*
By: Matt Higgins**
“Wine is one of the most civilized things in the world and one of the most natural things of the world that has been brought to the greatest perfection, and it offers a greater range for enjoyment and appreciation than, possibly, any other purely sensory thing.” – Ernest Hemingway[1]
I. INTRODUCTION
“SOMMELIER, WHAT ARE WE TASTING?”
A sommelier is the expert on wine at a restaurant. He or she can provide recommendations based on an individual’s palate and proper wine pairings. When a sommelier brings the chosen wine selection to the table, it is customary to present the bottle to the head of the table to taste the wine and ensure its quality.[2]
Similar to tasting a wine recommended by a sommelier, this introduction will provide a basic background to the discussion to follow below – the rest of the bottle. It is meant to provide a general overview, or taste, of the past and current state of the law and introduce the reader to key concepts before pouring a full glass.
Recently, the Supreme Court granted certiorari to the Sixth Circuit case, Byrd v. Tennessee Wine and Spirits Retailers Association.[3] In Byrd, the Sixth Circuit affirmed the United States District Court of Tennessee’s decision striking down the constitutionality of a two-year residency requirement for out-of-state wine and spirits retailers prior to being granted a license to sell alcoholic beverages.[4] The Court should affirm the Sixth Circuit and district court’s decision after hearing oral arguments in early 2019 because the Tennessee residency requirement is nothing more than protectionism which offends the Commerce Clause . The decision would uphold prior precedent stating the Commerce Clause is a check on the regulatory powers given to the states under the Twenty-first amendment.
In the following sections, a brief history of alcohol beverage law and relevant cases (old vines) will be discussed before addressing the “new world,” the Sixth Circuit’s decision in Byrd and how the Supreme Court should rule on the case.
II. CONTEXT
READ THE LABEL
In 1933, the Twenty-First amendment ended prohibition by repealing the Eighteenth Amendment.[5] On that ‘hoppy’ day, President Roosevelt reportedly said, “What America needs now is a drink.”[6] While Depression-Era Americans may have needed a drink, the Twenty-First Amendment did not guarantee its availability on liquor store shelves or in bars. Instead, the Twenty-First Amendment gave the power to regulate the sale of alcohol almost exclusively to the states.[7] Section two of the Twenty-First Amendment states that, “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.”[8] Therefore, “a state has the power to regulate the distribution of alcoholic beverages into the state or within its borders.”[9]
By giving almost unfettered regulatory control of liquor distribution to the states, an issue began to be litigated: how does the Commerce Clause interact with the Twenty-First Amendment?[10]
In the 1984 case, Bacchus Imports, Ltd. v. Dias, the Court held a Hawaii liquor tax on imported beverages, which excluded a locally produced alcoholic beverage, unconstitutional under the Commerce Clause .[11] In Bacchus, the Court created a “balancing test” for analyzing state liquor regulations.[12] The Court noted that the Commerce Clause and Twenty-First Amendment must be analyzed in light of each other.[13] Further, “state laws that constitute mere economic protectionism are . . . not entitled to the same deference as laws enacted to combat the perceived evils of an unrestricted traffic in liquor.”[14] Therefore, when a court is analyzing this issue, it needs to determine if the interests implicated by the Twenty-First Amendment “save” it from unconstitutionally under the Commerce Clause .
