Clayton Byrd v. Tenn. Wine & Spirits Retailers Ass'n
Opinion of the Court
MOORE, J., delivered the opinion of the court in which DAUGHTREY, J., joined, and SUTTON, J., joined in part. SUTTON, J. (pp. 628-36), delivered a separate opinion concurring in part and dissenting in part.
*612Defendant-Appellant Tennessee Wine and Spirits Retailers Association ("Association") appeals the district court's order granting summary judgment regarding § 57-3-204(b) of Tennessee Code Annotated. Under § 57-3-204(b), to receive a retailer-alcoholic-beverages license, a person, corporation, or firm needs to be a Tennessee resident for at least two years, and to renew a license, there is a ten-year requirement. After examination, the district court determined that these durational-residency requirements violate the dormant Commerce Clause.
For the reasons discussed below, we AFFIRM the district court's judgment declaring § 57-3-204(b)(2)(A), (3)(A)-(B), and (3)(D) in violation of the dormant Commerce Clause and SEVER those provisions from the Tennessee statute.
I. BACKGROUND
In Tennessee, the distribution of alcoholic beverages occurs through a "three-tier system." Jelovsek v. Bredesen ,
A license from the TABC is required to sell "alcoholic spirituous beverages, including beer and malt beverages."
A corporation faces similar barriers, and it cannot receive a license "if any officer, director or stockholder owning any capital stock in the corporation, would be ineligible to receive a retailer's license for any reason specified in subdivision (b)(2)."
Two entities-Plaintiff-Appellee Tennessee Fine Wines and Spirits, LLC, d/b/a Total Wine Spirits Beer & More, and Plaintiff-Appellee Affluere Investments, Inc., d/b/a/ Kimbrough Fine Wine & Spirits-did not satisfy these barriers prior to applying for retail licenses. As of November 2016, Fine Wines's principal address and Affluere's principal address were outside of Tennessee. R. 23-2 (Resp. Ex. 2) (Page ID #133); R. 23-3 (Resp. Ex. 3) (Page ID #134). And Fine Wines's members are not Tennessee residents. R. 55-1 (Mot. Summ. J. Ex. 1 ¶ 5) (Page ID #298). Therefore, the TABC deferred voting on these applications.
*613#299); R. 1-1 (Compl. ¶ 15) (Page ID #7); R. 1-2 (Affluere Answer ¶ 15) (Page ID #38).
When the Association, which represents Tennessee's business owners, discovered that Fine Wines and Affluere had pending applications, it informed the TABC that litigation was likely. R. 1-1 (Compl. ¶¶ 2, 16, 17) (Page ID #5, 8); R. 80 (Ass'n Am. Answer ¶¶ 2, 16, 17) (Page ID #495, 498). Because of these conflicts, Tennessee's Attorney General filed this action in the Chancery Court for Davidson County, on behalf of Plaintiff-Appellee Clayton Byrd, the Executive Director of the TABC, to obtain a declaratory judgment construing the constitutionality of the durational-residency requirements. R. 1-1 (Compl. at 1) (Page ID #4). The Defendant Association removed the case to the United States District Court for the Middle District of Tennessee.
The district court determined that the durational-residency requirements are unconstitutional. See Byrd v. Tenn. Wine & Spirits Retailers Ass'n ,
II. DISCUSSION
We review de novo a district court's decision to grant summary judgment, Lenscrafters, Inc. v. Robinson ,
*614A. The Twenty-first Amendment Does Not Immunize Tennessee's Durational-Residency Requirements
Under the Supreme Court's governing standard, Tennessee's interests in the durational-residency requirements are not closely related to its power under the Twenty-first Amendment. Therefore, the Twenty-first Amendment does not immunize Tennessee's durational-residency requirements from scrutiny under the dormant Commerce Clause.
1. Tennessee's Durational-Residency Requirements in Light of Granholm and Bacchus
Section 2 of the U.S. Constitution's Twenty-first Amendment states that "[t]he 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." U.S. Const. amend XXI, § 2. Pursuant to the Twenty-first Amendment, a state has the power to regulate the distribution of alcoholic beverages into the state or within its borders.
"Initially, the Supreme Court afforded the states nearly limitless power to regulate alcohol under the [Twenty-first Amendment]." Heald v. Engler ,
In Bacchus , the Supreme Court noted that "[i]t is by now clear that the [Twenty-first] Amendment did not entirely remove state regulation of alcoholic beverages from the ambit of the Commerce Clause."
The Supreme Court examined Hawaii's tax exemption at the wholesale tier for okolehao, which is a root from an indigenous shrub, and pineapple wine in Bacchus . Id. at 265,
In Granholm , the Supreme Court examined whether "a State's regulatory scheme that permits in-state wineries directly to ship alcohol to consumers but restricts the ability of out-of-state wineries to do so violate[s] the dormant Commerce Clause in light of § 2 of the Twenty-first Amendment."
