Justices Hear Debate on Tennessee Liquor-License Rules

WASHINGTON (CN) – One hundred years to the day since the ratification of the 18th Amendment ushered in the Prohibition Era in the United States, an attorney for alcohol retailers on Wednesday urged the Supreme Court to invalidate a Tennessee law that imposes residency requirements on companies seeking a liquor license.

(AP Photo/Toby Talbot, File)

“There’s no doubt that what we’re talking about here is rank discrimination on the basis of commerce,” said Carter Phillips, an attorney who argued for two alcohol retailers.

While the states ratified the 18th Amendment on this day in 1919, the case the Supreme Court heard Wednesday primarily concerns the 21st Amendment, which repealed Prohibition and left it to the states to regulate how alcohol is distributed within their borders. The dispute also centers on the dormant commerce clause, which holds states cannot adopt laws that discriminate against commerce from other states or otherwise interfere with interstate commerce.  

Tennessee has a strict residency rule for companies looking to sell alcohol within the state, only giving licenses to people who have been residents for at least two years and to companies whose leadership meets the same requirement.

Two alcohol retailers – Total Wine Spirits Beer and More and Kimbrough Fine Wine and Spirits – have tried to open up shop in the Volunteer State, even though neither meets the residency requirements. An association of state liquor retailers raised concerns about their license applications and Tennessee asked a federal court to weigh in on whether the residency requirement is constitutional. 

The state has since dropped out of the case, leaving it as a dispute between the association and the companies. 

Shay Dvoretzky, an attorney with the firm Jones Day who argued for the retailers association, told the justices Wednesday the 21st Amendment gave states “virtually complete control” over how alcohol is sold within their borders. 

“I don’t think the purpose was specifically to allow protectionist activity but I do think that the purpose was to shield state laws from scrutiny under the dormant commerce clause,” Dvoretzky said.

Dvoretzky said the residency requirement also has legitimate purposes, such as making it easier for the state to conduct background checks on people who will have control of liquor sales. He said the same logic that allows states to determine who is and who is not a resident gives them the authority to impose residency requirements on certain businesses. 

Illinois Solicitor General David Franklin, who argued as a friend of the court on behalf of a collection of other states, said liquor has historically been treated differently than other goods because of its potentially negative impacts and that as a result, states should have broad discretion to regulate its sale.

“In the end, respondents are asking this court to treat alcohol like any other article of commerce,” Franklin said. “But it’s not.” 

Some of the justices were interested in what exactly states could get away with under Dvoretzky’s suggested reading of the law.

Justice Stephen Breyer asked whether Tennessee could use the 21st Amendment to justify a requirement that liquor stores use only Tennessee-made paint or concrete, while Justice Samuel Alito added generations to the state’s residency requirement.

“Suppose if it was a grandparents requirement,” Alito said. “So you can’t get a liquor license in Tennessee unless your grandparents were Tennessee residents. That would not create a dormant commerce clause problem? “

Phillips, the Sidley Austin attorney who argued for the liquor retailers, said Tennessee’s requirement discriminates against companies from other states, a clear violation of the dormant commerce clause. He also said the state has not been able to sufficiently justify the requirement outside of the benefit of boosting in-state businesses. 

“All we are seeking is the opportunity to compete into this market,” Phillips said. 

Phillips’ arguments raised additional questions for the justices, as they wondered what types of regulations on liquor sales states could adopt if the court invalidated the residency requirements. 

Justice Neil Gorsuch also questioned whether ruling in favor of Phillips’ clients would open the door to a challenge to the so-called three-tier system, which is how the overwhelming majority of states distinguish between alcohol producers, distributors and retailers.

“Why isn’t this the camel’s nose under the tent?” Gorsuch asked. 

%d bloggers like this: