Stephen Miller, left, and Max Kaplan, right, of Cozen O'Connor.

The 21st Amendment ended Prohibition in 1933, but the amendment took center stage recently at the U.S. Supreme Court. The justices considered whether the amendment provided an exception to the dormant commerce clause, which disfavors state interference in interstate commerce. Specifically, the court examined a Tennessee law that prohibited issuing liquor licenses to anyone who had not lived in the state for at least two years. Despite this discrimination against nonresidents of Tennessee, a trade association in Tennessee Wine & Spirits Retailers Association v. Blair asked the Supreme Court to hold that the law did not violate the dormant commerce clause because of the special status afforded to state regulation of alcohol sales by the 21st Amendment.

In 2016, two entities applied to the Tennessee Alcoholic Beverage Commission (TABC) for license to open liquor retail stores in the state. The applications, however, did not comply with Tennessee law. In particular, Section 57-3-204 of the Tennessee Code prohibits, among other things, the issuance of licenses for the retail sale of alcoholic beverages to any individual “who has not been a bona fide resident of Tennessee during the two-year period immediately preceding the date” of application. The residency requirement was not satisfied, and the Tennessee Wine and Spirits Retailers Association—a trade association representing Tennessee liquor retailers—threatened legal action against the TABC if it did not faithfully apply the residency requirement of Section 57-3-204.

The TABC was in a bind. If they granted the licenses, they risked a lawsuit from the association. If they rejected the applications for licenses, they risked a lawsuit from the applicants. And that second possible lawsuit would have been endorsed by the state's attorney general, who had previously opined that Section 57-3-204's residency requirement was unconstitutional as it “facially discriminated against nonresidents” in violation of the commerce clause and otherwise “constituted trade restraints and barriers that impermissibly discriminate against interstate commerce.”

Knowing that someone was filing a lawsuit, TABC filed a declaratory-judgment action to resolve whether the 21st Amendment allowed Tennessee to enforce its durational-residency law. Both the trial court and the U.S. Court of Appeals for the Sixth Circuit held that the Tennessee statute was unconstitutional—and thus, that the TABC could not enforce the residency requirement to deny the licenses.

On appeal to the Supreme Court, the association (joined by a number of states as amici curiae) argued that the Sixth Circuit failed to appreciate the historical context of the 21st Amendment. According to the association, Section 2 of that amendment was intended to revive the pre-Prohibition rights of a state to regulate the sale of alcohol within its territory. Indeed, the Supreme Court relied on this history when it stated in Granholm v. Heald (2005) that Section 2 allows states to exercise “virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system.” Consequently, according to the association, the 21st Amendment immunized regulation of the sale of alcohol within a state from dormant commerce clause scrutiny, provided the state treats in- and out-of-state liquor products equivalently.

The license applicants—respondents here—took a different view of the historical evidence. The respondents cited the court's observation in Granholm that “state regulation of alcohol is limited by the nondiscriminatory principle of the commerce clause.” It was undisputed that Tennessee's durational residency requirement facially discriminates against out-of-state economic interest. The burden thus fell, according to the respondents, on Tennessee or the association to create an evidentiary record demonstrating that the regulation advanced a legitimate local purpose that could not be adequately served by reasonable nondiscriminatory alternatives. Because they did not do so, the respondents argued that the regulation was unconstitutional.

The Supreme Court heard oral argument in mid-January. In questioning the association and its supporting amici curiae, the justices voiced discomfort with the association's expansive interpretation of the amendment—namely, that a state could engage in unrestrained economic protectionism so long as it pertained to the in-state usage and distribution of alcohol. A majority of justices sought some limit on a state's ability to engage in such discrimination against out-of-state actors, but the association did not provide any comfort on that score. Their position was absolute.

That provoked some push-back from the bench.  Justice Brett Kavanaugh questioned where in the text of the amendment which speaks to the importation and transportation of liquor into the state—the association found such a broad exception to the commerce clause. And looking to the historical record, Justice Samuel Alito suggested to counsel that the animating purpose of the amendment was to restore states' power to protect the health and safety of their residents, not to allow states to discriminate against out-of-state economic interests.

On the other hand, the justices struggled to apply their earlier decision in Granholm to the facts of this case. In Granholm, the court permitted a state's economic favoritism in wine sales where such favoritism accorded with historical practice—there, in structuring a state's alcohol distribution network. Given that states have historically applied residency requirements in their regulation of alcohol sales, the justices seemed concerned with where to draw the line between constitutional and unconstitutional discrimination.

Oral argument did not provide any decisive clues on how the court is likely to rule. It is certainly true that a majority of justices appeared uncomfortable with the broad authorization for economic protectionism sought by the association. But it is equally true that they recognized, as Justice Neil Gorsuch put it, “alcohol has been treated differently than other commodities in our nation's experience for better or worse.” The court will attempt to settle these competing interests in a decision issued before July 2019.

Stephen A. Miller practices in the commercial litigation group at Cozen O'Connor's Philadelphia office. Prior to joining the firm, he clerked for Justice Antonin Scalia on the U.S. Supreme Court and served as a federal prosecutor for nine years in the Southern District of New York and the Eastern District of Pennsylvania.

Max E. Kaplan also practices in the firm's commercial litigation group. He received his J.D. from New York University School of Law and his B.A. from Columbia University.