Louis J. Terminello, Greenspoon Marder

The U.S. Supreme Court in Tennessee Wine and Spirits Retailers Association v. Russel F. Thomas struck down Tennessee's two-year residency requirement for anyone seeking an initial retail alcohol beverage license in that state to operate a retail liquor venue. 

The initial facts of the case are fairly simple and are well known by observers of the industry, and Wednesday's outcome is not surprising). Total Wine and Spirits, the very large big-box retailer of alcoholic beverages attempted to obtain licensure in Tennessee for the operation of a retail location. The entity and its applicants are residents of the state of Maryland. Tennessee refused licensure, blocking the big-box retailer from operating, and the fight ensued.

On its face, the case seems to challenge only residency requirements for alcohol beverage licensure that may be in place in the various states. The court's ruling has far greater implications, however.

At play are two constitutional provisions, the commerce clause (Article 1, Section 8, Clause 3) and the 21st Amendment (specifically Section 2), which repealed Prohibition. The commerce clause and its corollary, the dormant commerce clause (or negative commerce clause), prevent states from discriminating against out-of-state commerce.

In essence, out-of-state actors cannot be discriminated against versus their in-state counterparts. However, the 21st Amendment, particularly Clause 2, has provided states with wide latitude in regulating the transport, distribution, sale and service of alcoholic beverages within its borders, sometimes at the expense of interstate commerce. Section 2 of the 21st Amendment repealing Prohibition states: “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.”

The language is interpreted to grant states broad authority in regulating alcohol within it boarders.

However, the Supreme Court ruling, arguably, may severely limit a state's authority under Section 2 or, at a minimum, it opens the door for futures cases which will test its limits. 

In the case syllabus, the court stated that protectionism is not a legitimate Section 2 interest shielding state alcohol laws that burden interstate commerce. The Tennessee Wine and Spirits Retailers Association argued that Section 2 permitted them to regulate in-state alcohol distribution so long as it did not discriminate against all out-of-state products and producers.

The court found this argument unpersuasive and found no basis for the distinction. (Recall, Granholm, the 2005 court decision which prohibited states from discriminating against out-of-state wineries from shipping directly to consumers within its borders if it permitted in-state wineries to do the same. The court found such discrimination to be in violation of the commerce clause and unconstitutional).

The court this week went on to further suggest that many state laws “may have been based on an overly expansive interpretation of Clause 2 and can no longer be defended and that many state laws adopted prior to Prohibition (via the 18th Amendment) have never been tested by the court.”

This use of such language causes this writer to wonder if the court is suggesting that pre-Prohibition state regulations may be found to be unconstitutional. The court, at a minimum, appears to suggesting such possibility.

Additionally, the court went on to state, “Section 2 allows each state leeway to enact measures to address the public health and safety effects of alcohol use and other legitimate interests, but does not license the states to adopt protectionist measures with no demonstrable connection to those interest.”

The above begs the question of whether the court is devising a new and narrow test when applying a Clause 2 analysis. The decision seems to suggest that state regulations should be narrowly tailored to address public health and safety issues and any other analysis and outcome that does not comport to this paradigm will be found unconstitutional. If there is a mere scintilla, a whiff of protectionist sentiment, will the state regulation withstand scrutiny? 

Arguably, the court has left us with no clear standard on interpreting the 21st Amendment, Section 2. Justices Neil Gorsuch and Clarence Thomas in dissenting opinion in essence argued that no clear test or standard has come from this case.

It will be left in state litigants to test state alcohol beverage laws when necessary (all the way to the Supreme Court) to truly gauge the limits of the 21st Amendment. Of particular interest to this author is the ordering of wine via the internet and shipping by retailer to consumer.

Curiously, if state regulations permit in-state actors to ship, can they prevent out-of-state actors from doing the same if proper safeguards are in place. Are public health and safety issues at play here or are such regulations protectionist. Perhaps this will be the next 21st Amendment case that will make its way to certiorari.

Louis J. Terminello is a Miami partner, chair of the hospitality, alcohol and leisure industry group and a member of the firm management committee at Greenspoon Marder.