The Supreme Court Must Rule on Wine Retailer Shipping

Since 2005 when the U.S Supreme Court ruled on the constitutionality of New York and Michigan’s discriminatory and protectionist bans on wine shipments from out-of-state wineries in Granholm v Heald, a certain legal and regulatory confusion ensued. The upcoming Supreme Court case being dubbed “Granholm II” is going to resolve that confusion. The new Supreme Court Case, Byrd v. Tennessee Wine and Spirits Retailers Association, will do this by clarifying exactly what is “unquestionably legitimate” when it comes to the three-tier system.

On its face, Byrd v Tennessee appears to demand an answer to a very narrow question: Does the state of Tennessee violate the dormant Commerce Clause and unconstitutionally interfere with interstate commerce when it requires out-of-state retailers (Total Wine) to become a resident of the state for a duration of two years before it can obtain a Tennessee wine retailer permit?

One party to the case, the Tennessee Wine & Spirit Retailers Association, argues that Tennessee’s “durational residency” requirement is constitutional. The other party to the case, Total Wine”, argues that it is unconstitutional. Tennessee Retailers, in their petition for certiorari, argue that the Granholm decision emphasizes the “unquestionably legitimate” nature of the three-tier system even while noting that the power granted to the states under the 21st Amendment does not authorize discriminatory treatment of out-of-state products and producers. In other words, Tennessee Retailers believe that Granholm authorizes a state to discriminate against out-of-state retailers and wholesalers because they are inherent parts of the “unquestionably legitimate” three-tier system and therefore may demand Total Wine’s owners become residents of the state of Tennessee for two years before obtaining a Tennessee wine retailer permit.

Total Wine, on the other hand, will argue that in the Granholm decision, the Supreme Court was clear that the non-discrimination principles of the dormant Commerce Clause prohibiting states from enacting protectionist laws that interfere with interstate commerce clearly apply to out-of-state retailers and wholesalers as much as it does to out-of-state producers and products. In support of this argument, they quote the Granholm decision that clearly states, “States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses.” Based on this, Total Wine asks the Supreme Court to invalidate Tennessee’s durational residency law that burden’s it’s attempt to engage in interstate commerce by obtaining a Tennessee license to open a retail store in the state.

Despite what this case looks like on its face, it has far broader consequences for wine consumers, for wine retailers that sell across state lines and for the alcohol industry as a whole. If, as the Tennessee Retailers claim, the 21st Amendment allows a state to discriminate against out-of-state retailers despite the non-discrimination principles of the dormant commerce clause, then a state may enact laws that ban out-of-state retailers from shipping wine into the state—as many currently do. However, if the Supreme Court decides for Total Wine and rules that a state may not interfere with interstate commerce by discriminating against out-of-state retailers, then the many state laws that ban shipments from out-of-state retailers are unconstitutional and must fall.

Why the Supreme Court Must Answer the Wine Retailer Shipping Question

Some commentators have noted that that the Supreme Court does not have to answer the question of wine retailer shipping as it rules on the question of durational residency laws that are squarely at issue in this case. I just don’t think this is a possibility. Not only would leaving this question unanswered maintain a large degree of confusion among lower courts, it would also ignore pleas from lower courts for the higher court to clarify what it meant to say in the Granholm decision concerning the fate of retailers and wholesalers under the non-discrimination principles laid out in the Granholm decision. In short, not answering this question would be irresponsible.

What makes it equally unlikely that the Supreme Court would leave the question of interstate wine retailer shipping unanswered, is the fact that the Tennessee Retailers, as well as various other entities likely to deliver Friend of the Court Briefs in the case, will argue that if states are prohibited from passing laws that discriminate against out-of-state retailers and wholesalers then the three-tier system has no meaning and is not, as the Court suggested in Granholm, “unquestionably legitimate”.

Despite this argument being altogether incorrect and having been answered that way very clearly in Granholm, it is at the heart of Byrd v Tennessee case and must, again, be addressed by the court.
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A collection of court opinions, oral arguments, case briefs and media coverage of the Byrd v Tennessee case is available at the National Association of Wine Retailers’ website.

Tom Wark serves as the Executive Director of the National Association of Wine Retailers, which has a significant interest in the outcome of Byrd v. Tennessee.


