October 22, 2018

October 22, 2018

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US Supreme Court to Review State Residency Requirements

The “final word” may be in sight in a long-running dispute over state residency requirements imposed on applicants for retail alcohol beverage licenses as well as more fundamental questions about state powers under the 21st Amendment.

As anticipated last July, a single sentence order of the US Supreme Court issued on September 27 granted a petition for a writ of certiorari filed by the Tennessee Wine and Spirits Retailers Association (Tennessee Retailers) requesting the high court to review lower court decisions that invalidated Tennessee’s two-year residency requirement for retail license applicants.

Earlier this year, the US Court of Appeals for the Sixth Circuit reviewed the Tennessee law at issue and held that, “a three-tier system can still function” without the two-year durational residency restriction imposed by Tennessee. The 6th Circuit quoted a 1984 Supreme Court decision: “The central purpose of the [Twenty-first Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition.” The court went on to analyze the Tennessee restrictions and found that they violate the dormant commerce clause, a legal concept designed to prevent states from engaging in economic protectionism.

The Tennessee Retailers presented a strong argument for review by the US Supreme Court. Over the last decade, two federal appellate courts struck down state residency requirements for alcohol beverage licensees and three upheld restrictions, creating a “Circuit split” and uncertainty for regulators throughout the nation.

At the heart of the different appellate courts’ split is whether the non-discrimination principle of the “dormant” Commerce Clause, applied clearly to wine producers and products in the 2005 Granholm v. Heald decision, also apply to state laws regulating the wholesale- and retail-tiers of the industry. Some circuit courts of appeal, relying on Granholm’s statement that the three-tier system is “unquestionably legitimate,” have concluded that the non-discrimination rule only applies to producers and products. The 6th Circuit in Byrd rejected this notion and applied the non-discrimination rule to strike down a residency requirement for retail licensees.

The stakes reach far beyond residency; if Commerce Clause non-discrimination principles apply to state alcohol laws governing retailers, for example, than many state laws that prohibit out-of-state retailers from shipping alcohol to a state’s consumers may be vulnerable. Most states authorize in-state retailers to ship alcohol directly to a consumer’s home, so application of non-discrimination principles could force states to extend similar privileges to out-of-state retailers. A spirited debate is appropriate for such an important issue. Over the next several months, industry blogs and Twitter feeds will be filled with commentary and summaries of amicus briefs from attorneys general, industry associations, state and national business organizations, and others.

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About this Author

Arthur J. DeCelle, alcohol beverage regulation attorney, McDermott Will law firm
Counsel

Arthur J. DeCelle is counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  He focuses his practice on alcohol beverage regulation at all levels of government and on legal and public policy challenges facing heavily regulated industries.

Prior to joining McDermott, Art was the general counsel of the Beer Institute for 16 years.  From 1981 to 1984, Art held senior staff positions in the U.S. House of Representatives and worked on several federal political campaigns....

202-756-8460
Marc E. Sorini Alcohol Distribution Attorney McDermott Will law firm
Partner

Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP and is based in the Washington, D.C. office.  He heads the Firm’s Alcohol Regulatory & Distribution Group, where he focuses on regulatory and litigation issues facing the alcohol beverage industry and non-beverage alcohol users.

Marc's alcohol beverage practice covers licensing, labeling, advertising, trade practices, distribution, import-export, formulation and excise taxation.  He has represented alcohol beverage suppliers before federal and state courts, the Alcohol & Tobacco Tax & Trade Bureau (TTB), (formerly the Bureau of Alcohol, Tobacco & Firearms or ATF), the Federal Trade Commission (FTC) and state alcohol beverage control agencies, and he advises clients on compliance with the regulations and policies of TTB, FTC, the Food & Drug Administration and U.S. Customs and Border Protection (CBP).  Chambers USA ranks McDermott’s Alcohol Practice in its first tier and Marc is the only lawyer listed as a “Star Individual” in this field.  

His work also spans a number of traditional areas of legal practice that affect beverage companies, including the following:

  • Corporate, such as drafting and negotiating distribution and co-pack agreements and handling the alcohol regulatory and due diligence aspects of industry transactions
  • Food and beverage, such as counseling on product formulation matters and representing companies in potential product recall situations
  • Government affairs, such as testifying at legislative hearings, preparing legislative and regulatory proposals, and participating in rulemaking proceedings
  • Litigation, such as handling investigations by government alcohol regulatory authorities and representing companies in disputes with distributors
  • Intellectual property, such as reviewing and clearing advertising and labeling under alcohol beverage laws, voluntary industry codes, and false advertising principles
  • Tax, specifically federal and state excise tax matters

Marc has represented alcohol beverage suppliers before federal and state courts, the US Alcohol and Tobacco Tax and Trade Bureau (TTB, formerly the Bureau of Alcohol, Tobacco and Firearms, or ATF) and Federal Trade Commission (FTC) and state alcohol beverage control agencies. He advises clients on compliance with the regulations and policies of the TTB, FTC, Food and Drug Administration (FDA) and Customs and Border Protection (CBP). Marc also advises companies in the chemical, flavor and extract, energy, health care supply, soft drink and other industries on federal and state regulation of non-beverage alcohol. Marc often brings his in-depth knowledge to bear in legal projects involving many other practitioners, working with transactional deal teams from McDermott and other firms, litigation teams in commercial disputes or government investigations, subject matter specialists in food, agriculture, international trade and other areas, and a network of local lawyers and professionals skilled at handling the state and local zoning and licensing issues that arise in this industry.

202-756-8284