US Supreme Court hears dispute on wine selling rules

A wine trade dispute with the potential to set an important precedent on inter-state sales has been heard by US Supreme Court judges this week.

A hearing before Supreme Court justices on 16 January has been billed as potentially the most important case since the Granholm v Heald decision in 2005, which helped paved the way for wineries to sell directly to consumers beyond their own state.

At issue in the current case, Tennessee Wine & Spirits Retailers Association v. Zackary Blair, is the desire of Total Wine, plus a separate couple, to set up wine shops in Tennessee.

State rules say that prospective retailers can only apply for an initial licence after two years of residency. This must be renewed after one year; and the renewal requires a decade of prior residency.

Key to the case is the extent to which states can justify discrimination against out-of-state wine retailers.

This is why several observers believe the Supreme Court ruling, expected in spring this year, may have far-reaching consequences for inter-state wine sales.

A lot of this week’s Supreme Court hearing focused on the scope of the 21st Amendment, set up after Prohibition to give broad alcohol regulatory powers to states – partly in the name of public health and safety – and federal Commerce Clause rules designed to prevent economic protectionism within states.

Excerpts from the hearing

‘Is it your position that the 21st Amendment makes all of our other jurisprudence wrong?’ Justice Sotomayor asked Shay Dvoretzky, lawyer for the Tennessee Wine & Spirits Retailers Association – a trade body seeking to prevent the new licences being granted.

‘No, it’s not,’ said Dvoretzky, who, according to a court transcript of the hearing, nevertheless argued that Tennessee’s residency rule was legal under the 21st, because the amendment gave states the power to regulate alcohol within their own borders.

‘The protectionism lens is just the wrong lens through which to look at this issue,’ said David Franklin, a solicitor general for Illinois, speaking in support of Dvoretzky.

Franklin added, ‘This Court has repeatedly stated, most recently in Granholm itself, that Section two of the 21st Amendment gives states virtually complete control over how to structure their domestic liquor distribution systems. Now questions have obviously arisen already this morning about whether residency requirements were part of that structure. And they were.’

Dvoretzky added later in the hearing that there was a clear justification for the Tennessee rule.

He said, ‘Duration [of residency] facilitates background checks. It facilitates investigation and enforcement of the law because somebody who’s been there for a while is more likely to have substantial assets that can be enforced — that can be seized, and is less likely to flee at the first sign of trouble.’

Justice Sotomayor said, ‘We understand that having someone there who’s responsible to the community is necessary. That was inherent in the three-tier system [of separate ownership of production, distribution and sale of alcohol within states, which emerged in the wake of the 21st Amendment].

‘But why is it inherent in the three-tier system that you have to have someone who’s only a local do it? There are many states whose three-tier system doesn’t require that. They function fairly well.’

Carter Phillips, lawyer for the licence applicants and representing the Tennessee Alcohol Beverage Commission, said, ‘There’s no doubt that what we’re talking about here is rank discrimination on the basis of commerce.’

He told the court, ‘We are not challenging the three-tier system. All we are seeking is the opportunity to compete into this market.’

Several of the Supreme Court judges appeared particularly interested in the potential ramifications of a ruling.

Phillips denied that his clients had greater aspirations beyond the current case. When asked whether Total Wine wanted to develop an ‘Amazon of liquor’ business model he said the retailer was happy with its ‘bricks-and-mortar’ approach.

Justice Gorsuch said, ‘Why isn’t this just the camel’s nose under the tent?’

Phillips said, ‘Well, if only because, under these circumstances, as the camel at least, or I guess I’m the nose of the camel, that’s not what I’m looking for.’

However, Justice Kagan questioned what position the Court might find itself in if, having sided with the licence applicants, ‘the next case is somebody that says we don’t like this brick-and-mortar stuff, we don’t want to have any physical presence [in the state] at all’.

A decision by the Court was expected in spring 2019.

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