U.S. Supreme Court Hears Challenge to Wine Law

The justices listened to arguments in Tennessee Retailers v. Blair, a case that has the potential to upend wine laws nationwide
U.S. Supreme Court Hears Challenge to Wine Law
The justices of the Supreme Court will decide how far states can go in regulating wine retailers. (Chip Somodevilla/Getty Images)
Jan 16, 2019

WASHINGTON, D.C.—Shay Dvoretzky, a lawyer for the Tennessee Wine & Spirits Retailers Association (TWSRA), was mere seconds into an argument when Supreme Court Justice Sonia Sotomayor interjected. She had a fundamental question about the case before the court: Does the TWSRA believe that the 21st Amendment to the Constitution allows discrimination against out-of-state interests? And if so, does that mean the court was wrong when it decided Granholm v. Heald, the case that opened the door to winery direct shipping in more than three dozen states today, as well as other cases before it?

"I know you want to limit [Granholm's impact] to producers," she said. "But that's not the way that Granholm talked about this issue."

Wine was on the docket at the highest court in the land today, as eight Supreme Court justices heard oral arguments in Tennessee Wine & Spirits Retailers Association v. Zackary Blair, the most important wine case to go before the high court in 14 years. (Justice Ruth Bader Ginsburg was absent, recovering from cancer surgery at home, but she will read argument transcripts and plans to participate in the decision.) At the heart of the case is a Tennessee law that mandates liquor retailers reside in the state for several years. But some hope the court will rule broadly, striking down restrictions on how consumers buy wine in multiple states.

For a comprehensive analysis of the case's origin and the arguments involved, read our companion article.

The crux of the case is the Tennessee law under challenge. It 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, 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.

But several justices raised the larger question: How powerful is the 21st Amendment? It gives states the power to pass laws to regulate alcohol sales, but how far can they go before running afoul of the Commerce Clause, which forbids states from erecting barriers to out-of-state economic interests?

The petitioner, the TWSRA, had 20 minutes to argue its position; 10 minutes were accorded to the state of Illinois, which filed an amicus brief in support of the petitioner, along with other states. The respondents, Total Wine & More and Affluere Investments, Doug and Mary Ketchum's company, were given 30 minutes. Both are retailers who had sought Tennessee licenses.

Dvoretzky argued for the TWSRA that Granholm was decided through a historical lens: What were the states' powers before Prohibition? States were free to structure their liquor distribution systems free from Commerce Clause scrutiny, as long as in-state and out-of-state alcohol were treated the same. Those protections, he said, were enshrined in the 21st Amendment upon the repeal of Prohibition. Justice Brett Kavanaugh, on that point, argued that because the amendment dealt with the "transportation and importation" of liquor, it could be read as simply allowing states to remain dry, as opposed to allowing them to discriminate.

But how does a durational residency requirement fit into this? Justice Sotomayor expressed that she wasn't sure why a person's previous residence needs to come into question. Isn't simple residency enough? Many states have regulated, three-tier systems that don't have a law like Tennessee's, and they function well, she said. Dvoretzky argued that this was up to the states to decide, not the courts. Requiring an applicant to be a resident for longer gives the state more time to do a thorough background check before granting a license.

Institute for Justice
Doug and Mary Ketchum and their daughter Stacie on the Supreme Court steps. When they moved to Memphis and bought a wine store, they didn’t know it would create a constitutional clash.

The durational aspect of Tennessee's requirement was largely debated: How long is too long? Justice Elena Kagan stated that Tennessee is on one end of the spectrum; surely there is a threshold where a law is so extreme it stops being about public health and safety and crosses over into economic protectionism. If there isn't, then "the sky is the limit," she said.

David Franklin, the Solicitor General of Illinois, argued that respondents Total Wine and Affluere were claiming that no discrimination of any kind was allowed under the 21st Amendment. But that would leave "no meaningful role" for the amendment, he said, as well as invalidate the three-tier system, which in its essence disadvantages out-of-state business interests. "In the end, respondents are asking this court to treat alcohol like any other article of commerce. But it's not," said Franklin.

"We are not challenging the three-tier system. All we are seeking is the opportunity to compete in this market," said attorney Carter Phillips, arguing on behalf of the respondents. The fact that the product in question is alcohol explains all the other liquor regulations Tennessee passed at the same time in order to protect public safety, but it does not explain the durational residency requirement, he said.

Justice Neil Gorsuch was interested in the wider implications of a decision. The next lawsuit, he wondered, could be that the three-tier system is discriminatory because it requires some sort of physical presence in a state. "Why isn't this just the camel's nose under the tent?" he asked, adding that an "Amazon of liquor" business model could emerge as a result of such a challenge. Phillips cautioned that this was not what he was arguing. His client, Total Wine, has a brick-and-mortar business model and is not looking to undo the three-tier system.

But this argument piqued the interest of Justice Kagan. "I'm trying to figure out what kind of opinion we could write, Mr. Phillips, that says you win, but then, when the next case comes along and the next case is somebody that says we don't like this brick-and-mortar stuff, we don't want to have any physical presence at all, and the state is preventing that, and in doing so, the state is discriminating against out-of-state companies," she said.

Those issues, if they come up, can be argued another day, said Phillips. But both Kagan and Gorsuch seemed not to want to dissociate potential future challenges to the one before them at this time. Dvoretzky, in his reply at the end of oral arguments, latched onto this sentiment, saying there "would be challenges to dozens of state laws" if the court struck down Tennessee's law.

That debate now moves behind closed doors. The Supreme Court is expected to release its decision in the spring.

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