Will the U.S. Supreme Court Upend Wine Laws Across the Nation?

The justices will soon hear arguments for and against a Tennessee law restricting wine shops. Here's everything you need to know about the biggest court case on wine in 14 years
Will the U.S. Supreme Court Upend Wine Laws Across the Nation?
The Supreme Court will hear arguments on whether Tennessee's law is constitutional. (istockphotos)
Jan 11, 2019

In 2016, Doug and Mary Ketchum decided to leave Salt Lake City for Tennessee and buy a wine store. Their daughter, Stacie, has cerebral palsy and, after she contracted pneumonia and had a lung collapse, her doctor urged the family to move to a different climate. After weighing available options, the Ketchums found a store, Kimbrough Fine Wine and Spirits in Memphis. Their daughter would be in a healthier environment, and being owners of a store would allow them the flexibility to care for her.

"I really never was much of a drinker, but Mary loves wine," said Doug. "I thought this could be a really fun thing, because it's something she's really passionate about." They had never been business owners, but they'd figure it out, he said.

But when the Ketchums applied for a liquor license, the Tennessee Wine & Spirits Retailers Association (TWSRA) pointed out to the Tennessee Alcoholic Beverage Commission (TABC) that the Ketchums did not satisfy a state law requiring applicants to live in the state for at least two years before obtaining a license. The TABC was also considering an application from the retail chain Total Wine & More to open a Tennessee store. The TWSRA threatened to sue the state if it approved the licenses.

The TABC executive director at the time, Clayton Byrd, was unsure whether the residency law was actually constitutional, and referred it to the courts. (Byrd has since been replaced by Zackary Blair.) Both a federal district judge and the Sixth Circuit Court of Appeals concluded that the law was unconstitutional.

The TWSRA petitioned the Supreme Court to hear the case. On Jan. 16, the justices will do just that, as the parties present oral arguments.

Tennessee Wine & Spirits Retailers Association v. Zackary Blair et al has the potential to change the way American consumers buy wine. At the heart of it is a Tennessee law that requires liquor retailers to be residents of the state for a certain amount of time before getting and renewing a license. Is the law protected by the 21st Amendment, which has given states control over alcohol laws since Prohibition was repealed? Or does the law violate the Constitution's Commerce Clause, which prevents states from erecting business barriers with other states?

And Tennessee isn't the only state facing potential change. A broad ruling by the court could challenge other barriers to interstate wine commerce, including bans on direct-to-consumer wine shipping by retailers.

On one side, the TWSRA (the petitioner) will try to convince the justices to overturn the lower courts' decision. On the other, Total Wine and the Ketchums (the respondents) will ask them to sustain it. And then there are more than 20 other groups, including the governments of 35 states and a coalition of wine consumers, who have filed amicus briefs, arguments by interested parties, all arguing on various aspects of the case. Here's your guide to the fight.

How strong is the 21st Amendment?

Many Americans, especially those who enjoy the occasional drink, know that the 21st Amendment repealed Prohibition, ending the nationwide ban on alcohol sales. But that's Section 1 of the Amendment. Section 2 gives states broad authority to regulate alcohol within their borders. The idea was that individual states might still want strong restrictions, or even outright bans, on alcohol.

This principle is still in place today. The Supreme Court has ruled on multiple occasions that state restrictions on alcohol sales are constitutional as long as they maintain the goals of the 21st Amendment: promoting temperance among citizens or maintaining an orderly alcohol market.

The TWSRA's brief to the court argues that when Americans ratified the 21st Amendment, "they rejected Prohibition—but not the temperance goals that motivated it." Alcohol is still a product with the potential for abuse and shouldn't be regulated like other commercial goods, they say. (The TWSRA did not respond to requests for comment.)

An amicus brief submitted by six different associations representing local governments, including the National Conference of State Legislatures, the National Association of Counties and the National League of Cities, cite figures from the Center for Disease Control and Prevention regarding the cost of alcohol abuse (including health-care expenses and vehicle crashes): In 2010, the problem cost $249 billion in the U.S., from $488 million in North Dakota to $35 billion in California. Their point is that local communities are impacted first by alcohol abuse, so local solutions are the best way to regulate its sale.

Karen Pulfer Focht/Institute for Justice
Doug and Mary Ketchum, with their daughter Stacie, moved to Memphis and bought a wine store, not knowing it would create a constitutional clash.

Tennessee's residency rule: legitimate law or economic protectionism?

But the courts have ruled that states do not have unlimited power over alcohol sales. In 2005, the Supreme Court's Granholm v. Heald decision struck down bans on out-of-state winery shipping in New York and Michigan, claiming they violated the Commerce Clause as the states allowed in-state wineries to ship directly to consumers. The majority ruled that the 21st Amendment did not allow the states to discriminate against out-of-state wineries. Since then, 43 states have allowed some form of winery-direct shipping to their residents, opening up more wine options to consumers.

The Sixth Circuit Court cited Granholm as one of the reasons it found Tennessee's residency law unconstitutional: It discriminates against out-of-state retailers who want to do business in the state, while allowing in-state retailers to do so without a waiting period.

When the state of Tennessee legalized the sale of alcohol in 1939, it created a three-tier system and imposed residency requirements for retail liquor licensees. A licensee must have been a resident of the state for two years before obtaining an initial license. And while that license expires after one year, the licensee must be a resident for 10 years in order to renew. Additionally, 100 percent of the retail company's officers, directors and stockholders must meet these requirements.