The interaction between Bacchus and Granholm has created some uncertainty. Does scrutiny under the dormant Commerce Clause apply only when an alcoholic-beverages law regulates producers or products? And does the Twenty-first Amendment automatically immunize a state law regarding retailers and wholesalers of alcoholic beverages? The Second, Fourth, Fifth, and Eighth Circuits have attempted to reconcile the cases. Cooper II ,
For example, in Arnold's Wines the Second Circuit examined a state law allowing in-state licensed retailers to deliver alcoholic beverages to customers' homes but preventing out-of-state retailers from doing the same.
In Southern Wine , the Eighth Circuit examined Missouri's law requiring a corporation-including its directors, officers, and super-majority of shareholders-to be residents of Missouri for three years prior to obtaining a wholesaler-alcoholic- beverages license.
Conversely, the Fifth Circuit determined that Bacchus is still good law. In Cooper II , the defendant, a Texas trade association, moved for relief from an injunction under Federal Rule of Civil Procedure 60(b) on the ground that Granholm created a significant change in the law since the Fifth Circuit enjoined a state durational-residency requirement in Cooper v. McBeath (Cooper I) ,
*618We find the Fifth Circuit's reconciliation of Bacchus and Granholm persuasive for six reasons. First, the Supreme Court explicitly declined to overrule Bacchus in Granholm . Second, in Granholm , the Supreme Court reiterated Bacchus 's concern about the protection of economic interests across state lines, suggesting that the Twenty-first Amendment does not automatically immunize a state's alcoholic-beverages law regarding wholesalers or retailers. Third, the Supreme Court emphasized that the Twenty-first Amendment does not permit a state to discriminate on the basis of citizenship; accordingly, the flow of products across state lines is not the sole concern under the dormant Commerce Clause. Fourth, the Supreme Court again stated that the Commerce Clause limits the Twenty-first Amendment. Fifth, the Supreme Court also stated that there are times when the three-tier system is invalid. And lastly, Granholm did not limit its application of the Commerce Clause to alcoholic-beverages laws regarding producers.
First, the Supreme Court in Granholm explicitly declined to overrule Bacchus ; therefore, the reasoning in Bacchus still stands:
Recognizing that Bacchus is fatal to their position, the States suggest it should be overruled or limited to its facts. As the foregoing analysis makes clear, we decline their invitation. Furthermore, Bacchus does not stand alone in recognizing that the Twenty-first Amendment did not give States complete freedom to regulate where other constitutional principles are at stake. A retreat from Bacchus would also undermine Brown-Forman and Healy . These cases invalidated state liquor regulations under the Commerce Clause. Indeed, Healy explicitly relied on the discriminatory character of the Connecticut price affirmation statute. 491 U.S., at 340-41 [109 S.Ct. 2491 ]. Brown-Forman and Healy lend significant support to the conclusion that the Twenty-first Amendment does not immunize all laws from Commerce Clause challenge.
*619Granholm ,
Second, in Granholm , the Supreme Court focused on a general Commerce Clause principle-the prohibition of discrimination against out-of-state economic interests. The Court began by discussing this general principle: "[t]ime and again this Court has held that, in all but the narrowest circumstances, state laws violate the Commerce Clause if they mandate 'differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.' "
Third, the Supreme Court also discussed the general principle that a state cannot bar out-of-state citizens from engaging in its economy; thus, a state's alcoholic-beverages law is not automatically valid just because it "treat[s] liquor produced out of state the same as its domestic equivalent."
Fourth, the Supreme Court again emphasized in Granholm that the Commerce Clause limits a state's power under the Twenty-first Amendment. According to the Court, "[t]he central purpose of the [Twenty-first Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition."
Fifth, a state's alcoholic-beverages law is not immune simply because it is part of a three-tier system. In Granholm , New York and Michigan "argue[d] that any decision invalidating their direct-shipment laws would call into question the constitutionality of the three-tier system." Id. at 488,
*621And lastly, the Supreme Court did not state that the Commerce Clause applies only to alcoholic-beverages laws regarding producers. The statement that "[s]tate policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent" must be read in its context.