In the 1986 case, Brown-Forman Distillers Corp. v. New York State Liquor Authority,[15] a Louisville-based distiller brought action challenging a New York law requiring every liquor distiller or producer that sells to wholesalers[16] within the State to sell at a price no higher than the lowest price the distiller charges wholesalers anywhere else in the United States.[17] The key issue was whether such a law violated the Commerce Clause .[18] The Court held that the requirement was in violation of the Commerce Clause because it controlled sales in other states. Furthermore, the Court reasoned that, “the Twenty-First Amendment did not entirely remove state regulation of alcohol from the reach of the Commerce Clause. Rather, . . . “each must be considered in light of the other and in the context of the issues and interests at stake in any concrete case.”[19]
In the 1989 case, Healy v. Beer Inst., Inc., the Court held that a Connecticut beer-affirmation statute violated the Commerce Clause and the Twenty-First Amendment did not immunize state law from Commerce Clause attacks where practical effect was to regulate liquor sales in other states.[20]
The Court again visited the issue of the Commerce Clause and Twenty-First Amendment in the 2005 case, Granholm v. Heald, challenging a Michigan and New York statute which allowed in-state wine producers to ship directly to in-state consumers but prohibited out-of-state wine producers from doing the same.[21] Prior to Granholm, the University of Cincinnati Law Review published an outstanding article discussing the state of the law effecting direct-to-consumer wine sales up to 2004 and how the Court should rule on such an issue.[22] The author, Kristen Woeste, opined that if given the issue of statutory bans on the direct shipment of wine, the Court should clear up confusion among the circuit courts and the alcohol- beverage industry by universally striking down laws which banned direct shipment.[23]
The Granholm Court did strike down the Michigan and New York statutes, but its holding only led to more confusion among the circuit courts.[24] Because the Granholm holding invalidated discrimination against out-of-state producers, some courts have reasoned that the holding only applied to producers, not wholesalers and retailers.[25]
III. THE CONFUSION OVER GRANHOLM
“IS THIS A WHITE OR A RED?”
As mentioned above, the confusion over the Granholm holding revolves around the issue of it applies to all aspects of the three-tiered system or just the producer tier.[26]
The Eighth Circuit addressed this issue in Southern Wine v. Div. of Alcohol and Tobacco Control.[27] It held that Granholm only applied to producers of alcoholic beverages, thus creating a “bright-line rule” that states could not discriminate against out-of-state products but could create laws affecting the rest of the three-tiered system.[28] Under this logic, the court upheld a Missouri residency requirement in order to obtain a whole-sale alcoholic-beverage license.[29]
The Fifth Circuit, however, determined the opposite in Cooper v. Texas Alcoholic Bev. Commission (“Cooper II”).[30] It held that the Granholm decision was not limited to the producer portion of the tree-tiered system.[31] Instead, Granholm reaffirmed the applicability of the Commerce Clause’s limit on the Twenty-First Amendment, simply to a lesser extent to retailers and wholesalers than to producers.[32]
IV. BYRD V. TENNESSEE WINE & SPIRITS RETAILERS ASSOCIATION
THE FULL GLASS; MAKE IT A HEAVY POUR
In Byrd, the Sixth Circuit affirmed the district court’s holding invalidating a Tennessee statute which required two-years of residency prior to obtaining a retail liquor license within the state. The Sixth Circuit found the Fifth Circuit’s logic in Cooper II to be persuasive. The court supported its conclusion with six distinct reasons:
(1) The Supreme Court explicitly declined to overrule Bacchus in Granholm;
(2) in Granholm, the Supreme Court reiterated Bacchus ‘s concern about the protection of economic interests across state lines, suggesting that the Twenty-first Amendment does not automatically immunize a state’s alcoholic-beverages law regarding wholesalers or retailers;
(3) the Supreme Court emphasized that the Twenty-first Amendment does not permit a state to discriminate on the basis of citizenship; accordingly, the flow of products across state lines is not the sole concern under the dormant Commerce Clause;
(4) the Supreme Court again stated that the Commerce Clause limits the Twenty-first Amendment;
(5) the Supreme Court also stated that there are times when the three-tier system is invalid; and
(6) Granholm did not limit its application of the Commerce Clause to alcoholic-beverages laws regarding producers. Thus, Bacchus and Granholm are reconcilable.[33]
In his opinion concurring in part and dissenting in part, Judge Sutton sided with the Eighth Circuit’s interpretation of the Granholm case.[34] His opinion relied on a textualist and historical approach of the Twenty-first Amendment and a different view of the Granholm holding for analyzing the Constitutionality of the Tennessee statute.[35] He opined that the Granholm decision only applied to out-of-state products and the Tennessee statute was within the State’s power under the Twenty-first Amendment.[36] He also found the locality requirement of the statute compelling because, “retailers are closest to the local risks that come with selling alcohol, such as ‘drunk driving, domestic abuse, [and] underage drinking.’[37] He believed that Tennessee reasonably concluded that requiring retailers to reside in the communities would further health, safety and welfare, and “[t]he only way to know a community is to live there, which may explain why Congress requires federal court of appeals judges to live within their circuits, . . . and district court judges to live within their districts . . . .”[38]
V. DISCUSSION
“I’M GETTING HINTS OF PROTECTIONISM ON THE FINISH”
Any respectable wine tasting involves a fruitful discussion about the wine’s aroma, body, texture, and flavor. After tasting the wine, and having a full glass, this section discusses how the Court should rule on its upcoming review of Byrd and what effects such a decision would have on the wine and spirits industry.
