Wine bottles Wine bottles. Credit: Mike Scarcella/ NLJ

The Constitution's commerce clause prohibits Tennessee from imposing a residency requirement on applicants seeking retail licenses to sell alcoholic beverages, the U.S. Supreme Court ruled on Wednesday in a case affecting the locations and types of alcohol available to consumers.

In Tennessee Wine and Spirits Retailers Association v. Thomas, Justice Samuel Alito Jr., writing for a 7-2 majority, said, “Because Tennessee's two-year residency requirement for retail license applicants blatantly favors the state's residents and has little relationship to public health and safety, it is unconstitutional.”

The residency requirement, Alito added, is not shielded by the 21st Amendment which gives each state leeway in choosing the alcohol-related public health and safety measures that its citizens desire. Section 2 of that amendment, he wrote, “is not a license to impose all manner of protectionist restrictions on commerce in alcoholic beverages.”

Nearly every state has some form of residency requirement for retail liquor license applicants.

Justice Neil Gorsuch, joined by Justice Clarence Thomas, dissented, writing that the nation has adopted two separate constitutional amendments over time to adjust alcohol's role in society. “But through it all, one thing has always held true: States may impose residency requirements on those who seek to sell alcohol within their borders to ensure that retailers comply with local laws and norms.”

For the first time, he added, “the Court claims to have discovered a duty and power to strike down laws like these as unconstitutional. Respectfully, I do not see it.”

At the center of the conflict, which held potential national economic repercussions, was Tennessee's two-year residency requirement for retail liquor licenses, a law that dates to 1939. The U.S. Court of Appeals for the Sixth Circuit held that the two-year requirement discriminated against out-of-state retailers. The Constitution's dormant commerce clause prohibits state legislation that discriminates against interstate commerce.

During arguments in January, the justices appeared to struggle to reconcile the 21st Amendment's grant of near total authority to states to regulate the distribution of alcohol within their borders with the Constitution's competing command that states not discriminate against out-of-state economic interests.

Shay Dvoretzky Shay Dvoretzky, partner with Jones Day, speaking at a Chamber event on Thursday, June 21, 2019. Credit: Diego M. Radzinschi / NLJ

Jones Day partner Shay Dvoretzky, counsel to the Tennessee Wine & Spirits Retailers Association, a trade association, argued that the text of the 21st Amendment, which ended Prohibition, and the pre-Prohibition history of state regulations, supported the Tennessee residency requirement.

“There is no dormant commerce clause problem as long as the state treated in-state and out-of-state [retailers] alike,” which Tennessee does, argued Dvoretzky.

But Justice Elena Kagan said Tennessee was at “the end of the spectrum” of states that have residency requirements. “Isn't that clearly protectionism,” she asked Illinois Solicitor General David Franklin, who shared argument time with Dvoretzky on behalf of 36 states.

Franklin conceded a residency requirement at some point could be arbitrary under the 14th Amendment. But, he told Kagan, his opponents “are asking the court to treat alcohol like any other product and it's not.”

Sidley Austin partner Carter Phillips, representing the national chain Total Wine, countered that the “core principle” at stake was non-discrimination. “We are being discriminated against,” he said. “The state has the burden to justify it. There is no non-discriminatory purpose. The state in this case said absolutely nothing and the reason is clear—the sole purpose is to be exclusively protectionist.”

But alcohol is different, said Justices Neil Gorsuch, adding, “We have the 21st Amendment.”

Besides Total Wine, the other challenger to the residency requirement is a family that bought a Memphis liquor store and moved from Utah to Tennessee for a healthier climate for their disabled daughter. The family is represented by the Institute for Justice's Michael Bindas.

 

The court's ruling is posted below:

 

Read more:

'A Cocktail-by-Cocktail History of the Eras of the Supreme Court' 

Justices Are Urged to Protect States' Liquor Markets