The States argue that any decision invalidating their direct-shipment laws would call into question the constitutionality of the three-tier system. This does not follow from our holding. "The Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system." Midcal, supra, at 110 [100 S.Ct. 937 ]. A State which chooses to ban the sale and consumption of alcohol altogether could bar its importation; and, as our history shows, it would have to do so to make its laws effective. States may also assume direct control of liquor distribution through state-run outlets or funnel sales through the three-tier system. We have previously recognized that the three-tier system itself is "unquestionably legitimate." North Dakota v. United States,495 U.S., at 432 [110 S.Ct. 1986 ]. See alsoid., at 447 [110 S.Ct. 1986 ] (Scalia, J., concurring in judgment) ("The Twenty-first Amendment ... empowers North Dakota to require that all liquor sold for use in the State be purchased from a licensed in-state wholesaler"). State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent. The instant cases, in contrast, involve straightforward attempts to discriminate in favor of local producers . The discrimination is contrary to the Commerce Clause and is not saved by the Twenty-first Amendment.
In summary, based on the language in Granholm , the Supreme Court's reasoning in Bacchus continues to apply along with Granholm itself. Therefore, we now examine Tennessee's durational-residency requirements in light of Granholm and Bacchus .
2. Tennessee's Interests in the Durational-Residency Requirements Are Not So Closely Related to the Powers Reserved by the Twenty-first Amendment
To determine whether the Twenty-first Amendment immunizes a state's alcoholic-beverages law from scrutiny under the dormant Commerce Clause, a court needs to examine "whether the interests implicated by a state regulation are so closely related to the powers reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies." Bacchus ,
In Cooper I, the Fifth Circuit examined a Texas law that required an applicant for a mixed-beverage permit to be a Texas resident for one year before submitting an application.
Then, in Cooper II , the Fifth Circuit bolstered its reasoning in Cooper I and stated that Bacchus 's reasoning still stands:
In Wine Country [Gift Baskets.com v. Steen ,612 F.3d 809 (5th Cir. 2010) ], we interpreted [ Granholm ] as reaffirming the applicability of the Commerce Clause to state alcohol regulations, but to a lesser extent when the regulations concern the retailer or wholesaler tier as distinguished from the producer tier, of the three-tier distribution system.Id. at 820-21 . State regulations of the producer tier "are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent." [ Granholm ],544 U.S. at 489 ,125 S.Ct. 1885 . But state regulations of the retailer and wholesaler tiers are not immune from Commerce Clause scrutiny just because they do not discriminate against out-of-state liquor.
Because of the Twenty-first Amendment, states may impose a physical-residency requirement on retailers and wholesalers of alcoholic beverages despite the fact that the residency requirements favor in-state over out-of-state businesses. Wine Country ,612 F.3d at 821 . The Twenty-first Amendment does not, however, authorize states to impose a durational-residency requirement on *623the owners of alcoholic beverage retailers and wholesalers.Id. (citing Cooper [I ],11 F.3d at 555 ). Distinctions between in-state and out-of-state retailers and wholesalers are permissible only if they are an inherent aspect of the three-tier system. See id. at 818.
Here, Tennessee's durational-residency requirements are nearly identical to the requirements in Cooper I . In Tennessee, to obtain a retail-alcoholic-beverages permit, individuals, corporations, firms, directors, officers, and stockholders all need to reside within the state for two years. See
Tennessee's durational-residency requirements do not relate to the flow of alcoholic beverages within the state. Instead, they regulate the flow of individuals who can and cannot engage in economic activities. The Twenty-first Amendment gives a state the power to oversee the alcoholic-beverages business, but it does not give a state the power to dictate where individuals live, because a state's alcoholic-beverages laws "cannot deprive citizens of their right to have access to the markets of other States on equal terms." Granholm ,
B. Tennessee's Durational-Residency Requirements Violate the Dormant Commerce Clause
Under the Commerce Clause, Congress can "regulate Commerce ... among the several States." U.S. Const. art. I, § 8, cl. 3. While the Commerce Clause gives Congress authority to regulate interstate commerce, the converse is that states cannot impede Congress's power by "unjustifiably ... discriminat[ing] against or burden[ing] the interstate flow of articles of commerce." Or. Waste ,
"To determine whether a statute violates the Commerce Clause, [we] must first determine whether the statute discriminates against interstate commerce, either by discriminating on its face, by having a discriminatory purpose, or by discriminating in practical effect." Cherry Hill Vineyards, LLC v. Lilly ,
Because Tennessee's durational-residency requirements are facially discriminatory and there is no evidence that Tennessee cannot achieve its goals through nondiscriminatory means, we hold that § 57-3-204(b)(2)(A), (3)(A)-(B), and (3)(D) are unconstitutional.
1. The Durational-Residency Requirements Are Facially Discriminatory
In Jelovsek , we examined § 57-3-207(d) of Tennessee Code Annotated, which "require[d] a two-year Tennessee residency before a winery license may be obtained and, if the applicant is a corporation, all of the capital stock must be owned by two-year Tennessee residents."