The most notable party in this case is Total Wine & Spirits, Inc. (“Total Wine”). Total Wine is essentially the Wal-Mart of the wine and spirits industry. It operates 191 superstores across twenty-three states and offers competitive prices and an overwhelming selection.[39] Total Wine boasts that they offer the “nation’s best wine selection,” carrying 8,000 different wines from all over the world. They also carry 2,500 beers and 3,000 different spirits.[40] Like Wal-Mart, Total Wine exerts its tremendous buying power over producers and wholesalers to pass cost savings on to customers.[41]
While costumers benefit from Total Wine’s retail presence in their city or town, small retailers fear Total Wine’s entrance into their market. Total Wine carries unique products, offers unreasonably low prices, and has fantastic customer service.[42] It’s no wonder why the company’s spokesperson is quoted saying, “Our customers love us; our competitors don’t.”[43]
Total Wine’s competitive advantage in the marketplace is astonishing. It also a likely motivation behind residency requirement’s such as Tennessee’s: to protect domestic retailers from a behemoth such as Total Wine. However, the purpose of the Twenty-First Amendment was not to allow states to circumvent the Commerce Clause’s prohibition on discriminatory laws which favored in-state companies and industries. As Bacchus stated, “[s]tate laws that constitute mere economic protectionism are . . . not entitled to the same deference as laws enacted to combat the perceived evils of an unrestricted traffic in liquor.”[44]
Byrd is an opportunity for the Court to make the following notion crystal clear: no part of the three-tiered system is immune from the Commerce Clause. The Bacchus balancing test and Granholm opinion should be applied to all future cases involving the issue: (1) is the statute facially discriminatory under the Commerce Clause; and (2) did the state “advance a legitimate local purpose [under sec. two of the Twenty-first amendment] that cannot be adequately served by reasonable nondiscriminatory alternatives.”[45]
The Court should affirm the majority’s holding in Byrd and agree that the Fifth Circuit’s reasoning in Cooper II is the correct interpretation of Granholm. It should reject J. Sutton’s dissent-in-part because it is not in the “spirit” of the constitution. Furthermore, his “locality” reasoning is flawed. A state can have control over the distribution and consumption of alcohol without a residency requirement. To enforce the policy of the state, it only needs to audit retailers and enforce the law. This can be accomplished through required identification checks, postings in retail locations of the dangers of consuming alcohol, limitations to the hours of operation of retailers, and other less discriminatory means. For instance, Utah has an alcohol by volume restriction and Kentucky has a restriction on when a retailer can sell alcohol on Sunday.[46] Both requirements are in the spirit of the Twenty-first amendment (allowing states to determine its alcohol beverage laws) without offending the Commerce Clause.
