The US Supreme Court is expected to rule this summer in Tennessee Wine & Spirit Retailers Ass’n v. Blair, which marks the first time in 14 years that the Court has taken up a case involving the wine industry. One hundred years to the day since the passage of the 18th Amendment, which ushered in the short-lived Prohibition era, the Supreme Court heard oral argument on January 16, 2019, in a case involving the constitutionality of Tennessee’s effective 12-year durational residency requirement for out-of-state retailers, such as Total Wine, to obtain a license to operate a store within the state.
Although the 21st Amendment (Amendment) repealed Prohibition, its reach and interplay with the dormant Commerce Clause has been a question that courts have wrestled with since its passage. While the text of the Amendment appears to give states unfettered discretion to regulate alcohol, the Supreme Court has held on numerous occasions that such discretion is constrained by the dormant Commerce Clause, which proscribes states from favoring in-state commerce at the expense of out-of-state commerce. Once again, the high court is faced with a line-drawing inquiry, which could have ramifications for direct-to-consumer shipping of wine (and other alcohol), depending upon how broadly the Court rules.
The Text of the 21st Amendment
It may surprise some to know what the text of the Amendment actually says. The relevant portion the Supreme Court will address provides 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.” The plain text would seem to suggest that states have carte blanche to regulate the sale and importation of alcohol as they see fit, an interpretation that the appellants have adopted in Blair.
Granholm v. Heald
In 2005, the last time the Supreme Court interpreted the Amendment, it struck down state laws in Michigan and New York that allowed only in-state winemakers to ship directly to consumers within each state’s borders, but prohibited out-of-state winemakers from doing the same, holding that such discriminatory laws violated the Commerce Clause of the US Constitution. In so holding, the Court split 5-4, albeit along nontraditional lines. It is not often that you see Justices Kennedy, Scalia, Souter, Ginsburg, and Breyer on one side (the majority), and Justices Thomas, Rehnquist, Stevens, and O’Connor on the other (minority).
Notwithstanding the text of Section 2 of the Amendment, the majority held that pre–18th Amendment, states could not discriminate between in-state and out-of-state alcohol, so the Amendment merely restored that preexisting interpretation. The decision also left intact the constitutionality of the so-called “three-tier distribution system,” whereby producers sell their products to wholesalers, who in turn pass those products on to retailers (often after a substantial markup). But if states choose to provide a direct-to-consumer option from an in-state winery to a consumer, they must do the same for an out-of-state winery.
Justices Stevens and O’Connor dissented, with Justice Stevens observing that in modern times, most people view alcohol as simply another commodity, but at the time of the Amendment’s passage, alcohol was viewed as a “special category” that deserved different treatment, considering the potential for abuse by consumers. He recalled the then-current intense debate surrounding the interpretation of the Amendment, which has been lost in today’s climate and observed, “Indeed, the fact that the Twenty-first Amendment was the only Amendment in our history to have been ratified by the people in state conventions, rather than by state legislatures, provides further reason to give its terms their ordinary meaning.” It is unlikely that the populace would have interpreted the text of the Amendment the way that the majority did, as people would have taken the plain text at face value.
Justice Thomas penned a separate and forceful dissent, in which Justices Rehnquist, Stevens, and O’Connor joined, arguing that the text of the Amendment could not be clearer. Under the Amendment, states have absolute authority to regulate alcohol, and are therefore exempt from dormant Commerce Clause scrutiny; Justice Thomas observed that even the legislative history of pre–18th Amendment statutes confirms this interpretation, the exact opposite of what the majority claimed. Furthermore, he argued that the case law interpreting the Amendment in the immediate aftermath of its enactment should hold more sway than later case law, authored by judges who did not live through the debate surrounding the enactment of the Amendment.
TWSRA v. Blair
Against the backdrop of Granholm, we now have the Blair case. The Tennessee law under challenge in Blair requires a retailer of alcohol to reside in the state for two years before being eligible to obtain a one-year retail license. The law further requires an additional 10 years of residency to renew that one-year license, effectively creating a 12-year residency requirement. Additionally, 100% of owners, directors, and officers of such retailers must satisfy these durational residency criteria.
Ironically, the Tennessee attorney general had issued an opinion that the residency requirement was unconstitutional. As a result, the Tennessee Alcoholic Beverage Commission (TABC) had issued licenses to retailers that had not met the minimum residency requirements, including a recommendation by TABC staff to approve Total Wine’s application. The Tennessee Wine and Spirits Retailers Association (TWSRA) threatened to sue the TABC, so the executive director of the TABC, Clayton Byrd, and Total Wine brought a state court action seeking a declaratory judgment regarding the constitutionality of Tennessee’s durational residency requirements for retail alcohol licenses. The TWSRA removed the case to federal court, where the district court sided with Total Wine, and the US Court of Appeals for the Sixth Circuit affirmed that decision.
The TWSRA, backed by 35 states (but not Tennessee), asked the Supreme Court for certiorari, which was granted. At oral argument, lawyers for TWSRA and the Illinois attorney general, arguing on behalf of the other states, argued that residency requirements are permissible under the plain text of the Amendment and are essential to maintaining public safety, welfare, and accountability in liquor markets. Total Wine argued that Tennessee’s durational residency requirement was blatant economic protectionism, which was a violation of the dormant Commerce Clause that impermissibly discriminated against out-of-state retailers, and any public health arguments are baseless.