The statutory language presently before us is very similar to the statutory language that we already examined in Jelovsek ; the relevant statute here provides the following:
No retail license under this section may be issued to any individual: ... Who has not been a bona fide resident of this state during the two-year period immediately preceding the date upon which application is made to the commission or, with respect to renewal of any license issued pursuant to this section, who has not at any time been a resident of this state for at least ten (10) consecutive years[.]
(A) No retail license shall be issued to any corporation if any officer, director or stockholder owning any capital stock in the corporation, would be ineligible to receive a retailer's license for any reason specified in subdivision (b)(2), if application for such retail license had been made by the officer, director or stockholder in their individual capacity;
(B) All of its capital stock must be owned by individuals who are residents of this state and either have been residents of the state for the two (2) years *625immediately preceding the date application is made to the commission or, with respect to renewal of any license issued pursuant to this section, who has at any time been a resident of this state for at least ten (10) consecutive years;
....
(D) No stock of any corporation licensed under this section shall be transferred to any person who is not a resident of this state and either has not been a resident of the state for at least two (2) years next preceding or who at any time has not been a resident of this state for at least ten (10) consecutive years.
2. Tennessee Could Achieve Its Goals with a Reasonable, Nondiscriminatory Alternative
Tennessee has provided purposes in the statute for imposing oversight of alcoholic beverages; the statute states the following:
Because licenses granted under this section include the retail sale of liquor, spirits and high alcohol content beer which contain a higher alcohol content than those contained in wine or beer, ... it is in the interest of this state to maintain a higher degree of oversight, control and accountability for individuals involved in the ownership, management and control of licensed retail premises. For these reasons, it is in the best interest of the health, safety and welfare of this state to require all licensees to be residents of this state as provided herein and the commission is authorized and instructed to prescribe such inspection, reporting and educational programs as it shall deem necessary or appropriate to ensure that the laws, rules and regulations governing such licensees are observed.
However, neither Byrd nor the Association argues that a reasonable, nondiscriminatory alternative cannot achieve Tennessee's goals. And at oral argument, Fine Wines described several alternative means: requiring (1) a retailer's general manager to be a resident of the state, (2) both in-state *626and out-of-state retailers to post a substantial bond to receive a license, and (3) public meetings regarding the issuance of a license. Arguably, Tennessee can achieve its goals through nondiscriminatory means. For instance, it could implement technological improvements, such as creating an electronic database to monitor liquor retailers. But neither Byrd nor the Association argues that a reasonable, nondiscriminatory alternative cannot achieve Tennessee's goals. Therefore, Byrd and the Association have not met their burden.
In summary, the durational-residency requirements in § 57-3-204(b)(2)(A), (3)(A)-(B), and (3)(D) are unconstitutional because (1) they are facially discriminatory and (2) neither Byrd nor the Association has shown that a nondiscriminatory alternative cannot achieve Tennessee's goals.
C. We Sever § 57-3-204(b)(2)(A), (3)(A)-(B), and (3)(D) from the Rest of the Statute
"[W]hen confronting a constitutional flaw in a statute, we try to limit the solution to the problem" by (1) "enjoin[ing] only the unconstitutional applications of a statute while leaving other applications in force" or (2) "sever[ing] its problematic portions while leaving the remainder intact." Ayotte v. Planned Parenthood of N. New England ,
"Whether a portion of a state's statute is severable is determined by the law of that state." Cincinnati Women's Servs., Inc. v. Taft ,
The doctrine of elision is not favored. The rule of elision applies if it is made to appear from the face of the statute that the legislature would have enacted it with the objectionable features omitted, and those portions of the statute which are not objectionable will be held valid and enforceable provided, of course, there is left enough of the act for a complete law capable of enforcement and fairly answering the object of its passage. However, a conclusion by the court that the legislature would have enacted the act in question with the objectionable features omitted ought not to be reached unless such conclusion is made fairly clear of doubt from the face of the statute. Otherwise, its decree may be judicial legislation. The inclusion of a *627severability clause in the statute has been held by this Court to evidence an intent on the part of the legislature to have the valid parts of the statute enforced if some other portion of the statute has been declared unconstitutional.
It is hereby declared that the sections, clauses, sentences and parts of the Tennessee Code are severable, are not matters of mutual essential inducement, and any of them shall be exscinded if the code would otherwise be unconstitutional or ineffective. If any one (1) or more sections, clauses, sentences or parts shall for any reason be questioned in any court, and shall be adjudged unconstitutional or invalid, such judgment shall not affect, impair or invalidate the remaining provisions thereof, but shall be confined in its operation to the specific provision or provisions so held unconstitutional or invalid, and the inapplicability or invalidity of any section, clause, sentence or part in any one (1) or more instances shall not be taken to affect or prejudice in any way its applicability or validity in any other instance.