Moreover, J. Sutton’s locality comparison of liquor retailers to judges falls flat. A judge is an officer of the state who renders opinions and issues orders on issues which involve marriage, custody, jail-time, guilt, innocence, constitutionality of laws, etc. An alcohol beverage retailer is a business which has to abide by the non-discriminatory alcohol beverage laws of the state to keep its license. A judge is an appointed or elected official who holds an immense amount of power over the lives of citizens in the state. To compare the two diminishes the immense responsibility a judge has to his or her community. While an alcohol beverage retailer also has a responsibility to the community it serves, its responsibility can be regulated like many other businesses. A state does not need a locality requirement to ensure retailers observe the values of the state regarding alcohol consumption; it only needs to have nondiscriminatory laws in line with its values and enforce said laws to meet the same ends.
The Tennessee residency requirement is protectionism under the guise of the Twenty-first Amendment. Protectionism has no place in interstate Commerce protected by the Constitution. Therefore, the Court should affirm the Sixth Circuit’s decision in Byrd and hold that Bacchus and Granholm apply to all parts of the unquestionably constitutional three-tiered system.
VI. CONCLUSION
“FINISH THE BOTTLE”
If the Court affirms the Sixth Circuit’s decision, it would change the landscape of the wine and spirits industry. Companies such as Total Wine would be empowered to enter markets which were once hostile to them. Issues such as direct-to-consumer delivery of wine, beer, and spirits by retailers instead of producers would likely be re-litigated under its holding. Whether or not that is a good thing depends on one’s opinion of a free and open market. It is the conclusion of this blog that interstate protectionism is disallowed by the Constitution. However valid a state’s fear of a Total Wine is, it cannot protect its vulnerable domestic retailers from the competition of out-of-state companies.[47]
It is also important to note that J. Sutton is a conservative Justice who utilized a historical and textualist approach to the issue in Byrd and to justify his reliance on the Eighth Circuit’s logic in Southern Wine.[48] The new layout of the Supreme Court leans textualist conservative. Therefore, there is a possibility that multiple Justices may find J. Sutton’s dissent persuasive. However, the Court will likely affirm the Sixth Circuit for two reasons: (1) The majority relies on the correct reasoning from Granholm, an opinion written by Justice Kennedy and joined by textualist icon, Justice Scalia; and (2) the newly confirmed Justice Kavanaugh loves beer.
*Credit to the author’s father, Mike Higgins, for sharing his expertise and insight of the wine industry and recommending titles and headings for this blog post.
**Matt Higgins is an associate member of the 72 U. CIN. L. REV., 2018-2019. His favorite type of wine is a fruit forward “jammy” Zinfandel from California.
[1] Ernest Hemingway, Death in the Afternoon, 5 (Scribner 2015) (1932).
[2] Daryna McKeand, Restaurant Wine Etiquette, 2002, https://www.winemag.com/2002/03/01/restaurant-wine-etiquette/ (last visited October 30, 2018).
[3] 883 F.3d 608, 614 (6th Cir. 2018), cert. granted sub nom. Tennessee Wine and Spirits Retailers Ass’n v. Byrd, 18-96, 2018 WL 3496882 (U.S. Sept. 27, 2018).
[4] 883 F.3d 608, 614 (6th Cir. 2018).
[5] U.S. Const. amend XXI.
[6] Jennifer Latson, A Toast to the End of Prohibition, Time Magazine, December 5, 2015, http://time.com/3605609/a-toast-to-the-end-of-prohibition/ (last visited November 1, 2018).
[7] Kristin Woeste, Reds, Whites, and Roses: The Dormant Commerce Clause , the Twenty-First Amendment, and the Direct Shipment of Wine, 72 U. CIN. L. REV. 1821 (2004).
[8] U.S. Const. amend XXI. § 2.
[9] Byrd at 614.
[10] See Heald v. Engler, 342 F.3d 517, 522 (6th Cir. 2003).
[11] 468 U.S. 263 (1984).
[12] Id. at 275.
[13] Id.
[14] Id. at 286.
[15] 106 S.Ct. 2080 (1986). It is important to note that the author has been employed by Brown-Forman in the past and still has personal connections to the organization. The case is essential to include for the analysis and is in no way meant to use this platform to advertise for the company.