Does this requirement maintain an orderly market in Tennessee and promote temperance, or is it economic protectionism against out-of-state interests, therefore violating the Commerce Clause?

One of the main arguments in favor of the residency law is that it requires the licensee be acquainted with the community they will be selling alcohol in, making them more attuned to its needs and accountable to its welfare. "The longtime resident who attends football games on Fridays is less likely to be duped by the drum major's fake ID on Saturdays," says a brief by the Wine and Spirits Wholesalers of Tennessee (WSWT). "She is also less likely to do business with the town drunk if she knows he will drive around on the same streets that her family and friends use."

"Duration requirements also allow the state to better evaluate the applicant's qualifications and history," states the amicus brief of the Wine and Spirits Wholesalers of America (WSWA), a strong opponent of direct shipping.

But supporters of the respondents don't buy this argument, since the licensee doesn't need to reside in the community itself, but rather in the state. "The notion that someone living in Memphis is more in touch with Knoxville than someone living in Asheville, N.C., which is 250 miles closer, is silly," states the Total Wine brief. (Total Wine executives declined to comment for this article.)

The respondents also argue that rules can be put in place to promote temperance that are not discriminatory. Total's brief points out that Tennessee laws require liquor license applicants to go through a criminal background check and demonstrate that they have adequate moral character and business experience. Why add a durational residency requirement on top of that? "The only conceivable purpose of these requirements is to exclude nonresident owners from Tennessee's market for off-premises sales of alcohol and thereby protect in-state retailers from competition," their brief states.

The brief for Affluere Investments (Doug and Mary Ketchum's business) cites not just the Commerce Clause, but also the Privileges or Immunities Clause of the 14th Amendment. That clause gives a newly arrived resident of a state the same rights as a citizen of that state, and was enshrined in the Constitution during Reconstruction. "The original public understanding of the clause was that it would protect the ability of the newly-freed slaves—and all Americans—to travel pursuing their own free labor," states the brief.

In their lawyers' opinion, the Ketchums were not granted the same rights as long-term Tennessee residents when they arrived in the state. With its residency requirement, Tennessee is regulating not just the sale of alcohol products in the state but also "who can and cannot engage in economic activities."

Courtesy Total Wine & More
Total Wine opened its Knoxville store after the law was struck down. The chain owns stores in 23 states.

What does Granholm really mean?

Since the Granholm decision, two questions remain in dispute: Was the case about products or business interests? And did it apply only to producers or to retailers also?

In its amicus brief, the Open Markets Institute, a think tank that opposes monopolies, urges the court to overrule Granholm in order to "reestablish the states' full constitutional authority to structure markets in alcohol to advance public ends."

Other supporters of the petitioner believe Tennessee's law should stand regardless of Granholm."The court doesn't need to overturn Granholm to reach a decision here," said Spencer Nevins of the Michigan Beer and Wine Wholesalers Association, which filed an amicus brief because of its involvement in other cases challenging Michigan laws. "Granholm made a very narrow exception to the 21st Amendment in that you cannot discriminate against out-of-state products or producers." Supporters of Tennessee's law claim that Granholm applies to products, not retailers or other business entities.

But Total Wine argues that products cannot be separated from the people and businesses that produce and sell them. The National Association of Wine Retailers (NAWR), which supports retailer direct shipping, opines that nothing in Granholm says that retailers cannot enjoy the protections against discrimination that wineries now do. "If wineries [selling by direct shipping] are doing anything, it's retailing," said Tom Wark, executive director of NAWR.

The states and wholesalers repeatedly cite the majority ruling in Granholm's statement that the three-tier system is "unquestionably legitimate" (a quote from the 1990 North Dakota v. United States case). But while no party in this case believes the three-tier system should be done away with, Affluere Investments' brief argues, "Granholm's observation that the court had previously recognized the constitutional legitimacy of the three-tier system says nothing about whether every aspect of a state's implementation of that system will pass constitutional muster."

We the wine drinkers

Some opponents of Tennessee's law hope that if the Supreme Court strikes it down, it could also endanger other states' bans on out-of-state retailer direct shipping, which are currently being challenged in Illinois, Michigan and other states.

If the Supreme Court does issue a broad ruling on regulating retailers, the case could have a major impact on alcohol consumers nationwide. Lawyer Robert Epstein, who represented a plaintiff in the Granholm case, co-wrote an amicus brief called "81 Wine Consumers" with the aim of showing the court how its decision could impact them. "We wanted them to see that we as consumers have a stake in this as well," Epstein told Wine Spectator.

The NAWR and Epstein argue that laws like Tennessee's not only hinder retailers' ability to access markets, they also negatively affect consumer choice. "Wine availability is not a question of quantity—it is a matter of variety and selection," states the 81 Wine Consumers brief. "Wines are not interchangeable."

The consumers who attached their names to this brief (who all contributed to a GoFundMe campaign to finance it), live in 25 different states and are frustrated that they cannot buy the wines they want locally and are prohibited from buying them from out-of-state retailers. In many regional markets in the U.S., access to small-production wines or older vintages, for example, is very limited to nonexistent.

"The Internet has fulfilled the Founders' vision of a national economic union," declares the 81 Wine Consumers brief. But alcohol sales have not enjoyed such freedom across state lines because of its nature as an intoxicant and a desire for temperance and an orderly market. Whether or not this is a necessary or an outdated mode of thinking will be up to the highest court to decide. The justices will hear the arguments in Tennessee Retailers v. Blair on Jan. 16. A ruling is expected in the spring.

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