Applying Tennessee's doctrine of elision, we hold that we can sever § 57-3-204(b)(2)(A), (3)(A)-(B), and (3)(D) from the rest of the statute. In the statute, in addition to protecting Tennessee citizens by imposing residency requirements, the legislature also stated that Tennessee wanted "to maintain a higher degree of oversight, control and accountability for individuals involved in the ownership, management and control of licensed retail premises."
III. CONCLUSION
For the reasons discussed above, we AFFIRM the district court's judgment declaring § 57-3-204(b)(2)(A), (3)(A)-(B), and (3)(D) in violation of the dormant Commerce Clause and SEVER those provisions from the Tennessee statute.
After the Association removed the action to federal court, R. 1 (Notice Removal at 1) (Page ID #1), the district court realigned Fine Wines and Affluere as plaintiffs because, in his complaint, Byrd contended that the durational-residency requirements may be unconstitutional, which the Attorney General highlighted in two opinions. R. 52 (Op. Mem. at 11) (Page ID #282); R. 53 (Order ¶ 2) (Page ID #289). However, in his response to Fine Wines's motion for summary judgment, Byrd asserted that the durational-residency requirements are not unconstitutional. See R. 73 (Resp. at 1-13) (Page ID #450-62). Byrd continues to assert during this appeal that the durational-residency requirements are not unconstitutional. See Appellee Byrd Br. at 3.
The dissent summarizes the history of § 2 to support the conclusion that states have the authority to impose durational-residency requirements on owners because these requirements are regarding intrastate distribution of alcohol beverages, not the interstate flow of product. See Dissent Op. at 629-33. However, this history is less persuasive than the dissent makes it sound.
The Supreme Court already conducted an extensive historical analysis in Granholm ,
Additionally, the dissent fails to acknowledge that the Supreme Court has explicitly transitioned from its original interpretation of the Twenty-first Amendment. For instance, the Supreme Court's opinion in Granholm ,
The aim of the Twenty-first Amendment was to allow States to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use. The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they had not enjoyed at any earlier time.
Some of the cases decided soon after ratification of the Twenty-first Amendment did not take account of this history and were inconsistent with this view. In State Bd. of Equalization of Cal. v. Young's Market Co. ,
"The plaintiffs ask us to limit this broad command [of § 2]. They request us to construe the Amendment as saying, in effect: The State may prohibit the importation of intoxicating liquors provided it prohibits the manufacture and sale within its borders; but if it permits such manufacture and sale, it must let imported liquors compete with the domestic on equal terms. To say that, would involve not a construction of the Amendment, but a rewriting of it."
The Court reaffirmed the States' broad powers under § 2 in a series of cases, see Mahoney v. Joseph Triner Corp. ,
It is unclear whether the broad language in Young's Market was necessary to the result because the Court also stated that "the case [did] not present a question of discrimination prohibited by the commerce clause."
Granholm ,
The dissent argues that the Fifth Circuit misread Granholm because the Fifth Circuit's test would allow a court to replace the views of the state legislature with a court's own perspective. See Dissent Op. at 634-35. For this argument, the dissent states that Granholm "gave [states] 'virtually complete control' over 'how to structure th[at].... system.' "
However, the dissent skews this statement in Granholm . First, Granholm itself did not grant states complete control regarding the composition of a distribution system; instead, the Supreme Court stated that "[t]he Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system." Granholm ,
Even after the Supreme Court decided Granholm , we have continued to rely on Bacchus . See Jelovsek ,
The dissent seems to argue that the Commerce Clause limits only state actions regarding alcohol distribution that regulate interstate activity, not intrastate activity having an effect on interstate commerce. However, the Supreme Court's statement that "[s]tates may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses," seems to suggest otherwise. Granholm ,
The dissent also attempts to limit Granholm 's holding to the statement that a law is invalid only when it "treat[s] liquor produced out of state the same as its domestic equivalent." See Dissent Op. at 634 (quoting Granholm ,
The dissent asserts that the Supreme Court "never purported to overrule its prior statements and holdings approving state authority over alcohol distribution as opposed to production ." Dissent Op. at 636. And, according to the dissent, "[u]ntil the Supreme Court says so, we may not assume that the Twenty-first Amendment no longer 'create[s] an exception to the normal operation of the Commerce Clause.' "
But the Supreme Court has said so. In fact, it categorized its modern precedent into three distinct categories: (1) the Twenty-first Amendment does not protect state laws that violate other parts of the Constitution, (2) the Twenty-first Amendment does not eliminate Congress' Commerce Clause power over alcoholic beverages, i.e. , "products," and (3) the Commerce Clause limits state regulation of alcohol, i.e. , distribution. See Granholm ,
The modern § 2 cases fall into three categories.
First, the Court has held that state laws that violate other provisions of the Constitution are not saved by the Twenty-first Amendment. The Court has applied this rule in the context of the First Amendment, 44 Liquormart, Inc. v. Rhode Island ,517 U.S. 484 [116 S.Ct. 1495 ,134 L.Ed.2d 711 ] (1996) ; the Establishment Clause, Larkin v. Grendel's Den, Inc. ,459 U.S. 116 [103 S.Ct. 505 ,74 L.Ed.2d 297 ] (1982) ; the Equal Protection Clause, [Craig v. Boren ,429 U.S. 190 , 204-09,97 S.Ct. 451 ,50 L.Ed.2d 397 (1976) ]; the Due Process Clause, Wisconsin v. Constantineau ,400 U.S. 433 [91 S.Ct. 507 ,27 L.Ed.2d 515 ] (1971) ; and the Import-Export Clause, Department of Revenue v. James B. Beam Distilling Co. ,377 U.S. 341 [84 S.Ct. 1247 ,12 L.Ed.2d 362 ] (1964).
Second, the Court has held that § 2 does not abrogate Congress' Commerce Clause powers with regard to liquor. Capital Cities Cable, Inc. v. Crisp ,467 U.S. 691 [104 S.Ct. 2694 ,81 L.Ed.2d 580 ] (1984) ; California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc. ,445 U.S. 97 [100 S.Ct. 937 ,63 L.Ed.2d 233 ] (1980). The argument that "the Twenty-first Amendment has somehow operated to 'repeal' the Commerce Clause" for alcoholic beverages has been rejected. Hostetter , 377 U.S., at 331-332 [84 S.Ct. 1293 ]. Though the Court's language in Hostetter may have come uncommonly close to hyperbole in describing this argument as "an absurd oversimplification," "patently bizarre," and "demonstrably incorrect,"ibid. , the basic point was sound.
Finally, and most relevant to the issue at hand, the Court has held that state regulation of alcohol is limited by the nondiscrimination principle of the Commerce Clause. Bacchus ,468 U.S., at 276 [104 S.Ct. 3049 ] ; Brown-Forman Distillers Corp. v. New York State Liquor Authority ,476 U.S. 573 [106 S.Ct. 2080 ,90 L.Ed.2d 552 ] (1986) ; Healy v. Beer Institute ,491 U.S. 324 [109 S.Ct. 2491 ,105 L.Ed.2d 275 ] (1989). "When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests , we have generally struck down the statute without further inquiry." Brown-Forman , supra , at 579 [106 S.Ct. 2080 ].
The dissent asserts that in-state distribution regulations are always discriminatory in some manner, and in some ways, the dissent is correct that "[w]hat matters is what type of discrimination is permissible ." Dissent Op. at 634. However, the Fifth Circuit has acknowledged this dilemma, and it rectified the issue-requiring wholesalers and retailers to be in the state is permissible, but requiring owners to reside within the state for a certain period is not. See Cooper II ,
Because Jelovsek dealt with wine production, the dissent argues that Jelovsek does not dictate the outcome here. See Dissent Op. at 633-35. Nevertheless, the language in Jelovsek suggests otherwise. In Jelovsek , this court stated that "[o]ther provisions of the Grape and Wine Law are discriminatory on their face, and in their purpose. For example, the Grape and Wine Law requires a two-year Tennessee residency before a winery license may be obtained and, if the applicant is a corporation, all of the capital stock must be owned by two-year Tennessee residents." Jelovsek ,
By arguing that drunk driving, domestic abuse, and underage drinking are important interests, the dissent concludes that the durational-residency requirements would promote health, safety, and welfare. Dissent Op. at 633. However, in Granholm , the Supreme Court did not credit such blanket assertions. See Granholm ,
According to the dissent, requiring 51% of stockholders to satisfy the durational-residency requirements is valid, see Dissent Op. at 635, but the dissent fails to acknowledge that a 51% requirement impermissibly stifles interstate commerce. For instance, the Supreme Court has "struck down a New York law that imposed a higher tax on transfers of stock occurring outside the State than on transfers involving a sale within the State" because "the Commerce Clause limits the manner in which States may legitimately compete for interstate trade, for 'in the process of competition no State may discriminatorily tax the products manufactured or the business operations performed in any other State.' " Bacchus ,
Additionally, the dissent concludes that the ten-year requirement is the "epitome of arbitrariness" because "[T]ennessee offered no reason why a person who has resided in the State for two years is deemed local enough to begin operating a retailer in year 3, but not local enough to continue running it in year 4." Dissent Op. at 635. But, the dissent's argument also applies to the two-year requirement because, as previously discussed, Tennessee has offered no evidence to prove that the two-year requirement advances its goals. What makes two the magic number? Why is one year not enough? What about a six-month requirement? Without answers to these questions, the two-year requirement is also "the epitome of arbitrariness." Furthermore, in Jelovsek ,
Concurring in Part
Tennessee requires sellers of alcohol to have a retail license. To obtain a license, the applicant, including any officers and directors, must be "a bona fide resident of th[e] state during the two-year period immediately preceding" the application.