[16] For the vast majority of states, the regulation of the distribution of alcoholic beverages is executed through a three-tiered system. The three-tiered system essentially requires producers of alcoholic beverages to sell directly to a distributor or wholesaler, who in turn is able to sell to a retailer. Each entity existing within the three-tiered system is required to have a separate license from the state. It has been held that the three-tiered system is unquestionably constitutional under the Twenty-First Amendment. North Dakota v. United States, 495 U.S. 423, 432 (1990).
[17] Id.
[18] Brown-Forman at 575.
[19] Id. at 584 (quoting Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 332, (1964)).
[20] 491 U.S. 324 (1989).
[21] 544 U.S. 460 (2005).
[22] Kristin Woeste, Reds, Whites, and Roses: The Dormant Commerce Clause , the Twenty-First Amendment, and the Direct Shipment of Wine, 72 U. Cin. L. Rev. 1821 (2004). The reader is encouraged to read her Comment for a more detailed discussion of the dormant Commerce Clause , the Twenty-first amendment, and the history of jurisprudence surrounding the issue of direct shipment.
[23] Id. at 1847.
[24] In a five-to-four opinion drafted by J. Kennedy and joined by Justices Scalia, Souter, Ginsberg, and Breyer, the Court held both statutes violated the Commerce Clause in light of the Twenty-First Amendment. The Court reached this conclusion by first determining that both statutes were facially invalid under the Commerce Clause because they discriminated against interstate Commerce. The Court went through a detailed history of Twenty-first Amendment legislation and jurisprudence to hold that the Twenty-first Amendment does not supersede other provisions of the Constitution and, in particular, does not displace the rule that States may not give a discriminatory preference to their own producers. 544 U.S. 460 (2005).
[25] Byrd at 616 (citing Cooper v. Texas Alcoholic Bev. Commission, 820 F.3d at 743 (5th Cir. 2016); S. Wine & Spirits of Am., Inc. v. Div. of Alcohol & Tobacco Control, 731 F.3d 799, 809 (8th Cir. 2013); Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185 (2nd Cir. 2009); Brooks v. Vassar, 462 F.3d 341 (4th Cir. 2006)).
[26] Another, but related, issue is whether Granholm created a significant change in the law rendering Bacchus’ balancing test dead law. The Courts statement, “[s]tate laws that constitute mere economic protectionism are therefore not entitled to the same deference as laws enacted to combat the perceived evils of an unrestricted traffic in liquor,” created the key point of dispute between the circuits. Id.
[27] 731 F.3d 799 (8th Cir. 2013).
[28] Id. at 810.
[29] Id. at 813.
[30] 820 F.3d 730 (5th Cir. 2016), cert. denied sub nom. Texas Package Stores Ass’n, Inc. v. Fine Wine & Spirits of N. Texas, LLC, 137 S. Ct. 494 (2016).
[31] Id. at 742.
[32] Id. (emphasis added).
[33] Byrd at 618.
[34] Id. at 628-29.
[35] Id. at 629-636.
[36] Id. at 636.
[37] Id. at 633 (quoting S. Wine & Spirits, 731 F.3d at 811).
[38] Byrd at 633.
[39] TOTAL WINE & MORE, “Our Company, https://www.totalwine.com/about-us/our-company (last visited November 3, 2018).
[40] Id.
[41] Id.
[42] Elizabeth Krecker, A total Marketing Strategy Analysis of Total Wine & More, KRECKER & CO (April 7, 2017), https://kreckermarketing.com/analysis-of-total-wine/.
[43] Kelly Smith, Minnetonka Rejects Total Wine, Saying the Suburb has Enough Liquor Stores, STAR TRIBUNE, http://www.startribune.com/minnetonka-rejects-total-wine-saying-the-suburb-has-enough-liquor-stores/393447701/.
[44] Bacchus at 276.
[45] Granholm at 489.
[46] UT ST § 32B-1-102 (West); Ky. Rev. Stat. Ann. § 244.290 (West).
[47] Propriety of economic protectionism cannot hinge upon characterization of industry as “thriving” or “struggling.” Bacchus at 271.