Since Granholm, the composition of the Court has changed dramatically. Only three of the justices from that Court remain: Justices Ginsburg and Breyer, who were in the majority, and Justice Thomas, who wrote one of the dissents. The other six justices have been replaced by Justices Kavanaugh, Gorsuch, Sotomayor, Kagan, and Roberts.
Although Justice Ginsburg did not participate in oral argument and Justice Thomas was characteristically silent, the other justices were active participants during argument. Justice Breyer expressed doubts about expanding Granholm to include retailers, as opposed to just producers, but he also did not appear to be receptive to arguments that the historical understanding of the Amendment (i.e., states have absolute authority) was correct because if the historical understanding were the governing standard, then racial and gender discrimination would also be permissible.
Justice Sotomayor’s questioning at oral argument suggested that limiting Granholm to producers only was an unduly narrow and unfair reading of that case, leaving open the possibility of extending Granholm to retailers. She also posited that reading the text of Section 2 of the Amendment to override the Commerce Clause, but not other constitutional provisions such as the First Amendment, cannot be correct because there is no textual basis for such a distinction.
Justice Kagan indicated at oral argument that she would like for the ruling to be as narrow as possible, which could appeal to other justices who are on the fence, such as Chief Justice Roberts.
And Justices Alito and Kavanaugh asked questions challenging the economic protectionist goals of the Tennessee statutory scheme.
Popular opinion is that the Supreme Court will strike down at least the 10-year durational residency requirement and the requirement that 100% of a corporation’s owners, directors, and officers must meet that residency requirement. The question is just how broad the Supreme Court’s ruling will be.
Most observers and commentators believe that ultimately, the ruling itself will be narrow enough that the high court will not reach the question of direct-to-consumer shipping by retailers (as opposed to producers). This is especially true because at oral argument, despite Justice Gorsuch’s invitation to discuss direct-to-consumer shipping, Total Wine declined to do so, as the vast majority of Total Wine’s sales are from brick-and-mortar retail stores, not online sales.
Yet, the Sixth Circuit has already held that Tennessee’s law is unconstitutional. Given how few cases the Supreme Court hears each year (less than 1% of the number petitioned), it is curious that the high court would grant certiorari just to affirm a Sixth Circuit ruling without saying anything more.
If the Supreme Court does issue a narrow ruling, however, it will have little to no effect on the average consumer who orders wine from out of state, nor would a narrow ruling in favor of Total Wine have implications for the three-tier distribution system, which the Supreme Court has repeatedly upheld as constitutional and “unquestionably legitimate.” But a narrow ruling for Total Wine may then set up the question of the permissibility of direct-to-consumer shipping by retailers for the next case that comes before the Supreme Court, and that future case could affect the traditional three-tier distribution system.
The Supreme Court is expected to issue its decision later this summer.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the author, Su Jin Kim, in our Philadelphia office.
 U.S. Const., amend. XXI, § 2 (emphasis added).
 Granholm v. Heald, 544 U.S. 460 (2005).
 Id. at 493.
 Id. at 494-95 (Stevens, J., dissenting).
 Id. at 496-97 (Stevens, J., dissenting).
 Id. at 516 (Thomas, J., dissenting).
 Id. at 522 (Thomas, J., dissenting).
 See Tenn. Code Ann. §§ 57-3-203 and 57-3-204.
 Office of the Tennessee Attorney General, Opinion No. 12-59 (June 6, 2012) (“Yes, these residency and corporate asset location requirements for applicants seeking a license as an alcoholic beverage wholesaler or package retailer violate the Commerce Clause of the United States Constitution.”).
 Byrd v. Tennessee Wine & Spirits Retailers Ass’n, 259 F. Supp. 3d 785 (M.D. Tenn. 2017), aff’d, 883 F.3d 608 (6th Cir. 2018). Clayton Byrd was later substituted by Zackary Blair, interim director of the TABC.
 Tennessee Wine & Spirits Retailers Ass’n v. Byrd, 139 S. Ct. 52 (2018).
 Tennessee Wine & Spirits Retailers Ass’n v. Blair, No. 18-96, Oral Argument Transcript at 13:4-9 (Jan. 16, 2019).
 Id. at 7:9-12 (“I know you want to limit it to producers. But that’s not the way that Granholm talked about them, talked about this issue . . . .”).
 Id. at 14:19-15:8, 16:25-17:11 (“You’re saying they can’t use [the 21st Amendment] to violate the First Amendment. We’ve said you can’t use it to discriminate against products, although nothing in here says you can’t do that. I’m – I’m having a hard time understanding. Explain to me why it’s necessary.”).
 Id. at 53:10-20 (“I’m trying to figure out what kind of opinion we could write, Mr. Phillips, that says you [Total Wine] 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.”).
 Id. at 18:12-22, 19:21-20:3 (Alito, J.) (“What is the – what is the – the basis for thinking that the purpose of or a purpose of Section 2 of the Twenty-First Amendment was to authorize the states in this one area, dealing with alcohol, to engage in protectionist activities that wouldn’t be permitted with respect to any other commodity?”); id. at 22:8-14 (Kavanaugh, J.) (questioning whether the Amendment “enable[d] states to enshrine protectionist legislation into state law”).
 Id. at 50:18-51:7 (Jan. 16, 2019) (“But isn’t the next business model just to try and operate as the Amazon of liquor?”).
 Granholm, 544 U.S. at 489.