Constitutional text . The language of the pertinent constitutional provisions supports Tennessee's right to impose this requirement. At the outset, the U.S. Constitution gave Congress power "[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes," U.S. Const. art. I, § 8, cl. 3, and impliedly prohibited States from doing the same, see Albert Abel, The Commerce Clause in the Constitutional Convention and in Contemporary Comment ,
The end of Prohibition in 1933 made the States' authority over this issue more clear. In repealing the Eighteenth Amendment, the Twenty-first Amendment allowed the States to regulate alcohol as a unique commercial article. Unlike any other provision in the U.S. Constitution, it sets up what is largely a regulatory regime of one: "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." U.S. Const. amend. XXI, § 2 (emphasis added). After 1933, then, a State could continue to prohibit sales of alcohol within its territory. Ziffrin, Inc. v. Reeves ,
History . A few screen shots of history support this interpretation. The itinerant regulation of alcohol over time captures the itinerant relationship between the power of the National Government and the States over time. Most areas of federal and state authority, including over commerce, initially were deemed largely exclusive, as a review of the enumerated powers delegated to Congress in Article I, Section 8 suggests. If Congress had authority over a form of commerce, the States usually did not. So too in the other direction. See Gibbons v. Ogden , 22 U.S. (9 Wheat.) 1, 187-89, 197-200,
But the congressional sphere of authority grew over time, as more and more "commerce" was treated as "among the several States." Even before Prohibition in 1920, the definition of interstate commerce had come to mean that the regulation of most products, including alcohol, was increasingly a matter of state and federal law. See, e.g. , Leisy v. Hardin ,
This federal-state interplay also helps to explain the language of the Eighteenth Amendment, which first established that "the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited." U.S. Const. amend. XVIII, § 1. Section 2 of the Amendment then clarified overlapping federal and state authority to enforce Prohibition: "The Congress and the several States shall have concurrent power to enforce this article by appropriate legislation."
With the passage of the Twenty-first Amendment, the States and Federal Government both had some regulatory power over alcohol but generally were thought to regulate it exclusively in different ways. Compare Indianapolis Brewing Co. v. Liquor Control Comm'n ,
But over the next ten years, the Court's understanding of the Commerce Clause power changed. By the early 1940s, it was no longer true that regulations of commerce in the main were exclusively federal or exclusively state. The growth of the national commerce power, through the development of the "substantial effects" test, Wickard v. Filburn ,
*631Am. Beverage Ass'n v. Snyder ,
That development altered the nature of the implied restrictions on state authority established by the Commerce Clause. An exclusive delegation of power to one sovereign implies a ban on assertions of power by another sovereign over the same matter. Just as Congress's exclusive power to "coin Money" implied a lack of state authority to do the same, U.S. Const. art. I, § 8, cl. 5, Congress's exclusive power to regulate interstate commerce among the States implied a lack of state power in the area. See Smith v. Turner , 48 U.S. (7 How.) 283, 393-96,
At their creation, the Court's dormant Commerce Clause cases were not just appropriate but necessary, as they provided the only way to keep the States on the one hand and Congress on the other in their separate and exclusive spheres of regulatory authority. But in a post-1930s world, in which the National Government and States largely have overlapping power over most sectors of commerce, the implementation of an implied restriction on state authority is much more difficult to articulate and police.
Which is what makes this case interesting-and complicated. From the vantage point of the understanding of the Commerce Clause circa 1933, the case looks easy. That's why Justice Brandeis in 1936 would describe the States' authority to regulate sales of alcohol in such sweeping terms:
The words used [in § 2] are apt to confer upon the State the power to forbid all importations which do not comply with the conditions which it prescribes. The plaintiffs ask us to limit this broad command. They request us to construe the Amendment as saying, in effect: The State may prohibit the importation of intoxicating liquors provided it prohibits the manufacture and sale within its borders; but if it permits such manufacture and sale, it must let imported liquors compete with the domestic on equal terms. To say that, would involve not a construction of the Amendment, but a rewriting of it.
State Bd. of Equalization v. Young's Mkt. Co. ,
The congressional stance on regulation of alcohol at the time suggests a similar understanding. In the immediate aftermath of the Twenty-first Amendment's ratification, Congress overhauled Title 27 of the U.S. Code-"Intoxicating Liquors"-by repealing Chapters 1, 2, 4, 5, and 9 (dealing with production, transportation, and sale of liquor).