9 Responses

  1. DOUGLAS TRAPASSO - October 12, 2018

    Like it or not, we’re stuck with our new Supreme justice for a little while. Does anyone know if Kavanaugh has ruled on any similar cases before?

  2. Tom Wark - October 12, 2018

    Douglas, since sitting on the DC Circuit Court of Appeals Justice Kavanaugh has not ruled on a Commerce Clause case.

  3. Peter Ricci - October 12, 2018

    A more conservative court tends to prefer less government intervention, allowing the free market take its course. Smaller retailers which tend to be members of associations seek protection with monopolies. Instead of using their size to be more innovative and consumer friendly. I am a small wine shop customer, prefer speaking with retailers that know their trade with years of experience.

  4. KathyBailey - October 12, 2018

    Thanks for your very clear explanations of this case so far. I hope you will continue to address out of state wholesalers as this proceeds. Your article sometimes includes us with retailers and sometimes not. It will be interesting to see whether we are treated just like the retailers or somehow distinguished from them.

  5. VVP (veux, veux-pas) - October 12, 2018

    No Tom, my strong opinion that Supreme Court doesn’t need to answer shipping questions in this case at all, as the topic of discussion is totally different and unrelated.

    Costco does sell alcohol in Tennessee, Food Lion does too, and Walmart with Walgreen’s most likely do too. So, they were able to get licensed in the state somehow. Are they all Tennessee residents? Costco produces, distributes and retails alcohol. Why it is not in question?

    Distributors are allowed and do sell and ship interstate, however, they aren’t allowed to sell any alcohol to consumers by the provisions of applicable to them laws and under conditions of their federal basic permit. Why this in question?

    While the tree-tier regulatory system of a single state might be unquestionably legitimate it is unquestionably not hermetically sealed inside of that single state borders. Otherwise a product which for any reason is distributed through a three-tier system and sold at retail only in a single state will never see a consumer in another state, so discriminated.

    And my favorite question to you again – who are the Wine Retailers?

  6. Scott - October 18, 2018

    Costco, Walmart, etc. have a different class of license from retail wine and spirits in Tennessee. It is a wine in grocery license, and is not subject to many of the requirements that the license for wine and spirits is. Residency is not a requirement of the grocery wine license.

  7. Walter - October 19, 2018

    Scott

    Tennessee Retail Food Store Wine License is for selling wine (only wine) by the bottle to individuals for off-premise consumption.

    The picture below shows the beer section on the left and hard liquor section on the back wall. How come?

    This is Costco Warehouse store at 98 Seaboard Ln, Brentwood, TN 37027 on Google maps:

    https://www.google.com/maps/contrib/116869108463993376297/place/ChIJg12NjP57ZIgRXR1EbNjcLhs/@36.7350988,-96.263153,5.15z/data=!4m6!1m5!8m4!1e2!2s116869108463993376297!3m1!1e1

  8. Scott - October 20, 2018

    Hi Walter! Great question with an easy answer. #TIINAR – The Internet Is Not Always Right.

    Shown in the picture in question is an independent wine and spirits retailer who is in an attached space to a Costco with a separate entrance. The poster of the photo just misidentified it as “Costco”.

    When Costco began opening stores for the first time in Tennessee 20 years ago or so, only beer could be sold in food stores. And Wine In Grocery Stores (WIGS) was not a twinkle in the eye of a de-reg representatives eye. So, in an effort to provide their customers the opportunity to buy wine and liquor during their visit, Costco stores leased attached spaces to independent retailers to sell wine and liquor.

    I would be surprised if the store in the photo still exists. After the onset of WIGS a little over two years ago, Costco began a program of non-renewal of these stores’ leases. The two that existed in West Tennessee were asked to vacate by Costco at the point of lease renewal.

  9. Fakrash-el-Aamash - October 22, 2018

    The story is much more banal and sad than Scott’s reply. Costco indeed was making profits from liquor sales by leasing its spaces to other liquor sellers. Then Costco was permitted to sell wine right in its stores. Costco management required those liquor sellers not to sell wines (mostly popular brands) in the leased spaces which Costco already offers for sale in its stores. Since wine section is much more profitable for liquor stores than liquor and nearly zero profitable beer sections, they started to sell wines which Costco doesn’t sell in its stores. Costco decided to eliminate this unwanted competition, and kicked those liquor sellers out, not renewing their lease. Many of those independent liquor sellers did not survive after Costco’s move.


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