is also protectionist and should be subject to the Commerce Clause.

But not all agree the justices will go there. "I doubt the opinion [will] say anything about physical presence," said William Cheek III, partner at Waller Lansden Dortch & Davis, who thinks the court will make a narrow ruling. "I strongly doubt that they have some sort of sweeping opinion." He did observe certain justices thinking about the concept during the oral arguments, however. His take was that, while they don't think durational residency requirements pass muster, physical presence of a liquor store makes sense to them.

Whether or not the justices will make a broader ruling on brick-and-mortar stores, it's very plausible that the notion will shape how they decide this case and write a majority opinion. "A lot of the justices who spoke up seemed to be trying to figure out how to rule against the Tennessee law without at the same time saying that the three-tier system requiring in-state wholesalers is discriminatory," said Ellig.

Sorini thinks the justices are concerned that too broad a ruling will affect potential future cases that will go after physical presence requirements, noting that Justice Neil Gorsuch posited that opening this case up will allow an "Amazon of liquor" business model. "He totally recognizes that that's the next issue, and I think they don't want to decide that here," said Sorini.

"I think they're assuming this is where life in the 21st century is going," said Genesen, who thinks Gorsuch wasn't necessarily viewing this idea negatively, but was just "testing out the waters."

The opening up of interstate retailer shipping is what some parties are advocating for in this case, notably the National Association of Wine Retailers, who filed an amicus brief. But it seems like they would need a very broad ruling from the justices to get to that, and most legal analysts are unsure the court will do this. However, the decision in Tennessee Retailers v. Blair is still crucial to their cause.

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"If they lose the big-win argument of the states"—if the court says laws regulating alcohol retailers are immune from Commerce Clause scrutiny—"there is no second case, they're done," said Sorini. But if the court narrowly strikes down Tennessee's law, that leaves the door open to continue fighting in other relevant cases. "I think the ruling they're going to get is going to say: 'You live for another day,'" Sorini added.

What are some likely outcomes?

Let's start with the curveball outcome: The court throws the case out on a technicality. "Is the retailers' association the appropriate party to be bringing this case, and can they bring it if the state of Tennessee doesn't even appear?" asked Cheek, referring to the fact that the petitioner defending Tennessee's law is the association, and not the state itself. Several court watchers say this outcome is possible, but they concede it's not the most probable at this point.

The consensus seems to be that the justices will rule against Tennessee's durational residency law—some experts think they will do so overwhelmingly. But it gets trickier from there: Beyond the decision itself is what kind of opinion a majority of justices can get behind.

"One of the challenges may be that while all the justices seem to want to go in the same direction, you have these seemingly different approaches emerging from the discussions coming from the bench," said Sorini. He explains that there needs to be some kind of standard for whether or not a state liquor law is discriminatory for a legitimate reason. If no majority of justices agrees on one standard, this gives no guidance to the lower courts for similar cases that may be presented to them in the future, including some they are considering now.

"It's going to raise more questions than it answers," said Cheek. For example, if the state's durational residency requirement for retailers is unconstitutional, is a similar requirement for wholesalers also unconstitutional? What about other states' residency requirements, or all other state liquor laws nationwide that may infringe on interstate commerce? The Supreme Court may decide to address this in their opinion. Or, they could strike down the specific law that's in front of them today, and leave all these questions for another day.

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