At the time the Twenty-first Amendment was ratified, a State's greater authority to ban all alcohol sales in the State included a lesser authority to regulate sales of alcohol in the State with a heavy hand. Ziffrin ,
Modern U.S. Supreme Court precedent. The Court's more recent decisions in this area should be read against this backdrop, and are easier to follow (to my mind) in that context. Even if the meaning of the relevant constitutional provisions has migrated over the years, perhaps to account for the continued integration of domestic and international commerce, today's precedents still give the States authority to impose residency requirements on the owners of retail establishments that sell beer, wine, or liquor.
A consensus remains that the Twenty-first Amendment "created an exception to the normal operation of the Commerce Clause." Capital Cities Cable, Inc. v. Crisp ,
On the other side of the ledger, exceptions to the normal operation of the Commerce Clause remain alive and well in some areas-in particular the in-state nature of alcohol distribution. The States retain "virtually complete control" over "how to structure the[ir] liquor distribution system[s]." Granholm v. Heald ,
Measured by these standards and cases, Tennessee's two-year residency requirement should survive. We must start with the assumption that tiered distribution systems are "unquestionably legitimate." Granholm ,
Promoting responsible consumption and orderly liquor markets "fall within the core of [Tennessee's] power" under § 2. North Dakota v. United States ,
The same is true with respect to a residency requirement for officers and directors of the retailer. It ensures that they are familiar with the community and in a position to alter or influence the retailer's behavior based on that understanding. See
Court of appeals precedents. The post- Granholm circuit precedents likewise support this conclusion. Several courts agree that Granholm drew a line between regulation of (out-of-state) producers and regulation of (in-state) wholesalers and retailers, requiring rigorous review of the former and deferential review of the latter. See Freeman v. Corzine ,
*634Cooper v. Tex. Alcoholic Beverage Comm'n (Cooper II ),
One circuit has approved requirements nearly identical to Tennessee's. In a thoughtful opinion by Judge Colloton, the Eighth Circuit upheld a three-year residency requirement in Missouri for wholesalers' officers, directors, and 60% of their stockholders. S. Wine & Spirits ,
Jelovsek v. Bredesen ,
Isn't it still true that the requirements here are "discriminatory on their face," just like the ones in Jelovsek ? But in-state distribution regulations in one sense always discriminate against out-of-state interests, as Granholm illustrates. See
The Fifth Circuit, I acknowledge, refused to enforce a residency requirement for holders of a "mixed beverage permit" and 51% of their stockholders. Cooper II ,
Putting this unusual posture to the side, the Fifth Circuit appears to have misread Granholm when it concluded that "[d]istinctions between in-state and out-of-state retailers and wholesalers are permissible only if they are an inherent aspect of" a State's distribution system.
I agree with my colleagues, however, that two aspects of Tennessee's scheme must fall: its application of the residency requirement to 100% of a retailer's stockholders,
A requirement that every stockholder reside in Tennessee does not further the State's interest in responsible retailers. Tennessee's Business Corporations Act states that company management-directors and officers-shall exercise "[a]ll corporate powers."
The same goes for Tennessee's residency rule for renewal of a license. Although Tennessee grants an initial retail license after two years of in-state residence, it grants renewal of that very license only after ten years of residence.
The court offers two key responses to my conclusion that Tennessee's two-year residency requirement for alcohol retailers does not violate the Constitution. One involves history. The court is right that Granholm "conducted an extensive historical analysis." Supra at 614 n.2. My point is that Granholm focused on the history in the run-up to Prohibition and concluded that, by constitutionalizing the Wilson and Webb-Kenyon Acts, the Twenty-first Amendment incorporated a pre-existing anti-discrimination principle. See
The court's second response is of a piece-to focus on language from Granholm (in truth one sentence from *636Granholm ) to suggest that traditional dormant Commerce Clause principles apply in full to liquor production and distribution, notwithstanding the Twenty-first Amendment. See supra at 614-15 n.2, 619 & n.5, 620-21 n.7 (quoting
For these reasons, I respectfully concur in part and dissent in part.
Reference
- Full Case Name
- Clayton BYRD, in His Official Capacity as Executive Director of the Tennessee Alcoholic Beverage Commission ; Tennessee Fine Wines and Spirits, LLC, Dba Total Wine Spirits Beer & More ; Affluere Investments, Inc., Dba Kimbrough Fine Wine & Spirits, Plaintiffs-Appellees, v. TENNESSEE WINE AND SPIRITS RETAILERS ASSOCIATION, Defendant - Appellant.
- Cited By
- 23 cases
- Status
- Published