U.S. Supreme Court Strikes Down Tennessee Residency Law; Opens Door for National Wine Retailer Shipping Challenges

Seven of the justices delivered a strong defense of the Constitution's Commerce Clause in the face of discriminatory state alcohol regulations

U.S. Supreme Court Strikes Down Tennessee Residency Law; Opens Door for National Wine Retailer Shipping Challenges
The Supreme Court issued a broad ruling that may have significant ramifications. (Chip Somodevilla/Getty Images)
Jun 26, 2019

The U.S. Supreme Court affirmed, in a 7-2 ruling, a lower court's decision on Tennessee Wine and Spirits Retailers Association v. Russell F. Thomas (formerly v. Zackary Blair), striking down a durational-residency requirement for liquor retailers in Tennessee. The majority opinion, delivered June 26 by Justice Samuel Alito, issued a strong defense of the Constitution's Commerce Clause, claiming Tennessee's law exists only for economic protectionism and is therefore unconstitutional. The interpretation opens the door for future challenges to discriminatory state alcohol laws, notably pertaining to retailer direct shipping.


Here's what court watchers and scholars predicted about the case
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


The case originated in 2016, when Total Wine & More, the retail behemoth, and Affluere Investments, owned by Doug and Mary Ketchum, each applied for a retail liquor license in Tennessee. The Tennessee Wine and Spirits Retailers Association (TWSRA) went to the Tennessee Alcoholic Beverage Commission (TABC) to signal that neither applicant satisfied a two-year residency requirement to obtain a liquor license. (The law also states that licensees need to be a resident for 10 years to renew their license, which expires after just one year, and that 100 percent of the company's officers, directors and stockholders must meet these requirements—these two provisions were not defended by the petitioner or the state in this case.)

TWSRA, the petitioner, argued that the law is protected by section 2 of the 21st Amendment (which gives states wide latitude to structure their liquor laws) because it advances temperance and an orderly market. The majority opinion disagreed: "Because Tennessee's two-year residency requirement for retail license applicants blatantly favors the state's residents and has little relationship to public health and safety, it is unconstitutional," wrote Justice Alito.

Justice Neil Gorsuch delivered the dissenting opinion, joined by Justice Clarence Thomas, which argued that the Supreme Court "should not be in the business of imposing our own judge-made 'dormant Commerce Clause' limitations on state powers."

While the fate of Tennessee's durational-residency law is now at rest, the opinion raises new questions about other potentially unconstitutional state alcohol laws. This was the biggest case on wine since 2005's Granholm v. Heald, which prohibits state wine-shipping laws from discriminating between in-state and out-of-state wineries.

At the core of the petitioner's main arguments in Tennessee Retailers was a claim that Granholm applied only to producers and products. The majority opinion disagreed on this point as well: "The Association presses the argument, echoed by the dissent, that a different rule applies to state laws that regulate in-state alcohol distribution. There is no sound basis for this distinction," Alito wrote, adding, "And Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers. On the contrary, the Court stated that the Clause prohibits state discrimination against 'all out-of-state economic interests.'"

This is a crucial point for advocates of retailer direct shipping, who have been waiting for a case similar to Granholm that applies to retailers, not just producers. Opponents of retailer direct shipping have adopted the same line as the petitioner in this case, claiming Granholm only applied to producers. The Tennessee Retailers opinion denies this claim.

Additionally, the majority opinion addressed another concern of the petitioner's, that invalidating Tennessee's law would in turn nullify the three-tier system of distribution. A line quoted in Granholm's opinion that "the three-tier system is unquestionably legitimate" has often been cited as an argument against interstate commerce for alcohol. The justices in the majority did not agree. "This argument, which the dissent also advances, reads far too much into Granholm's discussion of the three-tiered model," it says, adding that section 2 of the 21st Amendment does not allow "every discriminatory feature that a state may incorporate into its three-tiered scheme."

More questions, among them the constitutionality of bans on out-of-state retailer direct shipping, may arise from this broad opinion. Justice Gorsuch wondered during oral arguments what the next case would be after this, asking if a challenge to residency requirements could lead to an "Amazon of liquor" business model whereby a retailer might not even need to be physically present within a state. In his dissent, he addressed this again: "If residency requirements are problematic, what about simple physical presence laws? After all, can't states 'thoroughly investigate applicants' for liquor licenses without requiring them to have a brick-and-mortar store in the state?"

This is a question future cases may tackle, in which the nature of alcohol itself, not as a commodity but as an intoxicant, could come under scrutiny. "How much public health and safety benefit must there be to overcome the Court's worries about protectionism 'predominating'?" Gorsuch asked in his dissent, "… the free-trade rules this Court has devised for 'cabbages and candlesticks' should not be applied to alcohol."

With seven justices in disagreement, Gorsuch's dissent may be little comfort to state lawmakers intent on protecting constituent retailers from out-of-state competition.

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